American Elephants

The Auto Bailout Obama Brags About —Just Went to the Union. by The Elephant's Child

In his round of campaign fundraisers (150 to date) President Obama celebrates the bailout of General Motors and Chrysler as one of his administration’s outstanding successes. The $23 billion the taxpayers lost was worth paying to avoid more massive job losses.  But if the administration had treated the United Auto Workers in the manner required by bankruptcy law, he would have saved taxpayers $26.5 billion.

The Treasury Department estimates that taxpayers will lose $23 billion on the auto bailout. Researchers James Sherk and Todd Zywicki found that the preferential treatment given to United Auto Workers accounts for the American taxpayers’ entire losses from the bailout.  Had the UAW received standard treatment in a normal bankruptcy proceeding, the Treasury would have recouped its entire investment. Benefits allowed UAW members to retire in their mid-50s with minimal out-of-pocket expenses for the remainder of their lives. None of the taxpayers’ losses came from “saving jobs” but instead from propping up the compensation of some of the most highly paid workers in America.

Overpaid workers with overgenerous benefits were a significant factor in the automakers’ decline. Detroit’s labor costs were 50% to 80% higher than other automakers like Toyota and Nissan. General Motors paid its unionized workers $70.51 an hour in wages and benefits, Chrysler paid $75.86 an hour. There were management mistakes, but these labor costs were a big reason why the automakers went bankrupt. Throughout the bailout, the Obama insulated the UAW from the sacrifices that unions usually make in a bankruptcy — at taxpayer expense. The UAW accepted huge pay cuts for new hires, but the administration kept the pay of existing UAW members at GM intact.

Section 1113 of the Bankruptcy Code enables reorganizing companies to improve their post-bankruptcy competitiveness by renegotiating union contracts to improve competitive rates. Thus GM still has higher labor costs than any of its competitors. UAW Employees at Delphi, a subsidiary of GM, got $1 billion of bailout funds to support their pensions. Delphi non-union retirees got nothing.

The $26 billion President Obama gave to the UAW is more money than the U.S. spent on foreign aid last year and 50% more than NASA’s budget. None of the money kept factories running.  It went, in true crony-capitalist fashion to Obama’s union supporters.

There’s a reason why we have bankruptcy laws. They’re designed to see that everyone gets a fair shot, everybody is doing their fair share, and everybody is playing by the same rules — oh wait…


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