Subsidizing Failure: How The "Big 3 Paid Billions to Keep Downsized UAW Members on Payroll"

By Dave Mendoza, Muckraker at large

SixDegrees Continues it's Commitment to exposing its research: how political hacks, special interests created this Financial Crisis. No greater relevancy to the Staffing Industry exists.

SUBSIDIZING FAILURE & CRONYISM

Thank This Man for Destroying the American Auto Industry: Meet Ron Gettlefinger - UAW President. Yesterday the UAW refused to compromise on Bail-out negotiations to agree by the end of next year to wage cuts to bring their pay into line with Japanese car makers. The UAW refused to do so before its current contract with the automakers expires in 2011.

As Senator Mitch McConnell stated yesterday: "This bailout doesn’t fix Detroit’s problem," he wrote, “It subsidizes it.”

First it was Government forcing a quota system which influenced lending institutions to lend easy money to high risk groups to avoid being accused of red-lining communities. Then the Federal government removed the separation between commercial and private loans and created a securities market off of home mortgages that inevitably got bundled into junk debt. Then we had Senate/House Finance and Banking committee chairmen who avoided their regulatory oversight and defended Fannie Mae and Freddie Mac and through their "Everything is Fine" press releases influenced stock holders to maintain their investments that would catapult them into portfolio ruin. Freddie Mac and Fannie Mae, then the banking system gets bailed out on the logic that they are a public utility system upon which the economy depends ... the handouts start, one after another, ... with little easing of the credit markets to show for the first 700 billion dollars. Now each and every industry argues before a Congressional committee why it deserves a bail out. All the while Capital firms freeze up, start ups wane, and Silicon Valley lays off thousands or freezes reqs to force attrition.

At the end of the day, it means thousands of recruiters being laid off. Recruiters become the perceived luxury item in a world gone mad when all the while government intervention throws good money after bad policy. But there are reasons and they should be understood. At no time have so many special interests collaborated to create the perfect storm and under government fiat to proceed with such ill advised policy. Today, we focus on how the powerful United Auto Workers (UAW) collaborated with its political allies to undermine one of the last great industries of American manufacturing. This is a story about what happens when government and its policies attempt to guarantee outcomes. Unfortunately, it isn't a fairy tale.

My public vote for the Big 3 to go into Chapter 11 to release themselves of UAW contracts otherwise we throw good money after bad if one of the primary causes doesn't get resolved.

FACT LINKS:
** UAW Job Bank: Organized Slackers
** UAW Feels The Heat And Suspends Job Bank And Delays Trust Payments
** Job Banks - Protecting the people, not the jobs
** Congress targets UAW Job Bank as U.S. Car Makers fight for Loans
** Detroit Automakers, UAW To Spar Over Jobs Bank During Talks
** Will you shed a tear for UAW Job Bank employees when the loose thei...
Ford's Most Advanced Assembly Pant Operates in Rural Brazil

TRIVIA TIDBIT: Did you know Toyota and GM sold roughly equal number of cars last year and GM went billions into debt while Toyota had a record year? ("GM versus Toyota: Someone is Doing Something Wrong")

STRUCTURAL & IRRATIONAL RED INK: UAW & The Job Bank
"We cannot continue to pay $65 an hour for someone to cut the grass...

Original Link

WAYNE -- Ken Pool is making good money. On weekdays, he shows up at 7 a.m. at Ford Motor Co.'s Michigan Truck Plant in Wayne, signs in, and then starts working -- on a crossword puzzle. Pool hates the monotony, but the pay is good: more than $31 an hour, plus benefits.

"We just go in and play crossword puzzles, watch videos that someone brings in or read the newspaper," he says. "Otherwise, I've just sat."

Pool is one of more than 12,000 American autoworkers who, instead of installing windshields or bending sheet metal, spend their days counting the hours in a jobs bank set up by Detroit automakers and Delphi Corp. as part of an extraordinary job security agreement with the United Auto Workers union.

The jobs bank programs were the price the industry paid in the 1980s to win UAW support for controversial efforts to boost productivity through increased automation and more flexible manufacturing.

As part of its restructuring under bankruptcy, Delphi is actively pressing the union to give up the program.

With Wall Street wondering how automakers can afford to pay thousands of workers to do nothing as their market share withers, the union is likely to hear a similar message from the Big Three when their contracts with the UAW expire in 2007 -- if not sooner.

"It's an albatross around their necks," said Steven Szakaly, an economist with the Center for Automotive Research in Ann Arbor. "It's a huge number of workers doing nothing. That has a very large effect on their future earnings outlook."

General Motors Corp. has roughly 5,000 workers in its jobs bank. Delphi has about 4,000 in its version of the same program. Some 2,100 workers are in DaimlerChrysler AG's Chrysler Group's job security program. Ford had 1,275 in its jobs bank as of Sept. 25. The pending closure of Ford's assembly plant in Loraine, Ohio, could add significantly to that total. Those numbers could swell in coming years as GM and Ford prepare to close more plants.

Detroit automakers declined to discuss the programs in detail or say exactly how much they are spending, but the four-year labor contracts they signed with the UAW in 2003 established contribution caps that give a good idea of the size of the expense.

According to those documents, GM agreed to contribute up to $2.1 billion over four years. DaimlerChrysler set aside $451 million for its program, along with another $50 million for salaried employees covered under the contract. Ford, which also maintained responsibility for Visteon Corp.'s UAW employees, agreed to contribute $944 million.

Delphi pledged to contribute $630 million. In August, however, Delphi Chairman and Chief Executive Officer Robert S. "Steve" Miller said the company spent more than $100 million on its jobs bank program in the second quarter alone.

"Can we keep losing $400 million a year paying for workers in the jobs bank and $400 million a year on operations? No, we cannot deal with that indefinitely," Miller said in a recent interview with The Detroit News. "We can't wait until 2007."

Guaranteed Employment

The jobs bank was established during 1984 labor contract talks between the UAW and the Big Three. The union, still reeling from the loss of 500,000 jobs during the recession of the late 1970s and early 1980s, was determined to protect those who were left. Detroit automakers were eager to win union support to boost productivity through increased automation and more production flexibility.

The result was a plan to guarantee pay and benefits for union members whose jobs fell victim to technological progress or plant restructurings. In most cases, workers end up in the jobs bank only after they have exhausted their government unemployment benefits, which are also supplemented by the companies through a related program. Workers go directly into the program and the benefits can last until they are eligible to retire or return to the factory floor.

By making it so expensive to keep paying idled workers, the UAW thought Detroit automakers would avoid layoffs. By discouraging layoffs, the union thought it could prevent outsourcing.

That strategy has worked but at the expense of the domestic auto industry's long-term viability.

American automakers have produced cars and trucks even when there is little market demand for them, forcing manufacturers to offer big rebates and discounts.

"Sometimes they just push product on us," said Bill Holden Jr., general manager of Holden Dodge Inc. in Dover, Del., who said this does not go over well with the dealers. "But they've got these contracts with the union."

In Detroit's battle against Asian and European competitors that are unencumbered by such labor costs, the job banks have become a major competitive disadvantage.

Breaking the banks

Analysts say the jobs bank could be a bigger issue than health care in the 2007 contract negotiations, particularly at Ford. It has a younger work force than GM, meaning any workers Ford sends to the bench are likely to stay there for a while.

"Ford is under pressure from investors to cut costs," said Roland Zullo, a research scientist at the University of Michigan's Institute of Labor and Industrial Relations. "At the same time, the unions are going to be under pressure to protect jobs."

But does the jobs bank make any sense in a climate of shrinking profits and declining market share?

While some might envy their life of leisure, workers like Cisco, 56, feel humiliated by the program.

"I felt like I was useless -- like I was put out to pasture," he said.

Most say they have no interest in retiring -- or spending the rest of their careers doing crossword puzzles.

Classes are available, the workers said. They have been invited to take courses on bicycle repair, home wiring and poker. Silk-flower arranging is also available. READ MORE ABOUT HOW THE UAW & AUTO INDUSTRY ARE MAKING TAX PAYE...

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Replies to This Discussion

Permalink Reply by Zigamala on December 12, 2008 at 1:56pm

Big Dave Strikes Again!!

What a disaster. Let's milk the companies for everything we can get today and worry about tomorrow ... tomorrow. How short-sighted is the UAW?

Bail-out or no bail-out, the US auto industry is dead in the water, and the UAW only has itself to blame.

Keep up the good work Dave. Let's hope the stimulus package will increase the number of hires and all of us in the recruiting profession can find work for ourselves/companies over the coming year ... Unfortunately, I feel a very long uphill struggle coming. If only I had worked for GM ... LOL ;-)

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Permalink Reply by Todd Noebel on December 12, 2008 at 2:29pm

The most irritating (I was going to say astonishing, but it really isn't), thing is the outright arrogance of the UAW. They continue to believe that they have the leverage to force the Country to bend to their will.

By their intransigence, it seems that they would rather see the auto companies go into bankruptcy, which will inevitbaly result in changes to the union contracts by the way, rather then demonstrate good faith and good smarts by finding a viable middle ground. In other words, they don't really care if the millions of people they predict will be negatively affected by the bankruptcy of any of the big 3 really are adversely affected...including themselves. Thank God they aren't doctors - they'd rather let the gangrene kill the patient then remove the necrotic tissue.

Talk about a Pyrrhic Victory.

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Permalink Reply by Stephen Strong on December 12, 2008 at 2:33pm

That very fact that you cite Fox News as a source says all that an intelligent person needs to know about the veracity and depth of your rant. Add to that the links to the far-right Radarsite blog and the Detroit News, and you get a real snowjob of a rant. I'm just glad that a new President and Congress will be in power within the next six weeks to begin to put things aright.

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Permalink Reply by Dave Mendoza on December 12, 2008 at 2:55pm

Stephen I think it is sad that you label as you do and immediately discount FoxNews when I likewise have a long list of sources including CNN.

The fact remains, that when UAW workers make as much as 95% of their original salaries after being laid off and that when Toyota and GM sold as many cars and yet one recorded record profits and the other record debts ... you oblige not to evaluate these facts, you simply discount one of many sources.

As for the administration and Congress of next year, many are wedded to the same Union structure that has made us uncompetitive. Let us not forget video proof of Senator Dodd and Congressman Frank who mislead the American people on Freddie Mac and Fannie Mae only a year ago and voted against reforming the financial industry. It's not a left wing or right wing issue Stephen and I am saddened we reduce it to that level.

To that I salute Ford for making among te most innovative manufacturing facilities in the world located in Brazil ... which seems to make sense because government regulations and Union coercion make it impossible to create innovation and competitive markets to employ on our own country.

As for Karen, I thank you for your input, but I am not here to talk about CEO's as a matter of fact I could have referred to the Big Three CEO's flying in in their private jets ... but rather todays article evaluates one particular aspect that is crucial to the Automotive Industry collapse.

In several interviews I noticed not a single commentator could answer the question "What next" after the bridge loan" and could not confidently state that the Big Three would survive two years let alone one year after even $130 billion dollars of taxpayer bail out funds.

Would you loan your money to someone who continually knocks on your door and asks for more money and never gets to the root causes of why they are broke? I think not.

The issue remains even after the bailout .... even if fully funded that so long as the UAW strangles the Big Three into submission and lucrative pension funds rather than stock swaps within their companies to have a buy-in as shareholders .... ONLY a Chapter 11 reorg will solve the issue. Rather than hype, the truth is auto warranties will be honored, a chapter 11 would merely force renegotiation on a slew of contracts and allow us to restart the evaluation of root causes and create lasting remedies. A Chapter 11 is not a Chapter 7 and the stewardship over reorg would be brought under the Federal Government which I would think would be a positive to you Stephen.
The evidence to the contrary Stephen:

http://www.youtube.com/watch?v=3YHTzi6nRUE
http://www.youtube.com/watch?v=ivmL-lXNy64

Stephen Strong said:

That very fact that you cite Fox News as a source says all that an intelligent person needs to know about the veracity and depth of your rant. Add to that the links to the far-right Radarsite blog and the Detroit News, and you get a real snowjob of a rant. I'm just glad that a new President and Congress will be in power within the next six weeks to begin to put things aright.

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Permalink Reply by Cathy McCullough on December 12, 2008 at 2:57pm

I am continually astonished that people are surprised at this turn of events. The stock market reached record highs not too long ago, P/E ratios were at ridiculous levels, housing prices were skyrocketing and consumer debt was through the roof. But everyone kept spending and borrowing like there was no tomorrow. Is it any surprise that it is all coming crashing down?

I do feel very bad for people that are facing retirement and seeing their savings evaporate. But I don't have a lot of pity for people that lived way beyond their means and for companies that overspent and now can't pay their bills. I say - forget about bailing out failing companies. Put that money hands of the individuals that need it. Restructure primary mortgages so people won't lose their homes, pay for jobs training and education but do NOT throw good money after bad by bailing out companies run by people that have robbed those companies.

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Permalink Reply by Todd Noebel on December 12, 2008 at 3:06pm

Stephen - with all due respect, ABC, CNN and others have the same information. There is no snowjob - the UAW said that they were unwilling to agree to wage cuts until there contract was up for renewal in 2011. By the way, NPR offered this coverage, surely you won't paint them as "far-right".

Frankly, I am tired beyond belief of hearing comments such as "...all that an intelligent person needs to know...". That very comment belies the intelligence level of the remark and the logic process required to offer such unimaginably poor debate structure. Trying to obliquely insult someone's intelligence in this manner is far from a compelling dialogue.

Stop the Democrat demagoguery and offer cogent, countering details or go home and smirk in your mirror as you await your miracles from the same circle of politicians as before. Daschle is new? Clinton is new? As much as I anyone had hoped that Obama may be able to bring change and fresh perspective, I am hugely disappointed to see him immediately reach out and tap the same old guard of polticians.

Please, do tell, how will the new administration and the new members to Congress (not everyone will be new if you recall), "fix" the auto industry?

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Permalink Reply by Dave Mendoza on December 12, 2008 at 3:23pm

Amen Karen on AIG - but as stated - let's focus that I am NOT stating we should allow the demolition of the American Auto Industry nor of up to 3 million jobs. What I question is that a bridge loan and an assured $130 Billion from TARP after the inauguration would be in our best interests with the very root causes, such as the UAW contracts intact.

I would argue a Chapter 11 with the fed as steward to insure existing consumer warranties and rights on car purchases would do far more to ensure the auto industry not only survives but thrives rather than allow a bailout with the contracts in place that led to its downfall.

Again, search YouTube and you will see politician after politician unable to argue the Auto industry would survive even if a fully funded bailout proceeds ... even 2 years!

Not one.

"Accountability" is not a political buzzword ....and yet they repeat it time and again, and yet here we are with the Treasury unable or unwilling to account for 2 Trillion dollars thus far loaned within this bailout environment.

If we are discuss to broader causes of this disaster ....I have prior posts which review the matter more broadly.

KarenM / Hirecentrix.com said:

** Lower Wages and create More financial Mess - Trickle down effect in reverse
** Collapse of Auto Companies equals 2.5 MILLION jobs.. 1.4 which are not even in the Auto MFG industry There Are TWO sides to this story. It isn't black and white. Dave thanks for your reply - You are right re your comments, but I bring the CEO's up because even if we Do give the money to the Companies, if we keep the Same A@#holes in charge of the company, the money Won't go to the company, it will go to .. hmmm..

AIG comes to mind..

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Permalink Reply by Dave Mendoza on December 12, 2008 at 3:41pm

Good point Ravi, the problem is that we are not working within normal labor supply constraints - the UAW union has in place contracts which the Big Three capitulated on which ties their hands on layoffs. If they do proceed to layoff then the issue of JobBanks that the UAW negotiated is in place - purposely est. to make it too expensive an alternative to layoff when the Big Three are forced to pay unparalleled equity to actual employee salaries even to those downsized.

Ravi Kiran said:

May be the companies should be allowed to cut costs by reducing the work force and by pruning the No of models and the government should pay the laid off employees in the form of unemployment benefits. This would definitely cost far less than the $130 bn bail out plan which will only be sufficient to give oxygen to the big 3 for few years and they will be back to the square one sooner than later! If the companies are allowed to improve efficiency, the economy might come out of recession soon and new jobs would automatically be created.

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Permalink Reply by Bonnie O'Brien, PHR CTS CPC CSP on December 12, 2008 at 4:01pm

This is an extremely enlightening piece of journalistic work!

The bail out could help the automakers develop more green conscious vehicles, but if oil goes back or stays the same, who wants them! We are a capitalistic society and like our nice gas guzzlers!!!

If the Unions are not prepared to make concessions, than why should all the rest of us? We bail out banks, insurance companies, mortgage companies and now car companies...l what will be next? Maybe someone could bail me out! I am running two businesses with negative cash flow until things pick up and hopefully can last by reducing my salary, not taking a regular year end bonus, putting all revenue back into the company and innovative cost cutting, but when will it end?

Our politicians need to smarten up and get some business minded people who don't have socialist mentalities to get behind this and do what needs to be done with these companies that operate on greed and corruption. There is nothing wrong with making money or earning a nice big $$$ income or bonus, as long as it is not done at the expense of everyone else.

Now, what about our healthcare dilemma?

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Permalink Reply by Dave Mendoza on December 12, 2008 at 4:07pm

Bonnie, well put. The whole Auto industry mess is based upon "Gauranteeing Outcomes" - which completely obscures market principles. Granted the act that the Auto industry put all its eggs on the truck and suv market is another huge issue to consider ... we should recall that the electric car failed due to market demand. Hybrids succeeded because they noyt only answered a consumer prefernace for economy but they are also well made and have significantly increased mileage.

The other issue is that manufacturing planst cannot quickly leverage new product lines because the UAW limits the ability of the big three to automate.

Lets not forget that Toyota and Honda create great cars and at reasonable per capita overhead within the USA ...all non union I should add and do so at a profit.

The South is becoming a watershed to consider on how auto manufacturing can be done profitably ...but is being done by our foreign competitors within our homeland

Bonnie OBrien, PHR, CTS, CPC, CSP said:

This is an extremely enlightening piece of journalistic work!

The bail out could help the automakers develop more green conscious vehicles, but if oil goes back or stays the same, who wants them! We are a capitalistic society and like our nice gas guzzlers!!!

If the Unions are not prepared to make concessions, than why should all the rest of us? We bail out banks, insurance companies, mortgage companies and now car companies...l what will be next? Maybe someone could bail me out! I am running two businesses with negative cash flow until things pick up and hopefully can last by reducing my salary, not taking a regular year end bonus, putting all revenue back into the company and innovative cost cutting, but when will it end?

Our politicians need to smarten up and get some business minded people who don't have socialist mentalities to get behind this and do what needs to be done with these companies that operate on greed and corruption. There is nothing wrong with making money or earning a nice big $$$ income or bonus, as long as it is not done at the expense of everyone else.

Now, what about our healthcare dilemma?

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Permalink Reply by Todd Noebel on December 12, 2008 at 4:38pm

I definitely agree that the larger issue of the failures of the auto industry does not solely lie with the unions. And in truth, I am not entirely convinced that a UAW wage concession would have guaranteed Senate approval. What I am certain is that by being unwilling to make a concession at this time, the UAW guaranteed that the Senate would NOT approve the measure.

To be sure, this issue is not new and has been brewing for decades for a variety of reasons, some are highly complex and political, some are pretty straight-forward and simple. It was the culmination of non-sustainable union contracts, poor vehicle design, poor vehicle quality, poor market (consumer, environmental, financial, etc.) awareness on the part of their senior management and such that brought us to this point. It was greed and hubris of both union and management, that lead the auto industry to where it is today. Throwing money at this issue is not going to fix it.

That this business debacle is being turned into a political fight is appalling at best. Neither party was willing to step up when it would have made a vlauable difference. This is not about Democrat or Republican, this is about a radically misrun industry by ALL involved. And yes, we consumers play a role - we did not have to buy the SUV's. You can vote on poor decisions in their design centers by NOT BUYING THE WRONG VEHICLES.

Just like people who took mortgages that they knew they could not afford have accountability for the mortgage/housing meltdown. But that is another thread.

I do NOT want a "Car Czar". The Government can't run itself very well and now we want to entrust it with running businesses that are already on the ropes? Thank you sir, may I have another.