Out of Control Policy Blog

Obama's Sweet Surrender to the UAW

The New York Times has a glowing piece this morning on how early in the auto crisis President Barack Obama decided to stand up to Democratic interest groups such as the UAW and decide whether or not Detroit’s auto makers deserve a bailout solely on their financial viability. If that’s the case, then the president must have offered the UAW some really tough terms in his auto nationalization restructuring plan – kind of what a bankruptcy court would have offered, right? So, for instance, he must have forced the UAW to pare back its pension and health care obligations and rewrite its labor contract to give the auto makers a fresh start, right?

Not quite.

In fact, in exchange for giving up some of their cash claims, the president has given the UAW 39% ownership of GM (the federal government will own another 50%) and 55% of Chrysler.

As the Wall Street Journal’s Holman Jenkin points out in a super insightful column this morning, the president’s “tough” approach effectively consists of formalizing the monopoly that the UAW has long held in the auto labor market. He lists all the ways that the federal government for years has been bailing out the auto unions with special favors designed to maintain their power. For instance, Uncle Sam for 40 years has maintained a 25% tariff against foreign-built pickup and trucks. It has also refused to let the Detroit’s auto makers’ count toward their CAFÉ (Corporate Average Fuel Economy) requirements vehicles manufactured abroad – even though it substantially raises their compliance costs.

“In a real bankruptcy, which is the natural fate of companies unable to meet their obligations, Chrysler and GM would be run (or liquidated) for the benefit of their creditors, not their workers,” writes Jenkins. “But, here, ‘pattern bargaining’ will remain the law of the Detroit jungle. The UAW will continue to use its unnaturally augmented clout to extract uncompetitive pay and benefits (it can do no other given its internal incentives). As it has for 40 years, Washington will pitch in with one improvisation after another, disguised as energy policy, trade policy, health-care policy or environmental policy, to stop the rivets from popping off. Politics, especially Democratic electoral politics, will play a more dominant role than ever.”

Whole piece here.

If this is what Obama does for constituencies he is trying to get tough with, what will he do for those he loves? Sign over entire banks to them? Wait, hasn't he already done that?

Shikha Dalmia is Senior Analyst


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