News Story

Study: Feds Favoring UAW in Auto Bailout Cost Taxpayers Extra $26.5B

Union received benefits not normally associated with bankruptcy

If the United Auto Workers union had been treated like any other creditor during the General Motors and Chrysler bankruptcy, the cost to taxpayers would have been $26.5 billion less, according to a study released by the Heritage Foundation on Wednesday.

Instead, the federal government favored the UAW and the union recovered most of the money owed to its benefit funds. GM’s workers also didn’t take pay cuts normally associated with a bankruptcy, the study said. Secured creditors took a backseat to the UAW in the deal the Obama administration orchestrated.

"The auto bailout was actually a UAW bailout," the study concludes.

Daniel Ikenson, director of the Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies who has analyzed the bailout, said the UAW received preferential treatment.

"The reason the government hand-held the companies was to achieve an outcome the UAW favored," Ikenson said. "Certainly the UAW got a more favorable deal. The UAW was definitely protected."

Ikenson hadn’t read the study yet when contacted, but wondered how the cost could have been as much as $26.5 billion.

James Sherk, one of the Heritage Foundation authors of the study, explained how the $26.5 billion was derived. Sherk said in an email that the U.S. Treasury gave an extra $21.4 billion to the Voluntary Employee Beneficiary Association funds for GM and Chrysler. He said there was another $4.1 billion in foregone value in the Treasury's GM shares because the union didn't make bankruptcy concessions. And there was another $1 billion given to UAW pensions at Delphi that Sherk said was money the U.S. Treasury didn’t need to put into that company.

Spokesmen for General Motors and the U.S. Treasury defended the deal.

"GM and Chrysler underwent fair and open bankruptcy processes in accordance with well-settled law," U.S. Treasury Spokesman Matthew Anderson said in an email. "The terms that creditors and other stakeholders received were approved by bankruptcy courts, and those decisions were affirmed by the nation's appellate courts. The restructuring required deep and painful sacrifices from all stakeholders, including workers, retirees, suppliers, dealers, creditors, and the countless communities that rely on the American auto industry. The steps that were taken not only prevented a catastrophic collapse of the American auto industry and saved 1 million jobs, but it allowed those companies to once again become viable, competitive American businesses."

GM agreed.

"I will tell you that four years later, reasonable people can look back and debate the degree of sacrifice across stakeholder groups," said Greg Martin, a GM spokesman. "However, today, we have a business to run. Our focus is straight ahead on making GM great again — a company that contributes to the manufacturing base and economic vitality of this country and beyond. A part of that was the recent UAW contract that we negotiated that did not add a cent toward our fixed costs and instituted pay-for-performance based on hard business targets (quality, profitability, productivity...) program instead of automatic annual raises.”

The UAW didn’t respond to an email seeking comment.


See also:

Lehman Invites UAW Boss to Debate

The UAW's Anti-Democratic Principles

UAW Member: Union Workers 'Need to Embrace' Right-to-Work Laws

Did the Auto Bailout Really Save One Million Jobs?

Bailout Wal-Mart?