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
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.
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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"
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Autoline Detroit Podcast
Click here to subscribe in iTunes
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