Hard truths loom as GM faces bankruptcy

Facing bankruptcy, GM has announced plans to shutter four more assembly plants and expand production abroad, where UAW contracts do not make profitable operations impossible. On the other hand, critics note with justification that federal handouts were not intended to enable GM to hire overseas and fire at home.

Joe Szczesny of AFP reports:
UAW legislative director Alan Reuther wrote in a letter to Congress.

"If GM is going to receive government assistance to facilitate its restructuring, along with the benefits from tremendous sacrifices by UAW members and other stakeholders, we believe it should have an obligation to build in this country the vehicles it will be selling in the US," he added.

The comments were echoed by UAW vice president Bob King, who is widely expected to become the UAW's next president in 2010.

The hard truth is that the federal money is being sent to GM not to preserve the company, but to subsidize the jobs, benefits, and retirement (including gold plated health coverage) of the union members. Unions subsidized Obama's campaign heavily, and they want a payback.

However, it would be politically unpalatable for Obama to nakedly subsidize the union benefits, considering that UAW members enjoy far better health coverage and earn more than the average American taxpayer. People might wonder why labor aristocrats are protected while they are forced to pay for it.

It is the political camouflage of supporting GM that create the conflict between federal subsidy and manufacturing overseas.

In my view, GM should go through ordinary bankruptcy, which is designed for exactly this purpose. Let a federal bankruptcy judge sort through the claims of creditors. It may well be that auto manufacturing in the USA is too expensive, given UAW contract terms. That's why Toyota, Honda, BMW, Mercedes and others avoid having anything to do with the UAW.
Facing bankruptcy, GM has announced plans to shutter four more assembly plants and expand production abroad, where UAW contracts do not make profitable operations impossible. On the other hand, critics note with justification that federal handouts were not intended to enable GM to hire overseas and fire at home.

Joe Szczesny of AFP reports:
UAW legislative director Alan Reuther wrote in a letter to Congress.

"If GM is going to receive government assistance to facilitate its restructuring, along with the benefits from tremendous sacrifices by UAW members and other stakeholders, we believe it should have an obligation to build in this country the vehicles it will be selling in the US," he added.

The comments were echoed by UAW vice president Bob King, who is widely expected to become the UAW's next president in 2010.

The hard truth is that the federal money is being sent to GM not to preserve the company, but to subsidize the jobs, benefits, and retirement (including gold plated health coverage) of the union members. Unions subsidized Obama's campaign heavily, and they want a payback.

However, it would be politically unpalatable for Obama to nakedly subsidize the union benefits, considering that UAW members enjoy far better health coverage and earn more than the average American taxpayer. People might wonder why labor aristocrats are protected while they are forced to pay for it.

It is the political camouflage of supporting GM that create the conflict between federal subsidy and manufacturing overseas.

In my view, GM should go through ordinary bankruptcy, which is designed for exactly this purpose. Let a federal bankruptcy judge sort through the claims of creditors. It may well be that auto manufacturing in the USA is too expensive, given UAW contract terms. That's why Toyota, Honda, BMW, Mercedes and others avoid having anything to do with the UAW.