Explaining what Obama is doing to General Motors
It’s like no bankruptcy I’ve ever seen.
For their $27B, General Motors private bond holders shall receive 10 percent stake in whatever emerges, supposedly 60 to 90 days from today.
For their $11B, the UAW shall receive 17 percent.
For their $50B, the U.S. government shall receive 60 percent.
Of course you will not hear about any of that in the mainstream media because they are too busy laying 100 percent of the blame for the global economic downturn (which of course caused the fall of GM) at the feet of George W. Bush. Newsflash; tough economic times do not cause weakness in financial structure and practices, they reveal them.
We also continue to hear nothing of the crushing UAW retiree benefits which will emerge intact yet somehow miraculously no longer preclude competitiveness in the auto market. I am left to wonder how many tens of billions of tax dollars still lie between us and the ever more inevitable asset liquidation sale?
Maybe you can explain this to me. Initially I had thought, based on several articles I had read, that bankruptcy was the way to go, because it would allow the car companies to get out from their crushing labor contracts, and move forward on a more viable basis. But then, several weeks ago, it turned out that Chrysler had been taken over by the UAW. At this point I stopped trying to follow the GM / Chrysler issue because I ceased being able to understand what was happening.
Kevin S. writes:
Given the majority stake held by the government, the government will be the primary (in reality sole) negotiator in the bankruptcy proceedings. From that position retiree benefits will absolutely remain off limits. As an aside, had the government not received well over three times the ownership rate per dollar in GM as compared to those filthy private investors, they would not be in such a commanding position; which is the exact reason they simply declared by fiat (excuse the pun) their money to be worth a 60 percent stake. Basically, they already knew that in order to keep retiree benefits completely out of bounds they would need to be the sole voice in the proceedings.
Posted by Lawrence Auster at June 01, 2009 02:27 PM | Send
For years now the mainstream media have happily played along with UAW’s willful misrepresentation and even outright lies that roughly $30 of the mean $70/hour labor rate of the big three goes to cover retirees/dependents. The accounting practices regulating the big three, with which they comply, only allow them to report the full cost of current labor as such and NOT include retirees/dependents which are reported differently elsewhere. All three are within about $2 of that $70/hour mean; again all of which is 100 percent the cost of only the currently active labor force. (Roughly $31 of that $70 does go to benefits of those active employees.)
Further, GM has roughly 3.8 retirees/dependents for every current active worker, whereas Chrysler has roughly 2 and Ford roughly 1.6. Yet somehow the UAW would still have us believe that the same $70/hour mean across all three also includes retirees?!? Sorry, but the cold truth of this matter is that GM pays out an amount in retiree cost equal to an ADDITIONAL $32/hour above and beyond the current labor cost of $70/hour. Chrysler is stuck with the equivalent of an additional $17/hour more and Ford with about $13/hour more. That additional overhead will be held sacrosanct throughout the bankruptcy and somehow the leaner/meaner GM with fewer employees and less revenue will still be expected to come up with the money for those retirees? Not even the Gambino Family was ever so brazen.
It does not take a genius to figure out what comes next. Those benefits will be magically re-discovered after all the dust settles, it will be obvious even to someone with the acumen of an Obama staffer that GM cannot compete under such a burden, yet clearly these people must receive what is “their due” according to the UAW. Well, gosh golly gee-willickers, since the government “owns” 60 percent of that bundle of dirty laundry anyway, I guess we just better transfer those folks completely over to a 100 percent tax payer funded equivalent federal program!
However, my guess still is they will wait until GM fails and goes into liquidation because that is then a more compelling story for moving those folks fully onto the government dole; plus Obama can then use it as an excuse to grab almost all the revenue generated to cover that cost. Those filthy bond holders will be lucky to get anything…