Democrats’ Auto Industry Bailout Is A UAW Bailout, Group Says
November 13, 2008 - 8:54 AMIt is a mistake to use part of the $700-billion rescue package to reward high-tax, non-right-to-work states such as Michigan, says Peter Flaherty, President of the National Legal and Policy Center.
Frank, the chairman of the House Financial Services Committee, is writing a bill that would allow the auto industry to get some of the $700 billion intended to restore liquidity in the nation’s financial markets.
But a union watchdog group says Frank’s plan really is intended to bail out the United Auto Workers union.
Frank's legislation would allow the U.S. government to take an equity stake in the auto companies in exchange for the taxpayer loans, the Associated Press quoted Frank's spokesman, Steven Adamske, as saying.
"A collapse of the American automobile industry would be the worst possible thing that could happen at a time when we are already weakened," Frank told reporters on Wednesday.
"We're not asking the taxpayers to throw good money after bad," Frank said. There will be "protections about getting it repaid," he said. "The consequences of not doing it will be worse." Frank did not divulge details of the bill.
General Motors, Ford and Chrysler are lobbying Congress to approve the bailout, the Associated Press reported. The auto industry has been hard-hit by the recession and the credit crunch.
GM, the nation's largest automaker, has warned it could run out of cash by the end of the year without taxpayer help.
It is a mistake to use part of the $700-billion rescue package to reward high-tax, non-right-to-work states such as Michigan, says Peter Flaherty, President of the National Legal and Policy Center (NLPC).
“The automaker bailout is actually a UAW bailout,” Flaherty said. “The union will not allow companies to deploy capital in ways that the market would dictate, such as closing plants and layoffs.”
Under Frank’s legislation, car companies receiving bailout money would face tougher restrictions on executive pay and dividends to their shareholders, the A.P. reported.
NLPC says the UAW wants additional taxpayer money to enrich health and retirement plans it controls. Indeed, UAW President Ron Gettelfinger has urged Congress to act immediately to provide a separate, additional $25 billion in loans so auto companies can meet their health care obligations to more than 780,000 retirees and dependents.
President-elect Obama faces a dilemma, Flaherty said. “If he provides a short-term fix now on the UAW's terms, these companies are doomed. Later, he will face requests for even more taxpayer money.”
NLPC said the automakers’ biggest problem is union contracts. Stock prices drop when shares are overvalued, but union contracts stay the same, the group noted.
To subsidize these contracts is unfair to other automakers – even foreign automakers -- operating in the United States. “It was foreign companies that brought hybrids to market,” Flaherty noted.
“If the purpose (of the requested bailout) is to save jobs, then automakers are nothing more than jobs programs. There are more efficient ways to create jobs, like cutting taxes,” Flaherty concluded.
Bankruptcy vs. bailout
The New York Times on Thursday reported that bankruptcy might be preferable to a government bailout of the auto industry.
“Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company,” the newspaper report said.
“Although G.M.’s labor contracts would be at risk of termination in a bankruptcy, setting up a potential confrontation with its unions, the company says its pension obligations are largely financed for its 479,000 retirees and their spouses,” the newspaper reported.
Treasury Secretary Henry Paulson on Wednesday said the automobile sector is "critical" but he also said the $700-billion bailout package was not designed for car companies. "Any solution has got to be leading to long-term viability" of the auto companies, Paulson said.
According to the Associated Press, Republicans in the Senate could play a key role in whether the auto rescue plan advances.
Senate Republican leader Mitch McConnell of Kentucky, which is home to two Ford Motor Co. plants, reportedly has been noncommittal about additional aid. In a statement, his spokesman said Congress should move to speed the release of a $25 billion loan program passed earlier to help the carmakers develop fuel-efficient vehicles.
House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) are hoping for quick passage of the auto bailout legislation during a post-election session that is scheduled to begin on Monday.
Executives with the Detroit automakers and the head of the United Auto Workers are expected to make their case at a hearing next Wednesday before Frank's committee. A House vote on Frank's measure could come as early as next Thursday, the A.P. reported.
(This report includes information provided by the Associated Press.)