GM and Chrysler Buyouts: Should Taxpayers Be Angry?

Several sources reported yesterday that GM and Chrysler intend to make a fresh set of buyout offers to their union employees (see GM, Chrysler Set New Buyouts). They plan to offer packages valued at around $50,000-$100,000 per employee. According to analysts, this action allows GM and Chrysler to circumvent rigid union rules regarding layoffs, and provides the firms a relatively quick way to lower overall compensation costs (replacing expensive, experienced union employees with cheaper, inexperienced employees at the reduced rate of $14 per hour).

Here’s what I don’t understand: Why should GM and Chrysler use money loaned by the U.S. Government to transfer wealth from U.S. taxpayers to exiting GM/Chrysler employees? It’s one thing if a firm does that with the capital of its private shareholders, but quite another if they use public money toward that end.

Granted, UAW employees at GM and Chrysler earn far less than your typical investment bank executive, but I’m not so sure paying those employees an exit bonus is, in principle, different than John Thain paying bonuses to exiting Merrill employees in advance of its acquisition by Bank of America.

As a condition for receiving funds from the U.S. Government, GM and Chrysler are required to produce a plan detailing how they intend to pay back those loans, and ultimately, achieve profitability. In my opinion, there are more effective ways to reduce labor costs and preserve capital than to take U.S. taxpayer money and funnel it to employees: It’s through good old fashioned layoffs, of the uncompensated kind. Most other firms have them. GM and Chrysler should be no exception.

The UAW, and by implication GM and Chrysler management, just don’t get it. The alternative to buyouts is bankruptcy followed by layoffs. In bankruptcy, the automakers could effectively repudiate the terms of their UAW contracts and fire just about anyone without consequence. The UAW (and GM/Chrysler management) should become wise to this alternative, and become more willing to consider layoffs instead of buyouts.

As I watch this episode play out, it is becoming increasingly clear to me that the best remaining option for the U.S. Government is to call its loans in March and allow GM and Chrysler to declare bankruptcy. The U.S. Government could step in ex post to provide DIP financing for GM, …but not for Chrysler (see Pre-Packaged Bankruptcy, Preventing Moral Hazard, and Aid for Chrysler? Just say No! for background on my position on the GM versus Chrysler debate). Although I was initially supportive of offering government aid to GM (though not for Chrysler), the aid was not accompanied by provisions necessary to stave off disaster. At this point then, I believe bankruptcy offers the last best chance to salvage GM, and the U.S. auto industry.

Bankruptcy protection would allow GM (and potentially Chrysler, provided it can find financing) to more quickly and efficiently streamline operations. It provides the degrees of freedom necessary to shutter plants, rationalize brands, layoff redundant employees, and reduce the number of dealerships. More importantly, it would once and for all allow for the wholesale sacking of management – a management seemingly insistent on squandering taxpayer resources.

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6 Responses to GM and Chrysler Buyouts: Should Taxpayers Be Angry?

  1. I am a chrysler worker and i’m understand that all of our buyout for the hourly workers came out of our union money not out of chryslers money. so i don’t undrstand why anyone should be upset, this is money we’ve paid into for years for our retirements….

  2. RS says:

    I am also a Chrysler worker and here are my thoughts. Here we go again with the double standard. One set of rules for Washington and Wall Street, and another for the working class members of the UAW. The union fought for our job security, our pay, and our benefits, but the rest of the country seems to believe we receive to much, as if we should look to Walmart employees pay and the absence benefits as the standard. Is jealousy the root of all of this. The employees account for a small percentage of the cost to the company compared the salaries, bonuses, and mistakes the companies have made. The union is there to protect us. I don’t get it. No one is worried about what the exec’s are giving up. Who wouldn’t work for a $1 a year salary when you can do what the employees, and not Iaccoca, gave to save the company in the past. And what happened, healthy salaries, healthy bonuses, and Iaccoca received all the credit. Do you really believe that the cost the company saves in pay and benfits will trickle down to the customer, good luck! My best example is American Axle. Employees were told they needed to give concessions and as soon as they did, BONUSES!! Hey, Whatever.

  3. Anna says:

    My father retired from the Chrysler plant in Newark , DE 20 years ago and I have two family members who worked there also. (recently lost their job) Despite all of this family stuff, I find it real difficult to feel bad or have sympathy for those who just recently lost their jobs. They get a buyout 50k up tp 100k..? Give me a break! What ever happened to a Pink Slip? No buyout, no bonus, no health insurance..! That’s what happens to the rest of us in the real world. Im angry that this buyout they received was part of my taxes! One more thing before I end, years ago when my father worked there…he appreciated his job, never missed but 2 days of work in 32 years of service. That’s not how the union is now…Over paid & under worked is whats been going on far too long.

  4. mudder50 says:

    Anna ,the money that goes to employees for buyouts does not come from taxpayers ! Not that it matters,but aren’t autoworkers taxpayers? We pay more in taxes that you will earn your whole life !That money comes from what has been taken out for future pensions.-, it does not come from your taxes ! If you make comments without knowing any facts ,you should keep silent oh jealous one ! Once an employee takes a buyout he or she loses all pension benefits and health care . For your information ,pink slips are still given out !I have been a Chrysler employee (laborer ) for 30 years. None of the money I made came without costs ! Every dollar I made , I earned ! As far as blaming the union ,you do not know anything ! Anything that you hear ,is probably second hand and exagerated before you hear it,once you get it,you add more twists to it ! How much of what you say do you think carries any water ? You are just hostil because your father couldn’t or maybe wouldn’t get you a jhob there,knowing that you couldn’t handle the work ,which in turn would make him look bad ! I don’t blame him ! What you need is a life and a good romp !

  5. Anna says:

    Mudder50,

    Sorry but you are incorrect..the unions do have a strong hold on Chrysler..and by the way I did check my facts. My husband could work circles around any auto worker…try unloading 25,000 lbs. of furniture by hand… from a semi. no fork lifts or machines to help us out. then drive 400 to 600 miles to reload by hand..My brother in law couldn’t do it..My father worked very hard and did sacrafice for what he had..but these new ones didnt…the attendance is lousy and so is there work ethic…Oh by the way…my husband is a real man…he doesnt want his wife working at a scuzzy factory…that place is no place for a real lady..Check your Bible..women should raise families and handle the home ect.. not work where there’s filthy language and perverts hitting on you all day..Maybe you need a lesson in HARD WORK..TRY THE MOVING COMAPIES PAL! MAYBE THE TRUTH IS YOU KNOW IT WAS TAXPAYER MONEY & really don’t want to admit you took a hand out!

  6. Anna says:

    Mudder50,
    I almost forgot something…you think you know taxes??….For your info.. My husband and I have got you beat on paying taxes! My husband was an owner operator for over sixteen years..you think you paid taxes? Try paying small s-corp taxes, heavy highway taxes, fuel taxes, franchise & excise taxes..and your personal taxes! So don’t talk to me about taxes! Try being a long haul owner operator in the moving business for a while!!! Its about a 90 hour work week..P.S. My husband is 6′ 170 lbs….not a fat lard sitting behind the wheel or some lazy unoin worker in factory!

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