Mugging of Chrysler by the UAW; with government backing

[Arsenal]

Goldman Sachs Foreshadowed UAW’s Chrysler Coup


May 4 (Bloomberg) -- I feel like I have seen this bad gangster movie before.

In the opening scene, a naive investor buys some bonds, explaining to his staff that they are a sound investment secured by hard assets. Even if the company goes under, the investor explains, bond investors stand to get about 80 percent of their money back.

The next day, a government official calls and offers to buy up the bonds at 33 cents on the dollar, while giving controlling interest in the company to the labor unions. The investor refuses. That night, a man shows up at his home.

“We’re not saying anything bad is going to happen to you,” the tough says, “but the big boss is going to be very disappointed in you if you don’t take the deal. By the way, how’s your little girl? Is she still going to school down on Federal Street?” The investor caves.

The evolution of the Chrysler LLC bankruptcy seemed almost as bad. The Obama administration brokered a deal that gave labor unions a 55 percent equity stake in Chrysler, putting their interests ahead of the secured interests of bondholders.

The bondholder response to the deal was positively creepy.

Politicians were probably offering them a worse deal than they could expect to get in bankruptcy court. Bondholders that have been participating in the government bailout program for banks -- and thus are especially susceptible to political pressure -- agreed to accept the deal. But many of the independent investors balked.

‘Financial Sacrifices’

The reasoning of the hold-outs was captured in a statement by OppenheimerFunds Inc., which said the government “unfairly asked our fund shareholders to make financial sacrifices greater than those being made by unsecured creditors.”

Stories circulated that the Treasury Department exerted extreme pressure behind the scenes when investors refused to take the deal. Public pressure was exerted as well.

President Barack Obama went to the podium to criticize the recalcitrant investors, and Democratic Representative John Dingell of Michigan pressed the threats even harder: “The rogue hedge funds that refused to agree to a fair offer to exchange debt for cash from the U.S. Treasury -- firms I label as the ‘vultures’ -- will now be dealt with accordingly in court,” Dingell said.

All the government stops were being pulled out to present the United Auto Workers with a sweetheart deal that, incredibly, gives its retiree health-care fund majority ownership of Chrysler.

Yes, those are the same workers who pushed the firm toward bankruptcy in the first place with their extraordinarily generous compensation packages. DaimlerChrysler AG’s average cost to employ a UAW worker in 2006, including benefits, was 1.7 times that of Japanese automakers, according to company estimates.

Expensive to Fire

Firing that worker is expensive, too. The 2007 collective- bargaining agreement required the automakers to pay up to $140,000 in severance to a worker whose position was eliminated and who agreed to leave with no additional benefits.

The spectacle should sicken any fair-minded citizen, especially since organized labor contributed about $68 million to Democrats in the last election cycle.

The sad truth is there is enough data on the government rescue efforts to indicate decisively that OppenheimerFund would have received a much better deal if it was politically well- connected. It’s an especially good idea to have connections in both parties.

For comparison’s sake, consider the treatment of Goldman Sachs Group Inc.

When American International Group Inc. crumbled, threatening Goldman Sachs with huge losses, the government stepped in and made the firm whole. It funneled a whopping $12.9 billion to Goldman Sachs through the AIG bail-out.

Part of Club

Might the government have been so generous because Henry Paulson, Treasury secretary under President George W. Bush, and Robert Rubin, an Obama adviser, are both former Goldman Sachs men?

Maybe it’s just a coincidence, but time after time, it is precisely the politically well-connected players who present so much systemic risk that the government needs to protect them at all costs.

Obama recently conceded to an interviewer that “the only thing less popular than putting money into banks is putting money into the auto industry.” With Democrats riding a winning streak, it’s clearly a political risk he is willing to take.

If this were a Hollywood production, a virtuous politician played by Tom Hanks or Jimmy Stewart would speak out against the bailouts and sweep the corruption out of Washington.

Sadly, in real life, it seems there is nobody in either party ready to stand up and fill that role.

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_hassett&sid=atacn_gbYxHI

[Raptus_regaliter]

Corruption on such a grand scale as these bailouts doesn't even need to be hidden or kept behind closed doors - no one gives a fvck anyway. We in the US are too sedated to care.

[Ordie]

Once again...scapegoat the workers for crappy management and marketing decisions. Yet we don't hear about the same for Japanese and German automakers who are equally unionized.

[Arsenal]

Once again...scapegoat the workers for crappy management and marketing decisions. Yet we don't hear about the same for Japanese and German automakers who are equally unionized.

Hmmm, maybe you should read the article (again).

It's not about the UAW being scapegoated on anything. It's about the government's disregard of the 5th amendment.

[Parx400]

Bond holders have legal right over the UAW for the companies assets. This is simply a payback to Obamas masters in organized labor. It must be nice to belong to a political class.

[Kaplanr]

Once again...scapegoat the workers for crappy management and marketing decisions. Yet we don't hear about the same for Japanese and German automakers who are equally unionized.

But are their salary rates and work rules comensurate with the UAW?

[Ordie]

But are their salary rates and work rules comensurate with the UAW?

The collective bargaining process is between the Union Local and the management. UAW is just the umbrella organization that covers all locals. But not all Union Locals have the same contracts.

For example, UAW represents workers at a joint GM/Toyota plant in California. The managemnt and operations of the plant is Japanese with only four job classification. Workers are expected to switch jobs or duties based on operational demands. It is considered one of Toyota's most efficient plants.

[Chulo]

Dont forget Obama pointing out to the "Rich" investors as those who blocked and made this difficult. Never mind bankruptcy law and rules which dictate who and how much people get back and in what order. Its those "Rich investors" who didnt give concessions (never mind the fact they cut their payback to about 50%) and who dont deserve to be paid back (never mind the diffrence between a secured debt and an unsecured debt) and its the UAW and the people that deserve it all (since there are more of them that vote)

This takeover is a clear cut example of what will happen to America, it will be divied up by the government to take control and pander to people to get votes, and be structured in a more economic fascist way

Fascists considered the economy to be of little importance, and did not have clear economic views. One significant fascist economic belief was that prosperity would naturally follow once the nation has achieved a cultural and spiritual re-awakening.[16] (http://en.wikipedia.org/wiki/Economics_of_fascism#cite_note-15) Often, different members of a fascist party would make completely opposite statements about the economic policies they supported.[17] (http://en.wikipedia.org/wiki/Economics_of_fascism#cite_note-16) Once in power, fascists usually adopted whatever economic program they believed to be most suitable for their political goals. Long-lasting fascist regimes (such as that of Benito Mussolini (http://en.wikipedia.org/wiki/Benito_Mussolini) in Italy (http://en.wikipedia.org/wiki/Italy)) made drastic changes to their economic policy from time to time. Stanley Payne (http://en.wikipedia.org/wiki/Stanley_Payne) argues that common aim of all fascist movements was elimination of the autonomy or, in some cases, the existence of large-scale capitalism (http://en.wikipedia.org/wiki/Capitalism).[18] (http://en.wikipedia.org/wiki/Economics_of_fascism#cite_note-17)
The fascists opposed both international socialism (http://en.wikipedia.org/wiki/Proletarian_internationalism) and liberal (http://en.wikipedia.org/wiki/Liberalism) capitalism (http://en.wikipedia.org/wiki/Capitalism), arguing that their views represented a third way (http://en.wikipedia.org/wiki/Third_Position). They claimed to provide a realistic economic alternative that was neither laissez-faire (http://en.wikipedia.org/wiki/Laissez-faire) capitalism nor communism (http://en.wikipedia.org/wiki/Communism).[19] (http://en.wikipedia.org/wiki/Economics_of_fascism#cite_note-18) They favoured corporatism (http://en.wikipedia.org/wiki/Corporatism) and class collaboration (http://en.wikipedia.org/wiki/Class_collaboration), believing that the existence of inequality and separate social classes (http://en.wikipedia.org/wiki/Social_class) was beneficial (contrary to the views of socialists).[20] (http://en.wikipedia.org/wiki/Economics_of_fascism#cite_note-Mussolini-19) Fascists argued that the state had a role in mediating relations between these classes (contrary to the views of liberal capitalists).[21] (http://en.wikipedia.org/wiki/Economics_of_fascism#cite_note-20)
An inherent aspect of fascist economies was economic dirigisme (http://en.wikipedia.org/wiki/Dirigisme)[22] (http://en.wikipedia.org/wiki/Economics_of_fascism#cite_note-21), meaning an economy where the government exerts strong directive influence, and effectively controls production and allocation of resources. In general, apart from the nationalizations of some industries, fascist economies were based on private property and private initiative, but these were contingent upon service to the state.[23] (http://en.wikipedia.org/wiki/Economics_of_fascism#cite_note-22)
Fascism operated from a Social Darwinist (http://en.wikipedia.org/wiki/Social_Darwinism) view of human relations. Their aim was to promote allegedly superior individuals and weed out the weak.[24] (http://en.wikipedia.org/wiki/Economics_of_fascism#cite_note-23) In terms of economic practice, this meant promoting the interests of successful businessmen while destroying trade unions (http://en.wikipedia.org/wiki/Trade_union) and other organizations of the working class (http://en.wikipedia.org/wiki/Working_class).[25] (http://en.wikipedia.org/wiki/Economics_of_fascism#cite_note-24) Historian Gaetano Salvemini (http://en.wikipedia.org/wiki/Gaetano_Salvemini) argued in 1936 that fascism makes taxpayers responsible to private enterprise, because "the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social."[26] (http://en.wikipedia.org/wiki/Economics_of_fascism#cite_note-25) Fascist governments encouraged the pursuit of private profit and offered many benefits to large businesses, but they demanded in return that all economic activity should serve the national interest.[27] (http://en.wikipedia.org/wiki/Economics_of_fascism#cite_note-26)

[Zarak]

Historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because "the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social."

...wow. :(

I've seen the quote before but not since the bailouts. It makes me sad about the state of America.

[philbob]

there is a pretty simple solution to this. I wont buy a GM or Chrysler as long as the gov'munt has there finger in the pie. I have no problem buying Ford becuase they were doing what they should of been doing all along. In addition i advise course of action to other people.

I might even buy Toyota for the same reason.

[Ordie]

there is a pretty simple solution to this. I wont buy a GM or Chrysler as long as the gov'munt has there finger in the pie. I have no problem buying Ford becuase they were doing what they should of been doing all along.

I might even buy Toyota for the same reason.

Better yet, buy cars that you want.

[philbob]

I like Fords :P and I like responsible business practices, so it is win win for me

[Violet Fashion by Mindy]

Lol so it's the UAW's fault. Same old same old.

Did the union force Chrysler to make fuel thirsty, expensive cars?

Did the union force Chrysler executives to make business decisions that affected the bottom line?

When things were going good how come these executives did not follow Fords and Toyota's example and bank for a rainy day?

In an F1Racing article at the time of Ford purchasing Stewart Racing. Ford was the most cashed up motor company with something like 60 billion USD in cold hard cash in the bank. And Toyota were the same a few years later.

Now I'm no businessman. But but when things are going good. You need. No must save for a rainy day. Say you make 10 billion in after tax profit. Bank half dividend the other half.

To me it seems that current business practice is to squeeze every last cent out of a company. Yeah sure it's good for the shareholders and executives who get the bonuses but it does not help the company in the long term nor does it help the employees who under normal circumstances would still be in a job, but are now out of work because the company has no money in the piggy bank to pay them.

[Arsenal]

This isn't about the UAW's ruination of Chrysler, but you union apologists should take note. If this goes through as the administation plans, say goodbye to banks selling bonds from any company with unionized labor. I don't see much of a market for any investment that can be seized by the government at their whim while calling you a "greedy vulture" in the process.

[philbob]

Lol so it's the UAW's fault. Same old same old.

Did the union force Chrysler to make fuel thirsty, expensive cars?

Did the union force Chrysler executives to make business decisions that affected the bottom line?

When things were going good how come these executives did not follow Fords and Toyota's example and bank for a rainy day?

In an F1Racing article at the time of Ford purchasing Stewart Racing. Ford was the most cashed up motor company with something like 60 billion USD in cold hard cash in the bank. And Toyota were the same a few years later.

Now I'm no businessman. But but when things are going good. You need. No must save for a rainy day. Say you make 10 billion in after tax profit. Bank half dividend the other half.

To me it seems that current business practice is to squeeze every last cent out of a company. Yeah sure it's good for the shareholders and executives who get the bonuses but it does not help the company in the long term nor does it help the employees who under normal circumstances would still be in a job, but are now out of work because the company has no money in the piggy bank to pay them.

if not that take that extra money and do some capital improvements and modernization to your production capablities

[shocker1]

Did the union force Chrysler to make fuel thirsty, expensive cars?


It makes me cringe every time I hear someone say this about domestic automakers. It is really an ignorant statement. Nearly all automakers have fuel efficient affordable vehicles and high priced gas hogs. Honda with the Ridgeline, Toyota's full sized trucks/SUV, Nissan Armada and fullsize PU. They build what we buy, which is why Toyota and the rest followed.

Chrysler actually had a line of cars that is too diverse, just like GM. Chrysler has a quality issue and has had one for many years which is a major contributor to the fall. As well as the way the company was structured. The vehicles made today by most production line automakers use the same suppliers. BOSCH, ACDELCO, ASIN, DENSO, HITACHI, United Technologies I could go on. How the car maker puts it all together is what will kill a car. From fit to finish on to sales and service.

Using the blanket criticism that domestic cars are gas hogs and too big is just a false premise. Yes they have gas eating machines like my truck but that is not all they build by any stretch of the imagination.

That said the government is in new territory, a dark place from which I do not want to go. However this could drive even more investment South.:)

[Chulo]

Lol so it's the UAW's fault. Same old same old.

Did the union force Chrysler to make fuel thirsty, expensive cars?
Expensive when you look at what you have to pay the union members as compared to nonunion


Did the union force Chrysler executives to make business decisions that affected the bottom line?

Yes, when they have to work around union demands on hours, breaks, overtime, location and number of jobs


When things were going good how come these executives did not follow Fords and Toyota's example and bank for a rainy day?

Cause the union didnt like the change of structure and what that would entail

[Walter Sobchak]

Once again...scapegoat the workers for crappy management and marketing decisions. Yet we don't hear about the same for Japanese and German automakers who are equally unionized.

No Japanese union ever mugged their company like the UAW has done to the Big 3. But, the Big 3 never had any balls, or they would have just locked them out of all three companies when they hit one of them with their "targeted strike" strategy.

Anyway, the UAW will be a major owner of Chrysler. So NOW, we get to see those brilliant union thugs who always knew they could run the company better than dem bosses, get the chance. It's put up or shut-up time, UAW.

As for Obama's tactics, they are Chicago street politics at their finest. I can't wait for him to get his private security force...

[sinophile]

Once again...scapegoat the workers for crappy management and marketing decisions. Yet we don't hear about the same for Japanese and German automakers who are equally unionized.

Ordie... your workers now have their chance. 55% of a company at the expense of the non-TARP senior secured debt holders. This is the workers moment to shine. Please post a picture of your new Chrysler car as soon as you're able to get it!


When the transaction is completed, the Voluntary Employee Beneficiary Association (VEBA) will own 55 percent of the new company and the U.S. and Canadian governments will own proportionate shares of a 10 percent stake. Fiat will initially hold a 20 percent ownership stake in Chrysler. Fiat will have the right to increase its ownership stake an additional 15 percent in three increments as it meets the following criteria: 5 percent for bringing a 40 mpg vehicle platform to Chrysler to be produced in the U.S.; 5 percent for providing a fuel-efficient engine family to be produced in the U.S. for use in Chrysler vehicles; and 5 percent for providing Chrysler access to its vast global distribution network to facilitate the export of Chrysler vehicles. Fiat cannot become a majority owner until after all U.S. government loans have been completely repaid.

As a part of the restructuring, most manufacturing operations will be temporarily idled effective Monday, May 4, 2009. Normal production schedules will resume when the transaction is completed, which is anticipated within 30 to 60 days.

[LineDoggie]

There's a ****ing surprise, like Vampires they'll bleed the company dry, and then what? where you gonna go then?

[Nano]

Any chance that RICO can come into play here given what has happened? If not could not theoretically it add up to the list of crimes under RICO. Bondholders are seriously getting screwed here even though they probably won't go hungry because of this.

[homegrowncat]

I find it very interesting that even though the UAW got 55% of the company, ol'
Ron Gettelfinger said they the UAW will sell off it's shares. Now, to be fair he said that these shares would need to be sold in order to pay for retiree health care.

However, I think it is very ironic that the UAW got 55% of Chrysler then has to sell their shares to pay for healthcare which is "expensive". Hmm, not that they have to take responsibility, I'm curious if they are looking back and thinking they should have done some things differently in working with management.

I guess the UAW must suck something awful since they don't even have confidence in themselves to run a company they got a stake in and maybe work to make that company profitable.

[gammbino]

"When you buy a car, I hope it will be a Democratic car."

Oops. We have misquoted the president. He said last week he hoped you would buy an "American car" -- though apparently not one built in a red state in a plant owned by Japanese or German investors. He meant a car built by a company headquartered in Detroit, even if the car itself is assembled in Mexico or Canada. How confusing.

Hundreds of shoppers certainly understood him to mean a Chrysler car. They rushed into dealerships last weekend. Never mind that Chrysler isn't technically making cars in the U.S. at the moment -- it shut down its factories -- and when it reopens it will be on a path to ownership by a company based in Turin, Italy.

A year ago, Fiat Chief Sergio Marchionne's big play in the U.S. was to begin reintroducing the Alfa Romeo brand. He fretted about where to get the $100 million to fund the marketing effort. Now, with a global auto depression descending, he gets $6 billion of American and Canadian taxpayer money to lean on.

Don't underestimate the appeal of that cushion for Fiat.

As for Chrysler -- well, you could call this merger made in Washington George Bush's baby as much as Barack Obama's.

Chrysler would be in deep yogurt in any case amid the market collapse, but its other problem is a decent franchise in Jeeps, muscle cars, minivans and pickups -- and nothing to meet Congress's stiff new "corporate average" fuel economy rules, and nobody to supply the billions to develop such vehicles and (inevitably) bribe customers to drive them off the lots.
Daimler, its previous parent, certainly had no desire to fund such profitless extravagance. The Germans took a lot of guff but they're the ones laughing now. They sold their majority stake in Chrysler just months after Democrats took over Congress, and just weeks after President Bush began blathering about "oil addiction" and echoing Democratic demands for stringent new fuel-mileage rules (after opposing them for years).

It's no exaggeration to say the rest of the story is told in Chrysler's bankruptcy filing. In search of a partner to underwrite development of fuel-sipping hybrids and electric cars that would be almost certain to lose money in the U.S. marketplace, Chrysler's Tom LaSorda spent two years seeking alliances with Nissan, GM, Volkswagen, Tata, Magna, GAZ, Hyundai, Honda, Toyota, Beijing Auto and others -- efforts that were "uniformly without success." Fiat, he said in an affidavit, was "Chrysler's last best hope."

Not since Renault teamed up with AMC to bring you Le Car has an odder pairing been seen -- or a less promising one.

Credulous media accounts insist the only challenge now is whether Chrysler can hang on for two years until Fiat begins churning out U.S. versions of its popular European models in U.S. factories. Goodness.
Unless gasoline prices go to $5 a gallon, Mr. Marchionne certainly is not so foolish to believe making and selling teensy eurocars in the U.S. is anybody's route to salvation.

Even in Europe, he has noted, a move to bigger, more powerful cars is underway. Motorists are getting fatter and older -- and unwilling to contort themselves to get in and out of a car.

He also understands that trying to beat Toyota at its own game is a nonstarter. Toyota sets a standard of quality and technology that all must meet -- that's the price of admission. But "what we have that Toyota does not have -- and I say this with all modesty -- is the great historical heritage of the brands."

Look at the Ford Mustang, VW Beetle, Dodge Charger, Chevy Camaro, BMW Mini -- for all the talk of the Toyota way, the real path to success for many lately has been making and selling evocative cars that mean something to consumers. Fiat's own Audrey Hepburnesque "Cinquecento" has been a hit for exactly this reason -- but in southern Europe not northern Europe, which ought to caution against any hope that the pixie car will sell particularly well in the U.S.

About one thing Mr. Marchionne has been unfailingly clear: He sees an auto Armageddon coming and believes survivors must produce at least 5.5 million units a year (Fiat produced just 2.2 million last year).

He's already turned his attention to Opel, GM's European arm, which is on the market. Notice, though, that he's committed no money to Chrysler, only a promise of vehicle technology. As a New York Times story recently trailed off, ". . . at some point, some [Obama auto] task force members acknowledge, the drive for profitability is likely to collide with Mr. Obama's fuel-efficiency and low-emission goals."

Yup. Mr. Marchionne has kept his skin out of the game for a reason. Don't expect him to reach for Fiat's modest checkbook until Team Obama can explain exactly how Chrysler is supposed to make money building the "green cars" Mr. Obama wants it to build. But you already know the answer: You, the taxpayer, have not finished chipping in to keep Fiat-Chrysler alive.

http://online.wsj.com/article/SB124157578117190427.html



.......................

[Jobu]

There's a ****ing surprise, like Vampires they'll bleed the company dry, and then what? where you gonna go then?

They'll go back to the Democrats for another handout.

[11 Bravo]

For you pro unionistas I suggest you get a copy of "The Best Years" by Joseph C. Goulden ISBN 0-689-10708-0.
In this excellent book the author goes into great detail on how unions literally wrangled pay and perks way beyond their value... all under the cover of wartime. And the unionista leaders continued to feed unequitably from the trough to the point we see today with rather obscene pay & perk packages big fellas like the UAW enjoy. The chickens are coming home to roost...and hopefully these mafia like orgs will die off like the dinosaurs did !.

[sinophile]

Thomas Lauria, head of the financial restructuring and insolvency group at White & Case talks about what really happened here.

http://www.cnbc.com/id/15840232?video=1116040367&play=1

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[Walter Sobchak]

My wife had a Fiat back in the day. Fiat is an acronym that stands for, Fix it again, Tony!