What a Difference 66 Years Makes: UAW-Ford Contracts: 1941 (24 pages) vs. 2007 (2,215 pages)
1941 UAW-Ford Master Contract
2007 UAW-Ford Master Contract: 22 pounds, 9 inches
"For a snapshot of how labor-management relations have changed in Detroit's auto industry, just compare the UAW-Ford contracts of 1941 and 2007, as University of Michigan economics professor Mark Perry did last year (in this CD post). The 1941 pact was a tiny 24-page booklet that fit in the palm of a hand (see top photo above). In 2007, the agreement was 2,215 pages and weighed 22 pounds (see photo above).
That's what happens after a half-century of mutual distrust. When neither side trusts the other to implement the basic bargain, thousands of procedural do's and don't's get baked into contracts. The result: a rote, rigid, paint-by-numbers way of doing business in Detroit that proved darn near fatal in a 21st-Century world where flexibility and speedy decision-making are critical. Only the government rescue of GM and Chrysler and the Alan Mulally-led turnaround at Ford saved the Detroit Three and the UAW from the scrap heap."
Read more here.
Update: The 2007 UAW-Ford contract weighs in at 22 pounds, and the measured height is 9 inches (about twice the height of the Coke can in the picture above), according to a CBS news report available here (audio may not work).
64 Comments:
The graphic is misleading. Unless the 2007 contract uses both sides of the paper as I suppose the 1941 booklet does, it is twice as tall as it should be. Did David Copperfield design this illusion?
I would not expect our new UAW/GM contracts in the future to be smaller unless they use smaller font. We took out 2 pages of a restrictive work rule and added 10 pages to state why we were removing it. By the time the lawyers are finished analyzing the document, we have three paragraphs in the published document to state what only used 1 paragraph in the tenative agreement.
Whether you agree or not, I can say as an insider that we have changed more in the last three years at GM than any other time in the last 37 years. Larry Summers has written that the U.S. should expect to receive all the money loaned AND invested in GM. Thanks for the investment, and we will earn your trust in the future.
Walt,
With all due respect, you are playing a stupid game of semantics. Not surprising since the taxpayer had to bail your company's as$ out. Fact is, many studies are out there proving that GM did not pay back the loans that they said they did! You can state as an "insider" all you want that GM has changed these past three years, but the fact remains the unions have not but have only become more embolden because of Obama. Face it, it's a fact the unions have destroyed the auto industry. Kudos to Ford for making the hard choices to run a profitable company WITHOUT HAVING THE GOVERNMENT, IE. TAXPAYER BAIL THEM OUT. And you are arguing WHO is the better run business here? You can keep your junk, be it cars or self-serving comments.
Profits at GM have been too low, which weakened the automaker, because of low quality perceptions and high labor costs:
Perception Is Reality
Sep 5, 2006
Perception is reality in the car business. And it takes a long time to change perceptions.
Witness the tale of two companies — Toyota and General Motors. Despite recalls and public relations woes, Toyota's image of bulletproof quality persists, and sales and market share rise. Despite concrete evidence to the contrary, GM's reputation for inferior quality remains, while sales and market share decline.
A University of Michigan analysis of customer attitudes found that General Motors has been doing a better job of impressing buyers...Nevertheless, the perception that GM's quality lags behind Toyota's by quantum amounts persists.
And Dr Perry posted in Nov '08:
Bottom Line: Even with the new contract, there will still be about a $14 per hour pay gap in total labor costs between GM ($62) and Toyota ($48), and more than a 29% total labor cost premium for UAW workers compared to their nonunion counterparts at Toyota.
Well there won't be any Toyota treatment for
Government Motors apparently...
In 2010, Detroit once again leads the world in innovation by introducing the first cars in which smoke detectors come standard
Buyers of Toyotas paid a premium, while buyers of GM autos received a discount.
Also, Wall Street created and captured enormous capital in the global economy, which allowed zero percent financing.
So, U.S. consumers benefited from low GM prices and cheap financing.
Beleive it or not a lot of business deals used to be done with little more then a handshake. Now, it seems that it is lawyers matching wits and words with resultant high verbage content. Robotics does a lot of the labor now and that would make it obvious that unions need to be more flexible with the work that remains for their members.
BTW, Al Mullaly and Bill Ford are hopefully headed for an historic turn-around of an industrial age giant that will be legandary.
The Automaker "bailout" was only a small part of the billions of taxpayer dollars that the Democrats have gifted to the UAW and other unions:
Democratic senator is introducing legislation for a bailout of troubled union pension funds. If passed, the bill could put another $165 billion in liabilities on the shoulders of American taxpayers.
The bill, which would put the Pension Benefit Guarantee Corporation behind struggling pensions for union workers, is being introduced by Senator Bob Casey, (D-Pa.), who says it will save jobs and help people.
As FOX Business Network’s Gerri Willis reported Monday, these pensions are in bad shape; as of 2006, well before the market dropped and recession began, only 6% of these funds were doing well.
Although right now taxpayers could possibly be on the hook for $165 billion, the liability could essentially be unlimited because these pensions have to be paid out until the workers die.
FOX News
That's right, you, your children and now your grandchildren are on the hook for UAW pensions which are massively underfunded and covered by the Pension Benefit Guarantee Corporation.
Unions are just cartels that destroy essential industries and corrupt our political process. They have no place in a free society.
"Buyers of Toyotas paid a premium, while buyers of GM autos received a discount."
Peak, how is that?
Barely 15 percent of all construction-industry workers in the United States are union members, while the remaining 85 percent are nonunion, according to the U.S. Department of Labor's Bureau of Labor Statistics. So why has President Obama signed Executive Order 13502 directing federal agencies taking bids for government construction projects to accept only those from contractors who agree in advance to a project labor agreement that requires a union work force? Obama's new order applies to all federal construction projects with price tags of $25 million or more, and it means all such contracts will only be awarded to companies with unionized work forces.
Washington Examiner
Just another way that unions steal your tax dollars.
Anonymous 9:58:
Stupid semantics? Money is money, and it will probably all be paid back with interest. As a credit extender who loaned some of my own tax dollars to myself, I think it was a good investment. You can blame unions if you want, and we acknowledge that we are part of the problem, but we are working on that daily. At the same time, you can't ignore the government regulations and historical financial crash that took place that evaporated any type of credit that companies need to operate. Businesses do not run on cash like households do, they operate on credit almost exclusively to bridge gaps between accounts payable and accounts receivable. Credit is their lifeblood.
We now have a bunch of autoworkers who are contributing to the economy through taxes and consumer purchasing. That's great news! Why is it that it's always a rosy message about the economy regardless of how bad things appear on this blog but the same positive outlook is not extended to the U.S. auto industry?
gettingrational,
Our union rules have changed so much I don't recognize them anymore, yet we still have work to do. Don’t underestimate our commitment to getting it right this time. Remember, we are your friends and neighbors who purchase your products and services. It’s a two-way street. You need us, and we need you.
I agree Ford made a wise business decision hocking the farm before the credit market dried up. But one reason they did not get a taxpayer-funded loan is that they did not own anything that was not already collateral for a loan elsewhere. Accordingly, there was no possibility for a debt-to-equity swap such as GM and Chrysler received because they no longer owned anything at all. In fact, they did not even own the rights to the “Ford” name or legendary blue oval trademark! I guess it is easier to Ford was not “bailed out” than to publically acknowledge they are in debt up to their eyeballs. Many of the financial analysts state that GMs balance sheet now is stronger and superior to Ford’s. Time will tell.
Ron, buyers are willing to pay a higher price for (perceived) higher quality, but are unwilling to pay a higher price for (perceived) lower quality.
Money is money, and it will probably all be paid back with interest.
Bullshit. You need to read up on the details of the auto bailout. Senior secured creditors had their rights trampled so that the Obama administration could gift a huge part of the company to the UAW, billions of taxpayer dollars were diverted into the UAW pension fund and UAW workers were not required to make any concessions with regard to pay and benefits. This was a union/Democrat party orchestrated heist. Will the UAW be required to return every dollar that they have stolen, with interest, to the American people? Not likely.
Walt, Ayn Rand acknolweledged the contributions of blue-collar workers, as noted by Charles Murray in a recent essay, via Marginal Revolution. I support blue-collar guys as well and want them to be a growing segment of our work-force if the U.S. is to have sustained economic growth. Work rules became absurd in a lot of work situations. The robotics operators might have to sweep the floor sometimes without a court fight.
postcards were a penny in 1941...what a difference 66 years makes
anonymous 11:52,
Could you provide any documentation of U.S. money being put in the UAW/GM pension fund that would not have to be paid back? I was not aware that any of that money at all went into the pension fund, and I follow that pretty closely.
I lost over $20,000 per year in wage and benefits that we had an agreement to receive in the 2007 contract, so I don't know what you are talking about when you say no concessions.
I don't understand how banking and bankruptcy laws work with different levels of secured and unsecured creditors. I lost almost 6 figures in GM common stock. I can tell you that hurt big time. I imagine there are a lot of other unhappy people with their losses. I wish we had all come out better on that.
What money has the UAW stolen from the American people? Do you have a dollar amount and where it went? The UAW financial records are public, on their Website, and audited yearly. I can't find such a revenue source in there. Can you clear your statement up with some factual source or evidence?
"We now have a bunch of autoworkers who are contributing to the economy through taxes and consumer purchasing."
There would still be autoworkers if GM had gone belly up, they'd just be working for an automaker that doesn't have the union knife at its throat.
The UAW received 17.5 percent of the value of the restructured General Motors for the union's health care fund. By contrast, GM bondholders got only 10 percent. And let's not forget the UAW's $6.5 billion in preferred GM stock, paying a government-guaranteed 9 percent cash dividend.
It was this sweet deal that led critics to accuse the White House of not doing what was best for GM or the taxpayers who now owned 60 percent of a failing automaker, but rather running a political operation to benefit a powerful Democratic constituency known as the UAW.
Congress' political motivations for helping bailing out the UAW were even more transparent. According to data cited by the Sunlight Foundation and compiled by the Center for Responsive Politics, the UAW's political action committee donated "$1,111,250 [in 2008] to 182 lawmakers who voted 'Yes' on the auto bailout" -- a $14 billion cash infusion to the failing car maker in December 2008.
All told, the UAW spent more than $2 million in political contributions electing Democrats in 2008 -- including $29,000 to put Obama in the White House.
The UAW was not alone, as the whole of organized labor spent an estimated $400 million electing Democrats in 2008. In return for all that campaign cash, the unions are now seeing their coffers filled by captive lawmakers with taxpayer cash to replace shrinking union dues revenue.
Obama's $859 billion economic stimulus package last year included Davis-Bacon "prevailing wage" provisions, which mandates more government contracts going to unionized companies despite their submitting more costly bids than nonunion companies.
Washington Examiner
Unions are not about "working people" or "blue collar guys", the vast majority of whom have rejected union representation, they are a malignant cartel that corrupts everything they touch.
gettingrational,
I agree. The sanitation/sweeping rule was removed in the 2004 contract because it was not a core operation. We sweep our own floors now, and we contracted out the heavy cleaning. We've had tons of these changes without the public realizing it.
We used to worry about doing someone's job and getting in trouble. For the most part, we don't now. We still have some lines we can't cross, but those are mostly training/safety issues. I can't operate a crane, forklift truck, or open an electrical panel because of MIOSHA safety rules even today. Not all rules are stupid rules.
Could you provide any documentation of U.S. money being put in the UAW/GM pension fund that would not have to be paid back?
Sure:
GM and Chrysler shed tens of billions of dollars in costs while in bankruptcy last year, but chose not to terminate their pension plans, as companies often do when they seek court protection while they restructure.
The Pension Benefit Guaranty Corp., the government pension insurer, last year assumed responsibility for at least a half-dozen auto supplier pensions covering 100,000 people, adding more than $7 billion to its own deficit. The agency was relieved that it didn't have to pick up GM's and Chrysler's as well.
Still, the PBGC has expressed concerns about the overall state of auto industry pensions. GM spokeswoman Noreen Pratscher said this week that the Detroit automaker is considering a voluntary contribution to its hourly pension plan, as a bookend to its action on behalf of hourly workers at its former parts unit, the bankrupt Delphi Corp. She didn't disclose the amount.
GM agreed to make up $1 billion in losses that Delphi employees stood to lose when the PBGC took over the Troy-based supplier's pension plans. That contribution would cut GM's deficit.
Detroit News
Those 100,000 people were UAW members and that $7 billion comes out of the pockets of taxpayers. The PBGC was set-up by the Democrats to gaurantee union pensions. In return, unions pump millions into Democrat party campaigns.
anonymous,
You are kind of getting out in left field with the money issue. The health care fund is not the pension fund. And both GM and the government wanted OPEB off the balance sheet.
On another note, let’s just agree that campaign financing has a lot of problems. Surely, you don't think unions are any worse with the Democratic Party than business is with the Republican Party, do you?
Obamacare is stuffed with union graft:
.... Under section 164 of the House bill, union bosses who have mismanaged benefits for their own members are poised to receive a $10 billion bailout from U.S. taxpayers in the form of a "reinsurance program" that has been folded into the health care bill. Union health insurance funds only have about 30 cents available to cover each dollar of anticipated claims, according to the Lewin Group and other research firms.
There's more. Sections 123, 124 and 2251 of H.R. 3200 all create new avenues for union control on newly formed committees that administration officials could stack with union appointees.
Spectator
PBGC is currently funded by business, and not taxpayers. So none of your money is in there, yet.
I still don't see taxpayer provided UAW money in our coffers. Political favors maybe. But that swings back-and-forth depending on who is in office.
Surely, you don't think unions are any worse with the Democratic Party than business is with the Republican Party, do you?
Again, you need to read up. Businesses give more to Democrats than Republicans. That's what happens when one party is running an extortion racket that threatens their existence.
The health care fund is not the pension fund.
Oh, I feel better now, my money is paying for your health care instead. Pathetic.
PBGC is currently funded by business, and not taxpayers.
The PBGC is in deficit, and it has never collected enough money to cover it's obligations. Why am I, as a private citizen, even involved in funding union pensions and health care? Get your fucking hand out of my pocket!
I lost over $20,000 per year in wage and benefits that we had an agreement to receive in the 2007 contract, so I don't know what you are talking about when you say no concessions.
UAW Conceded No Base Pay, Health, or Pension Benefits in GM, Chrysler Bankruptcy Run-ups
One reason the public so distrusts the health care plan being considered by Congress is that so many troublesome details keep bubbling out of the massive legislation.
The latest example is the $10 billion taxpayers will be asked to shell out to prop up the United Auto Workers’ retiree health insurance program. …
In effect, it would ask every taxpayer, regardless of whether they’ll have health insurance coverage themselves after they retire — and most won’t — to chip in to maintain the UAW’s coverage, which even after the union’s givebacks is still better than what the average American worker receives.
Detroit News
It was bad enough when unions were destroying Americas greatest industries. Now, they've started devouring our government, threatening the nations solvency.
Now we are on healthcare spending. Kind of rambling today, are we not?
I think a lot of people will get back more than they paid in on that front. With a lot of debt added to the pile to make it happen. The problem simply cannot be solved without attacking cost, and that does not seem to be a priority in the law. To single out the UAW or any union as a scapegoat is seriously underestimating the breadth and depth of the healthcare cost problem. It sounds as if someone has a union ax to grind to me.
The PBGC has never paid out more than it received. It is in deficit on paper if it had to pay out all the pensions it has the potential/liability to cover. You don't know what you are talking about.
You said NO concessions. I'll stay with my $20,000 per year statement. We lost more than base pay that's why it's worded that way in the article. And we did increase our health care deductible, lost some procedures that used to be paid for--and no more free Viagra :)
With cost estimates already as high as $1.6 trillion ... Baucus is also weighing a tax based on the value of health care benefits that exceed a yet-to-be determined cap. A tax on benefits that exceed the cap by a mere $3,000 could amount to $750 in taxes annually for a worker who earns as little as $34,000, say experts.
But those union members serving under collective bargaining agreements would not be subjected to the tax, according to proposals under discussion.
Union workers enjoy some of the most extensive and costliest health benefits, and union officials complained their members would be unfairly burdened by a health care tax because their contracts cannot be changed quickly enough to avoid it.
Union members also represent one of the biggest and most powerful Democratic constituencies and their support of any health care reform proposal is viewed as essential to getting a bill passed in Congress.
Washington Examiner
Yes, that little tax break made it into the final bill. How much do you think that was worth? Didn't Joe Biden say that paying taxes was "patriotic"? Does anyone even know how much money the unions have stolen?
To single out the UAW or any union as a scapegoat is seriously underestimating the breadth and depth of the healthcare cost problem.
I single them out because they are using TAXPAYER MONEY! If you want to destroy the businesses that you work for with your lunatic demands fine, just leave us out of it. The taxpayers do not owe you health care or a pension. You made your bed, now sleep in it.
Once again blaming the unions when they were merely doing the job the members expected. The unions have only one job to look out for their members interest in the short term, just like managment really has only one job to look out for their own interest (the rhetoric about looking out for stockholders is pure output of a male bovine). Union management wins elections by getting things for their members, however possible that is their one and only job to say otherwise is to not understand what a union is for. If long term it screws the company well thats the managments problem for giving in. But as noted the managment does not really care about stockholders since director elections are really elections run as in the former soviet union, where withholding a vote for a director is irrelevant. I say let 5% of holders nominate directors. If a majority of the holders of the common want to run a company into the ground, let them its their company!
Actually on the point of Detroit, its still suffering from its cars of the 1970s such abortions as Plymouth Volaries and the X car from GM. All were nice ideas but turned out to be junk.
In summary don't blame the unions they were engaging in the short term thinking required of them, blame the management for not standing up and taking the strikes to control things. (And blame the analysts for not telling management to stand up to the union)
anonymous,
We are taxpayers, too. I guess that makes us lunatics. We just borrowed a small part of the money we have paid in over the last few years, and we will continue to pay money in the future. You spend more time name calling than making strong arguments for your position.
We are taxpayers, too. I guess that makes us lunatics. We just borrowed a small part of the money we have paid in over the last few years ...
Give me a break. Where do I go to get back a "small part of the money I've paid in"?
You and "lyle" seem to think that making demands that ultimately result in the destruction of the company you're working for is fine. Or, as "lyle" puts it, " If long term it screws the company well thats the managments problem for giving in". All I'm saying is that you should have to live with the consequences, without recourse to the taxpayer. As for "name calling", whatever I might call union thugs is nothing compared to what they've been calling the American taxpayer which is - "sucker".
Anonymous,
More of the same: sweeping generalizations and name calling. Have you got anything more substantial to back your claims?
Walt,
Reading these commentaries, you've lost this debate.
Janet, thanks for your thoughts. You know, you win some, and you lose some. I don't expect to win a popularity contest using labor unions as a topic in 2010.
Let's have this discussion again in five years or so. I have no doubt we will still be around then. How many other companies, even in post-bankruptcy form, can say they have been around over 100 years? We will do what it takes to survive and thrive.
Well, I'm not picking a winner in the debate, but I have picked up that I probably should read more of the Washington Examiner!
I do not get why American companies are responsible for employees health and retirement living standard.
I also do not understand why the government directly needs to fund GM to provide pensions and benefits for UAW GM workers.
Could someone please explain this incredible thinking and the reason for it.
Anon 11.22:
Don't fret the way things are going It wont be too long before a public toilet block will cost 25 million to build so these will be fully unionized work sites too.
Mr Yak the reason that companies fund health and welfare benefits is that Truman wanted national health care and pensions but GM thought it could do better than the government so it said we will do it with the approval of the UAW in 1947-1948. Yes medical cam in during WWII to get around wage freezes, but there was this opportunity but the private sector thought it could do better, and thus we are where we are.
In one sense Obama was right no one would invent the health care system we have today (either pre or post reform) if they were starting from scratch, its basically totally irrational. For example the small business primary care physician is inefficient in the extreme, larger clinics provide both a way to save ancillary costs as well as allowing the group to define practice standards.
I thought that in the new [government funded] reinvented GM that the union workers now owned 57% of the company and that this was given to them in lieu of lost retirement benefits due in the old crashed GM.
Why would the federal government want to pay anything towards the UAW workers retirement benefits when they can sell their shares and use the money to retire on as planned.
Aren't these democrats just so generous with your money.It's hard to believe this, Is it BS?
Here in China we work in the fields or factories we have no rules to work to.If our eyesight fails and we no longer can do the work we are given two weeks pay and then we are on our own.
It is a good thing that we still have close family ties because without them we would be totally without any support.
The family farm is where it all happens because the family is housed there and so it is really the only social security we have to cling to, but it is not so bad as we all look out for each other.
The younger family members work in the fields and bring in the food that we eat while the older ones look after the children and do the chores.
I suppose the system is that we all rely on one another and work together so we all survive.
The family farm is owned by the family so it just keeps getting handed down the generations.
We all survive on Chinese medicine potions and we get by.
There is no shortage of members of our family as the young ones are very active.
Its a good life that goes on and on.
"I do not get why American companies are responsible for employees health and retirement living standard.
I also do not understand why the government directly needs to fund GM to provide pensions and benefits for UAW GM workers.
Millions of Americans are scratching their heads over these questions also.
Does anyone have any data that show the federal government providing money to a GM pension or health care fund?
No PBGC money has flowed to a GM/UAW pension fund, and even if it has, that is not federally funded unless it needs an infusion of money, which has not yet happened. Companies have provided 100% of the premiums to date.
The VEBA is funded with pre-bankruptcy GM cash and post-bankruptcy stocks, and stock warrants that has not had an IPO yet (and some promised future GM cash). I don’t know how the new health care bill will work with the VEBA, but again no federal money is in the VEBA today.
Where's all this money that I keep hearing about? I don't want opinions and rumors: Show me the evidence the UAW has this cash or spent it somewhere (there is some Delphi PBCG money being used for salaried pensions). Whether you like where the money came from or not, the federal loans were paid back five years early with interest, and many leading economists expect all of the remaining money to be repaid when the government sells their GM stock. In fact, some believe the government will make a profit on the stock.
As for union political influence? Every organized group tries to influence politicians. A lot of people want that government tit, and who is sucking on it just depends on who is in office. Obviously, the whole system is corrupted.
A question I would put is why should unions be any more concerned about the long term than management? Management is only concerned about the company until they retire and take their parachutes out. People denounce the unions for getting as much for their members as they can, what else would you have them do, that's why the workers at one time voted to join the union to get the best deal possible.
Lyle,
U.S. publically traded companies are judged primarily by their quarterly reports. Long term is the annual report. We didn't make the system, but we do have to live with it. That is why the strike tactic is/was so effective.
The UAW and GM are more concerned with the long term than most financial institutions that are highly influential to our future are. We depend on a thriving company to pay for our pensions and health care. They take the money and run.
actually walt, despite being a bit rude, anon has given you stacks of facts and is pretty much correct.
it is you who are obfuscating with generalities and ignoring the fact that US bankruptcy laws were egregiously and deliberately violated in order to massively preference a set of unsecured stakeholders (the UAW) at the expense of secured creditors who should have been paid first.
even if GM were to make enough money to pay the taxpayers back (which they won't) who will pay back all the private debtholders who should have been paid?
their assets were confiscated in direct violation of black letter law in order to favor a political constituency.
the fact that you do not see/understand this just underlines the fact that you are part of the problem. what right does the UAW have to take money to which others are legally entitled? by what legal standard is that correct? by what ethical standard is it acceptable?
such abrogation of law hurts everyone by weakening a system that benefits us all. such cronyism leaves everyone in doubt about the outcomes of a bankruptcy if politically powerful constituencies are involved. this reduces investment and increases the cost of capital. in light of the GM bankruptcy, i would certainly demand a higher rate of return on money i lent to a highly unionized firm (if i were willing to lend at all). you guys are cutting your own throats and don;t even see it. worse, you're doing it on my dime. sure, you may be a taxpayer too, but arguing that the taxes paid by GM employees for the bailout are even remotely meaningful as a % is just silly. for every dollar you paid in taxes for this, you got millions back from the rest of the country.
morganovich,
What law specifially did the UAW violate and what "money" are you talking about? No "black letter law" is broken unless a court decides so, have they? When?
Again, the bailout is looking more and more like a loan. See the latest post on this blog. GM makes a ton of money on truck sales, and they have a strong balance sheet where that goes to the bottom line now.
There is no federal money in either the pension or VEBA fund that I am aware of. Do you have something different? The money in the pension fund was protected from bankruptcy by federal law enacted years ago. The VEBA is funded with pre-bankrupcy money in a trust, too. That's why it's called trust.
I don't think I am the one with the generalities. Anon has provded articles from the editorial and opinion pages of newspapers and magazines. I agree it's quite a pile. But not everything in a pile is good. These could only be considered "facts" by someone who is biased.
I am not saying anon might not be correct. But if so, where is all this illegal money at?
walt-
bankruptcy in the US is a well codified and understood process. the predictability of it provides a great benefit to market participants by making it easy for them to determine what likelihood of asset recovery they will have in a liquidation.
creditors are in tiers - from the top of the senior secured class all the way down to unsecured debt and then equity. those lower classes expect higher rates of return for taking more risk.
where GM violated the settled bankruptcy law (by presidential and congressional fiat) was to pay out senior secured creditors at 10% and then pay out unsecured creditors (like the UAW pension fund and the workers themselves) at much higher rates.
the law could not be more specific that unsecured creditors receive ZERO until such time as the senior and secured creditors are paid. violating that by decree is theft. worse, the idiosyncratic violation of such law to favor political constituencies with billions of dollars of private money will make every creditor looking at a future situation like this charge more to lend, so a decision made for GM will hurt ford and boeing, the airlines, and anybody else with a big union. now we all know that unions can jump the line in a BK hearing if it's politically expedient and that they will do so and take your investment that you thought was secured.
the literal equivalent would be your roofer taking 40% or your house in a foreclosure even though he was only owed $10 grand with no actual claim on assets and you having to eat the loss because your roofer is the son of the mayor.
this was a political giveaway, pure and simple. the money was seized from a group of private investors and given to a politically favored one who was not entitled to it.
Morganovich,
Excellent commentaries. I will guarantee that Walt will not understand what you are talking about. Anyone that does not understand how the takeover of GM violated and totally disregarded well established US Bankruptcy laws does not have the intelligence to connect dots. Thanks for trying though.
Walt is right about the short term orientation of both sides in a contract discussion. If all management cares about is getting to their own retirement, then you get where we are. The stockholders are not really represented by management given the soviet style directors elections and the good old boys nominating the directors. This is the dirty little secret of modern corporate life the management are not the owners but just employees, and don't give a hoot about the long term.
Of course the biggest issue is that in the long term we are all dead. I have asked on other forums what do we owe the future? and got hooted at for even asking such a question, yet its clear that modern corporate life does not care about the long term, so why should individuals, we have become a first 2 little piggies society and build houses of straw.
"No "black letter law" is broken unless a court decides so"
this is completely untrue. you are mistaking committing a crime and being convicted.
by your logic, i could pick your pocket and steal your wallet, but no crime was committed unless a court says so.
the creditors in GM were pressured into accepting the deal by government threats. that is extortion. the equivalent would be your threatening to report my stealing your wallet and my threatening to have my my pal the mayor run your store out of business through endless inspections, nuisance suits, and capricious law enforcement.
so, you choose not to report me.
would you feel like you had not been the victim of a crime?
morganovich,
I've been on both the winning and losing side in court. I did not walk away bitter when I lost even when I knew I was right. You win some, and you lose some. You are only a victim if you let yourself feel that way. I do like winning much better than losing.
I forget which Supreme Court Justice stated that precedent was made to be broken, and I agree it was here. That's certainly not the first time though, and it won't be the last.
I also accept the fact you all did not like the outcome, but at this point in time, nothing in the deal is illegal. Those who feel differently, and have standing, should use any appeal process the smartest and most expensive legal minds can find. At some point, though, you just have to cut your losses and move on.
I enjoy the debate with you guys, and I wish you all the best life has to offer.
JD, understanding and agreeing are two different things :) I guess we can agree to disagree. Even opposing views can have excellent commentaries.
walt-
you really are not getting this. this was settled law. precedents in law are not made to be broken, but followed. law that can be abrogated at whim is no law at all.
this was theft and extortion enabled and promoted by the federal government to benefit a privileged class.
your "you win some you lose some" argument is nonsensical. this was not some disagreement about facts or negligence or a jury deciding they hated the defendant's hat. the facts and law could not have been clearer. they were simply not followed by imperial fiat. this again is the literal equivalent of your nanny taking your house because you didn't pay her bill and expecting the bank that holds your mortgage to be OK with that.
this was the wholesale abrogation or law that NEEDS to be predictable. if it isn't, everyone suffers.
your argument about "you are only a victim if you feel you are" is just crazy. so if i steal your wallet and fraudulently steal your identity and use it to sell all your belongings, you're not a victim if you just whistle a happy tune?
come on.
you are essentially saying that your bank mentioned above should just say, oh, i guess we lost a few hundred thousand because the nanny was politically connected. no big deal. kick us again if you want.
what they will really say is "hell no. i'm never lending to anyone like that again".
thus, by breaking the law to reach an end you desire, you make life worse for everyone who looks like you and now cannot get a loan.
favor the guilty, punish the innocent is not a terribly compelling moral stance.
"I also accept the fact you all did not like the outcome, but at this point in time, nothing in the deal is illegal."
Walt uses this tactic all the time: Either accept your legally laundered union shakedown, or you have no respect for the law.
morganovich, thanks for the clear, concise explanations of the GM takeover. Well said.
You all need to read the actual bankruptcy case, GAO reports, and other primary sources and make your own minds up. Don't let me or the op/eds put spins on what you are smart enough to figure out yourself.
I pulled the actual bankruptcy cases, motions, claims, final judgement, the GAO reports, and the presidential task force records. I was somewhat surprised at how much bad information is out there in the media.
I would not worry too much about what you guys are saying are "secured creditors". First, they are called unsecured in the bankruptcy case (I don't know who termed them "secured", and second, they were not repaid 100% primarily because many of the bonds were sold at a deep discount for 10-30 cents on the dollar to speculators before the bankruptcy was filed.
I am in the middle of a GAO report on the future of my pension. I will try to summarize more fully later.
Once again, do your own research! Don't count on the folks that own the media and Disneyworld to do your thinking for you.
walt-
primary sources?
i am a fund manager. i know a couple of the guys who got fleeced in the GM deal personally. we were looking at the distressed debt at one point until it became obvious that it was impossible to price due to government interference. the debt was "senior secured". these distinctions DO survive bankruptcy and determine the pecking order of who gets paid. you can pretend they don't if you want, but you are only kidding yourself. that's exactly why debt classes exist and it determines the interest rates on them. are you being willfully ignorant or do you really not understand this?
comments like "I would not worry too much about what you guys are saying are "secured creditors". First, they are called unsecured in the bankruptcy case (I don't know who termed them "secured", and second, they were not repaid 100% primarily because many of the bonds were sold at a deep discount for 10-30 cents on the dollar to speculators before the bankruptcy was filed." are pure bollocks. the even senior unsecured would come out way ahead of employee pensions and equity. it also does not matter one jot to whom the debt was sold. it should have been recovered at par before the pension got one red cent. that is how the system is supposed to work. that is the assumption the guys who bought that debt made because that is the settled law and practice.
the whole thing was pure extortion. the deal forced through by the federal government was as unethical as it was illegal. they brought the whole weight of the SEC down on the funds who resisted and threatened them with audits, investigations, and the kinds of trumped up criminal actions that can drive a fund under. i know this because i know guys who were threatened. that sort of contract under duress is illegal and immoral. it works because of threats.
essentially, the mafia boss said, i get to take free apples from your stand or i'll burn it down.
you are advocating gangsterism purely because it benefits you.
what you are saying is that because i chose to give you my wallet when you pointed a gun at me and said "your money or your life" that it was a voluntary transaction.
it's thuggery, pure and simple. if someone puts a gun to your head, you'll sign whatever they put in front of you. calling that legal because there's a contract is preposterous.
the creditors agreed to what they agreed because they were threatened.
Here's the case. Read the precedent cited: (all the secure creditors were transfered to the new GM from Liquidation Motors:
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------x
:
In re : Chapter 11 Case No.
:
GENERAL MOTORS CORP., et al., : 09- 50026 (REG)
:
Debtors. : (Jointly Administered)
DECISION ON DEBTORS’ MOTION FOR
APPROVAL OF (1) SALE OF ASSETS TO
VEHICLE ACQUISITION HOLDINGS LLC;
(2) ASSUMPTION AND ASSIGNMENT OF
RELATED EXECUTORY CONTRACTS; AND
(3) ENTRY INTO UAW RETIREE SETTLEMENT
AGREEMENT
Here's a Website to all the cases, motions, and claims: https://www.motorsliquidation.com/
morganovich, I just read your latest post. Show me where the pension fund got any pre-bankruptcy or post-bankruptcy money that could have went to the unsecured bondholders. Conversely, the pension fund was raided to pay the VEBA and special attrition plan. The VEBA also got $9.8 billion that was funded pre-bankruptcy and was in a trust that could not have been spent elsewhere anyhow.
Your best argument is that GM should have terminated the pension and VEBA plan in the 363 sale, but if they had done that, the unsecured bondholders were not in line for that money because the PBGC would have taken it first. Additionally, the feds would have been liable for a lot of money they did not want to pay. That's the main reason for what they did. Not providing the loans to the automakers had a huge cost to the feds--this was not a zero sum game. You can say it was political, or a conspiracy, but even President Bush spent money on this for some reason, and he was not the UAW's best friend by a long shot.
The unsecured bondholders got 10% stock in the new GM and warrants for a total of another 15%. They might still come out OK. If they don't, our VEBA won't either, so we are both screwed, and we will be crying together.
No morganovich, I am not ignorant any longer: Thanks.
There is no pecking order on who gets paid that you speak about in a 363(b) bankruptcy case, and that is what GM filed under. "Google" 363(b), Chapter 11, and sub rosa, and read all about it yourself. Cornell University has an excellent law Website, but pick your own.
Don't listen to what a "couple of guys who got fleeced" say. You seem smarter than that. Challenge your assumptions. I did.
walt-
you are either deliberately twisting the argument or you really do not understand what happened.
bondholders were forced to take a great deal less that they were entitled to through government extortion. what part of "senior debt " are you not understanding? the pension fund should have been zeroed and used to pay creditors, whoever they were. that's the law and that's the practice. instead, when entitled to nothing, they got more than twice as much as the guys who were entitled to recover who were forced to agree to this deal under extreme duress.
you argument about "don't listen to the guys who got fleeced" is equivalent to saying, don't listen to the guy who got mugged, of course he'll tell you they took his wallet.
the fact that you seem so blithely OK with the government using it's power to violate the property rights of others for your own benefit and no matter what harm it does to others or the system as a whole is pretty astounding. i have evaluated and invested in a whole pile of bankruptcies. i know how the law works and who is supposed to get paid. i have no idea what the UAW has been filling your head with, but you were not supposed to be the guys who got the money. absent a consent agreement, you never would have, but once parties agree a BK judge is pretty much bound to approve the plan. the fact that many parties were forced to do so under duress is fascism and extortion, pure and simple
further, the huge equity slice the workers got came out of someone else's hide too. whomever was supposed to recover assets, it sure as hell wasn't the UAW and the GM workers. you guys should have been dead last to get paid, and that fact that you took the lion's share instead was pure political nepotism and all those decades of donations paying off.
it was a very sad day for American capitalism.
btw, i have read the case, but unlike you, i understood it. i presume that you agree that in a bankruptcy, there are certain creditors that get preceedence over others as a function of capital strucutre? if so, who were the senior creditors? why did they wind up with so much less that the subordinate ones? that's an unbelievably rare occurrence. i don't think i've ever seen anything like it. this is certainly unique among large bankruptcies.
you are taking a coerced agreement and assuming that it's reflective of law and standard practice. it's not. it was the result of unprecedented pressure put on stakeholders.
you are correct that the deal as written went through and provides a legal settlement, but if i put a gun to your head and make you sign your house over to me with a witness and a notary, we may have a legal deal (unless you claim duress later, but you may, like the GM creditors, be too frightened to do so) but it's a far cry from justice.
also, i just noticed your first augment about the double sided pages in the first document. is that a joke? the booklet is 1/3 the size of a the pages in the other stack. odd how you left that out. (and without knowing font size, it's kind of irrelevant anyway) but can you seriously be claiming that if we use a measure like word count, that the new document isn't 100 times the size of the old one?
morganovich,
There were 79,319 claims filed against the old GM (now called Motors Liquidation Corporation). Are you telling me you can't find one legal case of extortion or coercion over this deal filed anywhere to cite other than your friends who got fleeced? That's a pretty weak argument. Come on now: There were even people who ratted the mob out.
I agree that the 363(b) bankruptcy sale tramples creditors' rights that a straight Chapter 11 does not, but that is what it is designed to do. The company's best interests and speed take precedence over any "pecking order" or "senior debt" or other creditors' rights to payment. I guess the new owners (the feds and the UAW) thought it was in GM's best interest to go the route they did. Paying the UAW last probably would not have been in the company's best interest. The UAW or GM did not write that bankruptcy section of the law that allowed that to happen. Maybe you should write your congressman and try to get it changed. That you don't agree with that law does not mean I am "twisting" my argument.
I did not know much about bankruptcy until you pushed me a bit: Thanks again. But I know pensions quite well. The money in the pension plan could never be "zeroed out" like you state and paid to the bondholders. There are ERISA (1974) and PPA (2006) laws that would not allow that type of withdrawal from a vested pension plan. Can you cite a case where vested pension funds were liquidated to pay bondholders?
GM could rightfully have turned the pension plan over to the PBGC and let them handle our pensions, but they could not administratively or financially handle all of our people. That's why we still have a GM pension (that does not have any federal money in it). The feds were absolutely shaking in the boots about handling GM and Chrysler's pensions and the deficit it would cause to the PBGC. Read this report: Report to Congressional Committees, United States Government Accountability Office GAO, April 2010, TROUBLED ASSET RELIEF PROGRAM, Automaker Pension Funding and Multiple Federal Roles Pose Challenges for the Future, GAO-10-492.
It's a joke comparing anything from 1941 to 2007. Are you one of those guys who complain you used to be able to buy a loaf of bread for nickle?
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