Detroit — The 2009 bailout of Chrysler and General Motors has become a major campaign issue in the contest to see which presidential candidate will capture the state of Michigan. The Democrats are taking credit for “saving” the two companies. The Republicans argue that the bailout was a big payoff to the United Auto Workers for supporting President Barack Obama. They say that “secured creditors” — the poor little bankers and hedge funds — got second-class treatment.
Neither party’s version is supported by the facts.
The loan terms drawn up by the U.S. Treasury and approved by the White House Auto Task Force — whose members were culled from Wall Street and from corporate think tanks — were for the most part identical to those presented to Congress by the Bush administration’s Treasury Department in 2008 and approved by the House and Senate.
The bailout gave nothing new to the union — only more take-backs. Second-tier wages were frozen for the life of the contract, at half the pay of workers hired before September 2007. Language whereby lower-paid workers might at some time move into higher-paying, “traditional” positions was eliminated.
At my former Chrysler plant in Ohio, we were told to vote “yes” to keep our plant open. Two days later — in violation of the contract — the company announced in court that our plant and seven others would be closed.
The Voluntary Employee Beneficiary Association was set up to fund retiree health benefits and relieve the company of any future retiree health care costs. The Bush Treasury had demanded that Chrysler’s and GM’s cash obligation to the VEBA be reduced by 50 percent and the other half given in company stock. This is how the VEBA became part owner of Chrysler. It’s not like President Obama gave us something for nothing.
The VEBA was already a gamble, with its investments subject to fluctuations on Wall Street. In 2009, Chrysler stock was valued at zero. By having the lump sum payment to the VEBA cut in half, the Treasury increased the risk that the health fund would go bankrupt, leaving retirees without coverage. Moreover, the loan terms now gave the new company 20 years to pay its cash obligation, putting the fund further in jeopardy.
The VEBA’s 56.5 percent stake in Chrysler was entirely in nonvoting common stock, and the fund was allowed to name only one member for the Chrysler board of directors. In contrast, the Italian auto company Fiat, which was granted a 20 percent share of Chrysler at no cost, was allowed to name three.
How Fiat made out like a bandit
Now Fiat is the majority owner. How? First, by getting another free 15 percent share for reaching certain “benchmarks.” This 15 percent of Chrysler’s stock was transferred to Fiat from the VEBA, but the VEBA was paid nothing for it. Then — with VEBA income generated by us, the workers — Fiat bought the stake held by the U.S., Canadian and Ontario governments.
The agreement also gave Fiat first rights to buy the remaining VEBA stake for $5 billion, should the VEBA desire to sell. But right now, Fiat is buying a small portion of VEBA-held shares for an even cheaper price.
This is the supposed political payoff to the workers and retirees who built the company?
And what about that “second-class” treatment of the bondholders? Almost all of Chrysler’s debt was held by four entities: JPMorgan Chase, Morgan Stanley, Citigroup and Goldman Sachs. A much smaller amount of the original $10 billion debt — borrowed by the investment fund Cerberus in 2007 after it bought the company from Daimler — was shared by a few dozen hedge funds. About $3.1 billion of the principal had already been paid, along with hundreds of millions, if not billions, in servicing fees and interest.
All four banks and all but three funds agreed to loan terms which give them around 30 cents on each dollar of the remaining $6.9 billion in debt. At the time, Chrysler debt was selling for only 15 cents on the dollar on the bond market. So these financiers got twice the value of their investment — hardly unfair treatment!
Bipartisan attack on labor movement
What really happened was a bipartisan attack on the UAW and, by extension, the whole labor movement. The celebrated “rebound” of Chrysler is based on fewer workers making more vehicles at substantially lower pay. That was our precondition for “saving the auto industry.”
If there is any difference between the two political parties, it is that the Republicans think the attack should have gone further — that the transfer of wealth from labor to capital wasn’t big enough.
Autoworkers need to be independent of both capitalist parties and part of a movement committed to advancing the common interest of workers and oppressed people worldwide.
Based on a talk given by Grevatt at the Sept. 9 Autoworker Speakout in Detroit.