We all know that the reason US Automakers can’t compete is because Detroit’s cost of producing an automobile is about $2,000 more than the cost of producing one with a foreign name brand. We also know that this cost is as a direct result of the concessions the United Auto Workers (UAW) Union has forced Detroit to give it. Well, it seems Barack Obama has other ideas… Bloomberg
President Barack Obama believes a quick, negotiated bankruptcy is the most likely way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said.
Obama still expects GM to try to avoid bankruptcy through negotiations with bondholders and the United Auto Workers and for Chrysler to continue talks with Fiat, though administration officials aren’t optimistic, the people said.
Detroit-based GM must shrink $27.5 billion in debt that bondholders have been reluctant to exchange for equity and $20.4 billion in obligations to a union-run health-care fund. A bankruptcy may make recoveries for bondholders and the UAW more difficult.
“We’ll get it done in court or we’ll get it done out of court,” Fritz Henderson, who became GM’s CEO after Obama forced out Wagoner, said yesterday.
Stakes of any dissident creditors, including bondholders, would be “crammed down” or forcibly reduced in a bankruptcy, according to the advisers, who declined to be named because GM and the government’s plan remains private.
GM’s new-company plan, which the people said was ready to go, would split the automaker into “good” and “bad” entities, the advisers said. The new GM would be powered by brands such as Cadillac and Chevrolet and valuable foreign operations. Unprofitable brands, such as Hummer, contracts with surplus dealers and financial obligations would be hived off in bankruptcy court, said one of the advisers.
While the new company could be created in 30 days or less, allowing GM to operate without interruption, bankruptcy may go on much longer, focused on bad assets, said a GM adviser.
What does this have to do with reducing the cost of producing a new GM vehicle? Absolutely nothing. Why? Simply because the UAW Contracts that make the cost of production so high, remain in place. WSJ
President Obama rightly says “sacrifices” must be made if GM is to emerge as a viable company. But there’s one sacrifice he won’t make: his re-election chances, by leaving the fate of the UAW truly up to a bankruptcy judge.
Mr. Obama played the tough guy in getting rid of Mr. Wagoner, but he won’t go after the labor monopoly. In fact, the union will emerge with a stronger grip on Detroit — because it will be a major shareholder in a reorganized GM.
Mr. Wagoner did more than any GM executive to deal with the cursed legacy of 75 years of too much government attention. Not for him, though, and not for Team Obama, the real solution to make GM “viable”: Getting rid of its North American business to end its UAW captivity.
That captivity, imposed by the 1935 Wagner Act, is the sole relevant factor distinguishing the Detroit Three from the world’s other auto makers. The result is downright weird: “Our” auto companies operate in a world that’s less “American,” in a sense, than the Japanese and German companies that come here and enjoy a free labor market.
The Wagner world was given a second lease on life by a peculiar feature of Congress’s 1975 fuel economy law. Known as the “two fleets” rule, it effectively forces Detroit to make its cheap small cars in high-wage domestic UAW factories, even if it means losing money on every car. The rule has no fuel-economy function. Its only purpose is to shield the UAW monopoly inside each Detroit auto maker from global labor competition.
The UAW’s Mr. Gettelfinger had testified, coyly, during Congressional hearings that failing to renew two fleets might cost 17,000 auto workers jobs building small cars. He didn’t say that two fleets is in fact the fulcrum by which, for the past 30 years, the UAW has been able to defeat globalization.
He didn’t say two fleets was the sine qua non for the past generation of the UAW’s power to suck the Big Three dry.
The irony is that Detroit has given plenty of evidence that it can make money, even with UAW overhead. Three of the top seven best-selling vehicles in February were Ford, Chevy and Dodge pickups.
Better than trying to rewrite GM’s business relationships — the job of a bankruptcy judge — Mr. Obama might take up the duties of a president. He might try giving the country a coherent auto policy for a change. He could repeal two fleets so Detroit could build its small cars profitably offshore and tame the UAW monopoly in the process. He could dump CAFE or impose a $5 gasoline tax so at least customers would have a reason to buy the cars Washington is forcing Detroit to build.
None of this will happen. Mr. Obama will be content with incoherent policies that poll well — which means GM, Chrysler and perhaps Ford eventually will need taxpayer subsidies as far as the eye can see — or until a real bankruptcy sometime after November 2012.
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