The Bailout of The UAW

The UAW holds the key to the success of the U.S. auto industry.

The recent Senate hearing with the CEOs of the big three car manufacturers was better than most sitcoms. The CEOs were unable to answer questions about how they plan to pay back the loans, or just avoided the question, or how long the loans would keep them afloat, or how they would change their business models to avoid asking the taxpayers to bail them out again. It went on and on.

The CEO of GM was asked how long GM had to pay the employees of a plant that had been closed. His answer, “I don’t know.” How long do you think you would be working for him with answers like that? The senator who asked the question shook his head in disbelief and muttered, “Unbelievable!”

The whole time the panel questioned the CEOs about how they were cutting costs, how they plan to make their operations profitable and how they were reducing their pension liabilities, the answer was sitting at the end of the table; the President of the UAW.

Autoworkers of the big three are paid significantly more money and benefits than employees of Honda and Toyota in plants in this country. Not in Asia, but here. Honda and Toyota are profitable, the big three are back for more free money from you and me.

It is so simple. GM, Ford and Chrysler cannot be profitable with the labor agreements they have in place. It is impossible. No one bothered to ask the UAW president about this. He and his members are the answer.

The real issue isn’t will we bail them out, of course we will. A Democratic congress and a Democrat in the White House will not jeopardize a half a million blue-collar jobs, not if everyone knows they are doing it. If they could sneak it through, maybe, but not if everyone is watching.

The real question is how will congress explain to the unions, who were a big part of Obama winning the elections in Michigan, Ohio and Pennsylvania, that they have to take pay cuts for there to be any chance their companies and jobs will survive, even with the bailout.

What we have is a bottomless money pit or guaranteed failure for GM and Chrysler. Ford still has a chance.

Congress and the President-elect have a huge problem. Go the bail out route and have to do it again in eight months if the credit markets don’t loosen up. Or, don’t bail them out and have a bankruptcy that will shake this country at its very roots. Or, face the music and force the UAW to make the needed changes.

The political ramifications are so huge for any of the options, the most likely scenario is they will blame Bush and come up with some half-baked solution that just pushes the problem down the road for someone else to deal with.


Some would argue that the big three have been making cars no one wants, and that’s why they’re in this mess. Partially true, but no matter what cars they make and sell, they can’t be competitive if they don’t see some change in their labor and pension costs.

Even if the big three have an epiphany about the type of vehicles people want, and are willing to buy, if they magically shift gears and come out as the world leader in new alternative technology cars, put the huge technological advantage this country enjoys to work to make significant improvements to cars and then sell it to the rest of the world, they still won’t be competitive.

What this bailout amounts to is subsidizing the difference between the cost of the union contracts the big three have compared to the union contracts Honda and Toyota have.

The big three and the UAW signed these agreements in very different times than what we have now. Globalization, Japanese auto makers in Ohio and Indiana, a worldwide labor market that is putting pressure on wages everywhere and products being manufactured in other parts of the world at a fraction of our costs.

The issue is quite simple. Adapt or die. We cannot afford to continue to subsidize 1950s style management and union thinking. This is a fight we need to win and it will require sacrifice from more than just the taxpayers.

Steve McDonald

Posted 26 Nov 2008

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