Autoline on Autoblog with John McElroy
by John Neff on Sep 27th 2007 at 1:57PM 
John McElroy is host of the TV program "Autoline Detroit". Every week he'll bring his unique insights as an auto industry insider to Autoblog readers.
THE MONEYED TYCOONS OF THE UAW
By John McElroy
I gotta believe Karl Marx is spinning in his grave. Can you imagine the captains of capitalism handing tens of billions of dollars over to labor? For free? It's enough to make a Communist lose all hope for class warfare!
Yet, as part of a deal to get rid of all their health care bills for retired hourly workers, Detroit automakers are going to make the UAW richer than it ever dreamed possible. They're creating a VEBA, or Voluntary Employee Beneficiaries Agreement, which is a gigantic fund that will be used to pay all those health care bills.
The payoff for the car companies is that they can take all those future obligations off their books. That will immediately reduce their debts, improve their credit ratings and let them borrow at lower interest rates. It will also save the automakers billions every year, allowing them to drop some of it to the bottom line, and a lot more of it into developing new cars and trucks-something that Detroit desperately needs to do.
But before they get there they'll have to hand over something like $60 billion to the United Auto Workers union. And that's where it gets interesting.
Even though the union gets a pile of money, it will have to invest it. It needs to earn interest to make sure there's still a big pile of money decades down the road. UAW president Ron Gettlefinger promises this fund will still be going strong 80 years from now. The union already hired Lazard Ltd., the giant investment banking firm, to advise it on how much money it had to get from the car companies to fund the VEBA. Next the union will turn to big brokerage firms to help it make astute investments. Wall Street is already salivating over the generous fees it's going to generate by helping the UAW buy billions of dollars worth of stocks and bonds (I can't believe I'm even writing a sentence like that!)
My guess is that at first the UAW will be a very conservative investor. It will shy away from risk and prudently put its money where it will quietly earn a safe return. But some years down the road I predict that union activists won't be able to keep their mitts off the money. They'll want to use that capital to drive their political agenda. They'll use their large stock holdings to push through shareholder initiatives. They'll pressure corporate management to do the "right" thing. In some cases they'll even demand seats on the board of directors.
After all, the UAW is an organization that's dedicated to promoting social justice. Give them the muscle to make that happen and they'll definitely put it to work.
Over the years, the Big Three gave the union benefits that didn't seem too onerous at the time: generous health care payments, solid pension plans, a Jobs Banks that paid laid-off workers nearly full-time wages. But all that came back to bite them.
Right now the VEBA looks like a swell idea as far as GM, Ford and Chrysler are concerned. But give it time. There's a day waiting out there somewhere when management is going to slap itself in the forehead and wonder why the hell it ever gave the union so much money.
Autoline Detroit
Airs every Sunday at 7:00AM on Speed and 10:30AM on Detroit Public Television
Synopsis of next week's show - "Middle Ground"
After weeks of negotiations and its first strike in 37 years, General Motors and the United Auto Workers reached a tentative agreement for a new contract. It's billed as historic for both sides -- the company sheds legacy health care while the union receives some job security guarantees. Everybody's happy, right? On this week's Autoline Detroit, John McElroy and his guests Csaba Csere from Car and Driver, and Daniel Howes from The Detroit News, look between the lines on the agreement and discuss its impact on GM, the UAW and what may happen with Ford and Chrysler as they wait in the wings.
In addition, our panel also tackles one of the other burning automotive issues of the day, CAFE regulations.
Last week's show - "The New Journalism"
Autoline Detroit Podcast
Click here to subscribe in iTunes
THE MONEYED TYCOONS OF THE UAW
By John McElroy
I gotta believe Karl Marx is spinning in his grave. Can you imagine the captains of capitalism handing tens of billions of dollars over to labor? For free? It's enough to make a Communist lose all hope for class warfare! Yet, as part of a deal to get rid of all their health care bills for retired hourly workers, Detroit automakers are going to make the UAW richer than it ever dreamed possible. They're creating a VEBA, or Voluntary Employee Beneficiaries Agreement, which is a gigantic fund that will be used to pay all those health care bills.
The payoff for the car companies is that they can take all those future obligations off their books. That will immediately reduce their debts, improve their credit ratings and let them borrow at lower interest rates. It will also save the automakers billions every year, allowing them to drop some of it to the bottom line, and a lot more of it into developing new cars and trucks-something that Detroit desperately needs to do.
But before they get there they'll have to hand over something like $60 billion to the United Auto Workers union. And that's where it gets interesting.
Even though the union gets a pile of money, it will have to invest it. It needs to earn interest to make sure there's still a big pile of money decades down the road. UAW president Ron Gettlefinger promises this fund will still be going strong 80 years from now. The union already hired Lazard Ltd., the giant investment banking firm, to advise it on how much money it had to get from the car companies to fund the VEBA. Next the union will turn to big brokerage firms to help it make astute investments. Wall Street is already salivating over the generous fees it's going to generate by helping the UAW buy billions of dollars worth of stocks and bonds (I can't believe I'm even writing a sentence like that!)
My guess is that at first the UAW will be a very conservative investor. It will shy away from risk and prudently put its money where it will quietly earn a safe return. But some years down the road I predict that union activists won't be able to keep their mitts off the money. They'll want to use that capital to drive their political agenda. They'll use their large stock holdings to push through shareholder initiatives. They'll pressure corporate management to do the "right" thing. In some cases they'll even demand seats on the board of directors.
After all, the UAW is an organization that's dedicated to promoting social justice. Give them the muscle to make that happen and they'll definitely put it to work.
Over the years, the Big Three gave the union benefits that didn't seem too onerous at the time: generous health care payments, solid pension plans, a Jobs Banks that paid laid-off workers nearly full-time wages. But all that came back to bite them.
Right now the VEBA looks like a swell idea as far as GM, Ford and Chrysler are concerned. But give it time. There's a day waiting out there somewhere when management is going to slap itself in the forehead and wonder why the hell it ever gave the union so much money.
###
Autoline Detroit
Airs every Sunday at 7:00AM on Speed and 10:30AM on Detroit Public Television
Synopsis of next week's show - "Middle Ground"
After weeks of negotiations and its first strike in 37 years, General Motors and the United Auto Workers reached a tentative agreement for a new contract. It's billed as historic for both sides -- the company sheds legacy health care while the union receives some job security guarantees. Everybody's happy, right? On this week's Autoline Detroit, John McElroy and his guests Csaba Csere from Car and Driver, and Daniel Howes from The Detroit News, look between the lines on the agreement and discuss its impact on GM, the UAW and what may happen with Ford and Chrysler as they wait in the wings.
In addition, our panel also tackles one of the other burning automotive issues of the day, CAFE regulations.
Last week's show - "The New Journalism"
Autoline Detroit Podcast
Click here to subscribe in iTunes
Reader Comments (Page 1 of 1)
robert bell 5:59PM (9/27/2007)
be careful what you wish for........
while the UAW will be sitting on a horde of cash, it will be resposible for assuming all the costs and risks of future employee health care. With health costs increasing at three to four times the rate of inflation, the UAW will have to implement some draconian cost cutting to make sure the money is there for all members. In one fell swoop the UAW has become, next to Medicare, the biggest player in health care and GM is off the hook. A historic shift from employer provided benefits to a new model.
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ThunderStik 2:12PM (9/27/2007)
Yeah wait for the UAW to start building cars of its own. Just kidding.
I wish they (GM) would have starved them out though. They make absurd money for the work they do. No wonder they cant make small cars and make money. When everybody makes 30 bux an hour the public has to pay.
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Mr. Oak 3:00PM (9/27/2007)
@ watingfor.... You seem to want to tell everyone to STFU. I ignored you last week. I'm glad that $206 figure came from you, let's take a closer look at what it pays for.
Research & Development
Wages -
Pension Fund Contrib. -
Health Care Contrib. -
Cost of Raw Materials -
Cost of Equip. Maint.
Cost of Electricity -
Vacations -
Taxes -
Fuel Costs - (every car leaves the prod. line with a few gallons of go-juice). GM pays for it.
Could you be so kind as to fill in the blanks? Do a simple addition of GM's hourly cost breakdown, and subtract it from that $206.00 number.
Mind you, that $206 figure is generated only by the people that are directly associated with the production line. GM's cost comes from ALL GM workers.
Here is a list of folks that works for GM that don't generate shit for the company:
Janitors
Cafeteria workers
Accountants
Security Guards
Nurses
Human Resources
Test Drivers
Grounds Keepers
Facilities Maintenance Workers
Everyone at the GM Heritage Museum
The next time you run into one of these folks, feel free to let them know that they do not make any money for the company. Let them know that they are a burden to the company and if it weren't for them GM would be much better off today.
After all, the only thing that matters, is that you get your big piece of chicken.
David 3:11PM (9/27/2007)
Lol ... so according to you, waitingforvizzini, the area in and around southeast michigan should be a viable hotbed of economic activity. It's not. And don't say it's because everyone is buying foreign automobiles because plenty of "foreign" cars are being built in america and plenty of "american" cars are being built in Mexico.
RAS 2:15PM (9/27/2007)
So will Ford and Cerberus also be "sponsoring" VEBAs as well as part of their contracts?
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Alex 2:20PM (9/27/2007)
"union activists won't be able to keep their mitts off the money. They'll want to use that capital to drive their political agenda. They'll use their large stock holdings to push through shareholder initiatives. They'll pressure corporate management to do the "right" thing. In some cases they'll even demand seats on the board of directors."
Christ... that is going to eff things up nicely. I doubt they'll even wait 10 years. they'll just start right away.
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epilonious 2:21PM (9/27/2007)
Yep... UAW is a corporation more than a group of workers representing worker interest.
I fear that down the line the UAW will become the sum of bureaucracies of a hedge-fund, insurance conglomerate, and HR department from Hell.
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waitingforvizzini 4:33PM (9/27/2007)
Ford yeah maybe. Chrysler nah they just aren't large enough to support such an arrangement. Before the germans drove them into the ditch I woulda said yes.
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jackhutson 2:42PM (9/27/2007)
The UAW can take the 50 to 60 billion, open an Ameritrade account and trade free for 45 days and get $100.00. During that 45 days they can buy all the outstanding shares of GM and have their cake and eat it too. Who needs an investment banker?
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georgejetson 3:12PM (9/27/2007)
Except they probably couldn't, because as they were buying they'd drive the share price sky-high.
But it would give new meaning to the phrase, "inmates running the asylum" and be fun to watch.
georgejetson 3:09PM (9/27/2007)
@waitingforvizzini: I've been in the benefits business. I know how the GM/UAW's benefits compare with those of most Americans in comparable value-add jobs. "Incredibly, absurdly generous" doesn't even begin to describe it. In most industries those guys would get $15 an hour, a bare-bones health plan with $50 copays, and a 401k with a 3% employer match IF they were lucky. No pension, no "jobs bank", and no private health insurance for retirees -- the most absurd benefit ever. And absolutely positively no guarantee that their job wouldn't be sent to China tomorrow. That's how the rest of the world works.
GM is talking nice about how the UAW just saved their bacon/got the best of them because the UAW's members haven't voted on the agreement yet. Wait and see what they and Wall Street are saying about it in a few weeks, after it's a done deal, before you jump to conclusions about who is "saving" who. GM has acknowledged that moving all production out of the US (about 70% to Canada and Mexico, the rest overseas) is doable if necessary. I'd be shocked if they weren't already scouting factory sites in northern Mex in anticipation of the NEXT round of letting the union "save" them four years from now.
So offhand I'd say YOU "clearly have no idea what you are talking about".
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waitingforvizzini 4:34PM (9/27/2007)
clearly there is a reading comprehension gap here.
for every hour worked there is an additional 206 gain to the company. industries. what the company does with it has nothing to do with the union.
Employee compensation of all types before this deal was 10% of the cost of the car. probably less after the deal. Don't take my word for it. ask the auto industry.
http://www.autoalliance.org/economic/
The Alliance of Auto Manufacturers [an industry group] says that as of 2003 each worker added $292,000 in value, 143 percent higher than the national U.S. manufacturing average.
David I'm aware that toyota, nissan, bmw, even kiahyundai make cars here. Allthough you'll note that the corrolla/matrix and tacoma are made by unionhands.
george jetson, Mr Oak do you really wish ill on your fellow man/woman?
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Mr. Oak 4:07PM (9/27/2007)
george jetson, Mr Oak do you really wish ill on your fellow man/woman?
-----------------------------------
Show me where in your statement does it say that this is before or after operating expenses?
"For each hour they work they create 206 dollars that's according to the U. S. census."
No, I don't wish anyone any ill will. The stark reality is, the culture of the typical unionised US auto industry worker is: As soon as you're old enough, you get your foot in the door at one of these plants, and the union will take care of you.
It's not much different than welfare. I understand starting out in any plant as a janitor as a foot in the door, then you try to move into a better position at the company. To start out as a janitor and stay there for 20 or more years because the union will take care of you is wrong. Twenty or thirty years later you're a $80K a year janitor? that is insanity.
The new system will make them work hard at moving up.
Bert 3:49PM (9/27/2007)
I think it's a creative and ingenious solution. It offloads a lot of cost from the automaker, letting them concentrate on making autos. It also puts the responsibility for worker health care and welfare in the hands of the union. The union's job, goal and arguably it's raison-d'être is the protection of the health and safety of its members.
Has this solution been tried with any other unions in other industries?
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waitingforvizzini 4:34PM (9/27/2007)
thanks for the sensible comment.
TopJimmy 4:09PM (9/27/2007)
So where does this money come from exactly? Does GM just have tens of billions of dollars sitting around burning a hole in their pocket?
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waitingforvizzini 4:55PM (9/27/2007)
GM contributes lump sum up front and continues contributions to the trust over time. The union also contributes to the trust and is responsible for its management. not much different than any normal pension fund except in who's managing it.
Drewe 7:20PM (9/27/2007)
Good Analysis, and I hadn't even thought that far ahead.
What happens when Ford and (possibly) Chrysler puts in? Think of that 'corporate' muscle.
But - it could bite them just as hard - think of the scenario where the UAW gets majority somewhere, forces through their 'worker' changes, which send the company broke, loose their money, and none have health care.
It's like giving a recalcitrant 10 year old 60 Bil. I really hope the legistlation around VEBA's is tightened so they can't touch or use it (though there is always the 'back door').
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