[ Issues ]

Auto Industry Assistance

The domestic auto industry was in crisis throughout much of 2008. With the spike in gas prices in the spring and summer, consumer demand shifted dramatically toward smaller, more fuel-efficient vehicles.

This unexpected shift created difficulties for all automakers, but hit GM, Ford and Chrysler particularly hard because their product mix had been more oriented toward larger cars, pickups and minivans.

The companies were making progress in changing their product mix when the credit and economic crises hit the nation in September. These developments caused an unprecedented drop in auto sales for all manufacturers, with sales reaching their lowest level in a quarter century. The reasons for this disastrous decline in auto sales were readily apparent. Because of the credit crunch, most families could not get credit on reasonable terms to finance the purchase of a vehicle. And because of the general economic uncertainty, many families simply decided to defer major expenditures, including buying a new vehicle.

As a result of the sharp drop in sales, the revenues received by GM, Ford and Chrysler declined drastically. This caused these automakers to burn through their cash reserves at alarming, unsustainable rates. It soon became apparent that GM would run out of cash by the end of the year, and Chrysler soon thereafter. These companies would then be forced to liquidate, ceasing all business operations. The collapse of these companies would inevitably drag down numerous auto suppliers.

Because the auto manufacturers depend on many of the same suppliers, this would ultimately lead to the collapse of Ford as well.

Faced with this dire situation, the UAW and the Detroit-based companies immediately began a campaign to convince the Bush administration and Congress to provide emergency bridge loans to enable the companies to weather the current economic and credit crises. The UAW and the companies made it clear that bankruptcy was not an option because research has indicated that consumers will not buy vehicles from companies that have filed for bankruptcy. Thus, the only way for the companies to continue operations and avoid liquidation was for the government to provide emergency assistance.

In mid-November, President Gettelfinger and the CEOs of GM, Ford and Chrysler testified before Congress on the need for the emergency bridge loans. Democratic congressional leaders decided to postpone any action on assistance to the domestic auto companies, and directed the companies to submit detailed plans showing the need for assistance and how the companies would be restructuring to ensure their long-term viability.

In early December, President Gettelfinger and the three CEOs returned to Capitol Hill to again present the case for emergency assistance to the companies. This time the plans presented by the automakers were received more favorably by Congress and the public. President Gettelfinger underscored that the failure of the domestic automakers would have dire consequences for our entire nation, including:

• the loss of 3 million jobs;

• the loss of pension and health care benefits for 1 million retirees;

• the failure of thousands of suppliers, dealers and other companies;

• a sharp drop in revenues for the federal, state and local governments, forcing cuts in vital social services; and

• the ripple effect on the financial sector and our entire economy would drive the country into a deeper, longer recession.

When the dismal jobs report came out on Dec. 5, many members of Congress and the general public realized that our nation simply could not afford the shock to the entire economy that would be caused by the collapse of the domestic auto companies.

Throughout his public appearances, President Gettlefinger stressed that UAW active and retired members had already made enormous concessions in the 2005 and 2007 contracts, including cuts in wages and cost-of-living adjustments for active workers, and the transfer of retiree health care liabilities from the companies to the independent Voluntary Employee Beneficiary Association (VEBA) fund. However, conservative pundits and their GOP allies continued to attack the compensation paid to UAW members, spreading myths that workers received $73 an hour in wages. To underscore that the UAW was prepared to do its part to ensure the long-term viability of the companies, before the second set of congressional hearings President Gettelfinger convened a special meeting of the GM, Ford and Chrysler Councils. This meeting approved the suspension of the jobs bank programs, and the deferral of contributions owed by the companies to the retiree health care VEBA fund. These actions were favorably received by many members of Congress, who publicly praised the UAW for its leadership.

The UAW believed that the best approach for providing assistance to the companies was for the Bush Treasury Department to use its existing authority under the $700 billion TARP program to provide bridge loans to the automakers. However, for a long time the Bush administration flatly refused to pursue this option on its own. Due to the threat of a presidential veto and a GOP filibuster in the Senate, we could not get legislation passed to require the Treasury Department to follow this path.

Faced with this intransigence from the Bush administration, Democratic congressional leaders ultimately decided to move legislation that would temporarily use funds from the Section 136 Advanced Technology Vehicles Manufacturing Incentive Program (ATVMIP) to provide $14 billion in emergency bridge loans to the domestic auto companies. This legislation, which was agreed to by the White House, contained strict accountability measures, including limits on executive compensation, a prohibition on the payment of dividends, an equity stake in the companies to protect taxpayers, and an advisory board to oversee the operations of the companies. In addition, this legislation conditioned the bridge loans on the companies pursuing restructuring plans that would have to be approved by an "auto czar" to ensure their long-term viability. Democratic congressional leaders made it clear that they would act immediately in the next Congress to replenish any funds taken from the Section 136 program for the emergency auto bridge loans.

The UAW mounted an all-out campaign to persuade Congress to approve this legislation. UAW activists did a tremendous job at the grassroots level in lobbying their representatives and senators through phone calls, e-mails, meetings, demonstrations and other activities. President Gettelfinger made numerous appearances on television and radio programs to present the union's case for the bridge loans.

On Dec. 10 the House passed the legislation providing the bridge loans to the domestic auto companies by a vote of 237-170. Two hundred five Democrats and 32 Republicans voted for this measure.

However, in the Senate the Republican caucus dug in its heels and threatened to block the legislation through a filibuster. Their stated reason was that the bill was not "tough" enough on the auto companies. But an "action alert" to the GOP caucus revealed their true motivation stating, "This is the democrats (sic) first opportunity to payoff organized labor after the election. Republicans should stand firm and take their first shot against organized labor, instead of taking their first blow from it. The hardest thing for the democrats to do is get 60 votes. If we can hold the Republicans, we can beat this."

After it became clear that we did not have 60 votes to invoke cloture to stop a GOP filibuster, the UAW entered into negotiations with Sen. Bob Corker, R-Tenn., to see if some compromise could be worked out. After lengthy discussions, we eventually reached an agreement with Sen. Corker. This agreement provided that bondholders and the retiree health care VEBA would both have to accept a debt-for-equity swap. It also confirmed that the jobs bank programs would be eliminated immediately. And it specified that any restructuring plan approved by the auto czar had to ensure that compensation paid to active employees at the domestic auto companies would be "competitive" with compensation paid by the foreign transplants, after taking into consideration planned transitions (i.e., attrition programs) that would bring in newer employees at lower wages and benefits.

Unfortunately, Sen. Corker was not able to persuade the Senate GOP caucus to accept this compromise. Instead, the Republicans insisted that by March 31, 2009, the wages and benefits for UAW members would have to be reduced to the same levels paid by the foreign transplants. This was totally unacceptable to the UAW. It would have involved draconian sacrifices by workers. And it singled out our members for different treatment from other stakeholders, such as dealers and suppliers, who would be allowed reasonable transition periods under any restructuring plan.

As a result of this deadlock, it became apparent that the Senate would not be able to approve the auto bridge loan legislation. Late in the evening on Dec. 11, the Senate voted 52-35 to invoke cloture on a motion to proceed to consideration of this bill. Forty Democrats, 10 Republicans and 2 Independents voted for cloture. But this was far short of the 60 votes needed to cut off debate, and thus effectively killed the legislation.

It is important to underscore that it was not intransigence by the UAW that led to the demise of the auto bridge loan legislation. The UAW repeatedly indicated that our members were prepared to be at the table with other stakeholders to make the sacrifices that will be necessary to ensure the long-term viability of the companies. But we could not agree to have workers and retirees shoulder the entire burden of any restructuring.

Ultimately, the auto bridge loan legislation failed because the Senate GOP caucus repudiated the agreement that had been reached between the White House and Democratic congressional leaders. And it failed because the Senate GOP caucus also repudiated the compromise agreement that we negotiated with Sen. Corker.

From the actions of Senate Republicans, it was evident that they were not concerned about preventing the collapse of the domestic auto companies and the devastating consequences that would follow for our nation. Instead, they were determined to kill the bridge loan legislation as a political "payback" to the UAW and to strike a blow against the entire labor movement.

After the demise of the auto bridge loan legislation, President Bush was forced to reconsider his previous refusal to use a small portion of the Treasury Department's $700 billion TARP program to provide bridge loans to the automakers. The Treasury Department spent almost a week examining the situation of the domestic auto companies. Finally, on Dec. 19 the Treasury Department announced that it would be providing $17.4 billion in emergency loans to GM and Chrysler. This was enough to enable these companies to make it through the first quarter of 2009. In effect, the Bush administration simply punted the entire situation into 2009, leaving a longer term solution to be worked out by the Obama administration.

In various public statements, President Obama has clearly indicated that the domestic auto industry is the backbone of manufacturing in this country, and that the collapse of these companies would be devastating for the economy of the entire country. He has made clear his support for emergency bridge loans, but also emphasized that this should not be a blank check. Instead, a clear-cut plan must be implemented to ensure that the companies will be restructured so they can be viable in the future.

During the coming months the UAW and the domestic auto companies will be working closely with officials in the Obama administration on this restructuring process. We recognize that all stakeholders will have to make sacrifices. As we have previously stated, the UAW is prepared to do its part. But we will insist that there must be fairness in the sacrifices, so that bondholders, suppliers, dealers, management and others are also held accountable and required to do their part as well.

We also will be urging the Obama administration and Congress to take steps to address various problems affecting the domestic auto industry. This includes:

• acting promptly to enact a major economic stimulus package that will reinvigorate our entire economy and help to boost auto sales;

• insisting on fair-trade policies that require other nations to open their markets to U.S.-built automotive products, and to stop manipulating their currencies to gain an unfair competitive advantage;

• reforming our health care system to establish a level playing field between all employers, and to address the retiree health care legacy costs that have burdened older manufacturing companies; and

• providing the resources that the domestic auto companies will need to develop advanced, more fuel-efficient vehicles, and to retool facilities in this country to produce these vehicles of the future.

Action:

• Tell the Obama administration to make sure that the process for restructuring the domestic auto companies requires all stakeholders to be at the table, so that the restructuring is not done entirely on the backs of workers and retirees.

• Urge the Obama administration to pursue economic stimulus, trade, health care and energy policies that will address the problems facing the domestic auto companies, as well as our entire nation.