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Sunday, May 10, 2009

Obamas payback to the UAW

As a former resident of Detroit, with a long line of family ties to the UAW (United Auto Workers), I find that my opinion of unions and my families past are at odds with one another. I know of the great strife people went through in the late 19th and 20th centuries when it came to labor. People were treated unfairly and it comes as no surprise that people organized against their employers, and if I was there, I might have been a vocal supporter.

At one time, the UAW organized bicycle factories in Cleveland and Chicago, which undoubtedly secured higher wages, however the companies closed up shop and moved out of state. Their businesses simply could not compete with the competition when faced with the reality of updating equipment versus overhead costs. The lesson holds true for companies dealing with pressure from organizations such as the UAW today. With shrinking market share from foreign competitors, some union members don’t take into account the costs of doing business and staying competitive. What seems fair (wages), can in the end find one with out a job at all. Our society is changing more rapidly than the people it contains. Our manufacturing base is shrinking and being replaced with high tech jobs that require a skilled workforce, which is why the “guaranteed good job” straight out of high school will not exist in the years to come. Products are being manufactured in other countries for cheaper prices, and this fact puts our union system at odds with prosperity. There once was a time in America that the union actually helped, but now they have grown into a bloated bureaucracy that endangers our economy. How can an American company with a union compete with an overseas competitor, without raising prices on products? How can America stay competitive if the Card Check bill is passed by our congress and president?

Supporters of unions promote protectionism that only stifles growth in our overseas markets, and is met with a swift penalty by foreign governments that seek to correct our mistakes. A company must depend on quality, brand loyalty, and patriotism in order to keep customers coming back and paying the higher prices on goods. Or if you live in Detroit, you can resort to yelling at drivers of foreign cars out your window at stop lights. Hey, whatever works.

As the UAW eyes new membership (Card Check Bill), their membership has declined from the 1.5 million in 1979 to 465K as of 2007. As a business, the union must make sound financial decisions based on the trends of their revenue, which comes in the form of union dues. In the past 25 years, the UAW has donated approximately 25 million dollars to democrat campaigns. According to the UAW in the 2008 election cycle has donated approximately 1.9 million dollars to lawmakers that carry a “D”, while their republican counterparts have only managed to collect approximately $11,500. It may not seem unusual for union political slant, but the money is being paid back through ownership of GM and Chrysler, which will be managed by VEBA (Voluntary Employees Beneficiary Association). The managers of VEBA may end up being knowledgeable, but it places the enlisted in charge of the officers. VEBA has received a 39% stake in GM, but our federal government was the clear winner with a controlling share. Since when does any government hand back control once it’s there’s?

The secured loan bond holders of GM have released a statement that said: “We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayers’ money to show political favoritism of one creditor over another.” An offer of 10% was offered to the bond holders, while the UAW received a share four times what they were owed. With no plan to give the correct share of the company over to the bond holders, their claims of political favoritism are solid.

Perhaps the bond holders of GM would be more willing to save the company, with an incremental plan in place that transfers shares back to the bond holders over time. GM stands to make a profit after the restructuring, and so does VEBA. If all goes well, VEBA will turn the profits into benefits for the workers. If the company turns around and becomes successful, VEBA keeps their 39% share of the company, but why shouldn’t they incrementally hand over shares to the bond holders once their debts are paid through sales profits? If VEBA sells the shares on the market to pay the benefits to workers, then obviously, the plan crumbles for the bond holders. Why would they invest in GM twice?

Instead of a fair restructuring plan for all involved, the new administration is using the bully pulpit of the White House to threaten bond holders into a deal. While in discussions on the future of Chrysler, Mr. Lauria of the law firm White & Case said that they offered to take 50% of what they (bond holders) were owed while they had no contractual obligation to do so. Mr. Lauria, in an interview with a local Detroit radio show host, said that "One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight.”

The allegations of Mr. Lauria have been denied, as if the man had ideological political reasons for coming out against the White House. In the last election cycle, Mr. Lauria supported the democrats in a senatorial bid in Florida which leads me to believe that like many lawyers, he shares the views of the current administration.

See below for Thomas Lauria campaign contributions.