These are troubled financial times, but what really makes Chrysler and GM different from those automakers in the U.S. market that are not facing bankruptcy? Answer: The United Autoworkers Union.
In his announcement today that Chrysler is entering bankruptcy to resolve its debts, nothing President Obama said changed Chrysler’s fundamental labor disadvantage vs. its non-union U.S. competitors. Indeed, the UAW will now own 55 percent of Chrysler in a debt-for-equity exchange that finances the union’s health-care trust fund.
Obama mouthed the fiction that Chrysler’s troubles stem from “failing to make the fuel-efficient cars like its foreign competitors.” In fact, Chrysler’s uncompetitive labor costs long ago made it impossible for the company to manufacture anything but large SUVs and minivans at a profit.
Chrysler will also be one-tenth owned by the feds, meaning that a private, for-profit company will be majority-held by two entities whose priorities are not making cars at a profit but saving union jobs and expanding the web of regulation. Former American Motors president Gerald Meyers told WJR-Radio after Obama’s announcement that union/government ownership of an auto company amounted to “a grand social experiment.” Would it work? “No,” he answered.
Obama’s plan also amounts to a grand experiment in bankruptcy filings. Never before has a major company entered Chapter 11 with the full backing of the U.S. government. That means the Treasury will guarantee Chrysler product warranties and supplier contracts. It also means that the White House will put enormous pressure on the court to get the outcome it wants.
Obama’s Auto Task Force has already used the run-up to Chapter 11 as an occasion to demonize Chrysler’s creditors. In what amounts to a pre-packaged bankruptcy, the task force and Chrysler in the last week buttoned-up an alliance with Fiat as well as concessions from the UAW. Union leaders trumpeted the “sacrifice” of a freeze in pay for its hourly workers (salaried workers have been under a freeze for years) as well as giving up such health-care benefits as Viagra. With those deals in hand, the president then turned both barrels on Chrysler’s creditors at his news conference, calling them “speculators” who sought to imperil Chrysler’s future for their own benefit. “I do not stand with them,” Obama thundered.
Michigan politicians piled on as well. The bondholders’ position, said angry Obama ally Gov. Jennifer Granholm, is “unacceptable. I would ask that they think about the tens of thousands of workers across America whose lives hang in the balance because they want to get a better deal than what even the market would bear.”
Republican Thaddeus McCotter also weighed against the Great Satan creditors, declaring that “Chrysler, the UAW, and our entire community have sacrificed and suffered. These noble, Herculean efforts by workers, retirees, and management have now been frustrated by hedge funds.”
But for all the huffing and puffing, Chrysler will now enter the courts where the best laid plans of Treasury face an uncertain fate before a bankruptcy judge. Even in the event Chrysler emerges from Chapter 11 in a mere 30 days, as Obama confidently predicts, it faces an uncertain future of ownership by an intransigent union, a fickle Congress, and an auto company headquartered in Turin.