Auto bailout, from within

[henk4]

just for some clarification, do white collar workers or people on managerial levels also contribute to the UAW pension fund?

[culver]

just for some clarification, do white collar workers or people on managerial levels also contribute to the UAW pension fund?

Not directly. If your salary is $50,000 as a UAW member some portion of that will go into UAW dues but part of the problem is you pension is not even close to fully covered by any pension payments taken from your $50,000 (I'm not sure how much if any is taken from their salary to cover pensions and health care. I think it was free for a long time but now I believe they are charged something).

If you are white collar you don't directly pay anything to UAW pensions. However, you pay indirectly. There is only so much money to go around. If the UAW gets a big chunk then belts must be tightened elsewhere.

[henk4]

Not directly. If your salary is $50,000 as a UAW member some portion of that will go into UAW dues but part of the problem is you pension is not even close to fully covered by any pension payments taken from your $50,000

If you are white collar you don't directly pay anything to UAW pensions. However, you pay indirectly. There is only so much money to go around. If the UAW gets a big chunk then belts must be tightened elsewhere.

so where would get white collar workers their future pension from? Private insurance? I am pursuing this a little as for instance over here, ALL staff members, top to bottom, of a company (irrespective being a union member or not) pay to the same pension fund, which is NOT union controlled, hence I would like to get a better understanding of your system, and to be able to judge whether it was doomed from the beginning.

[culver]

The white collar workers used to have pensions similar to the UAW pensions. Over the years the white collar benefits were cut as it was clear that the company couldn't afford them. For instance, free health care was promised back when health care was relatively in expensive. When the costs started to rise the company started co-pays and other cost reducing measures for the white collar workers. The UAW's contracts didn't allow co-pays so for a long time they actually had better/cheaper health benefits than the white collar workers.

At some point, I'm not sure when at GM, most older US companies moved away from plans that were open ended to the capped plans we have now. I think Motorola made the switch in the late 90s for their white collar workers. I just missed the option to ever have an open ended plan. Now I believe all non-UAW employees who stated after a given date (likely sometime in the mid 90s) would have some type of capped plan. I'm pretty sure that was what they offered me years back (I might still have the paperwork). I turned down the offer for other reasons so I don't recall that detail.

When GM originally agreed to some of these guarantees (ie when they opened Pandora's box) it's arguable that they weren't that risky. Part of the problem was many of these benefits originated in a time when GM was VERY successful. In the 1950s GM was the possibly the most influential company in the world. It was the first company to earn over $1B dollars and was raking in money at the time. It was politically very hard not to share the wealth with labor. Also, in the 1950s people simply didn't live long after retirement. You would work for 40 years then live in retirement for 5 or so. Health care was about fixing bones and not much else. So at the benefit levels of the 1950s and 1960s even GM likely could afford the promises they made. It was still dumb to make open ended promises but they weren't totally unreasonable. That's not to say people did the calculations or asked the what ifs but that's another mater. When people started living 20+ years after retirement and health care figured out all sorts of ways to fix us at a cost, well now the true cost of those promises became clear. As early as the late 70s and early 80s companies started moving away from these open ended retirement promises and into fix benefit promises. Companies that couldn't move away as often as not died. The collapse of big steal, the rail roads, many autopart suppliers and many US airlines can be tied to the same sort of pension and health care promises. Many city and state governments in the US are also feeling the pinch. Public sector jobs historically paid less but had stable retirement benefits. Now that we have a large number of retirees on the city tabs, taxes are going up while services are going down. As often as not we blame the current politicians even though the real problem was promises made by politicians two decades back. Many companies and even some city governments, heck event the California state government have already collapsed or are collapsing under this weight. GM was SO big that it took much longer to collapse than many other institutions.

[culver]

As an aside, quite a bit of the "While America Aged" book can be read via Google books.

[henk4]

As an aside, quite a bit of the "While America Aged" book can be read via Google books.

I am on a very bad connection currently

Thanks for the elaborate explanation. Just to make sure that I understand, pensioners are still getting their pension paid directly through their former employer, is that correct? There seems to be no intermediary pension fund involved.

[G35COUPE]

The UAW is almost perfectly doing what they are supposed to do. They are supposed to look out for the interest of their members. However, they have done it in a short sighted fashion. Even as far back as the 1950s some in the UAW leadership understood the dangers to both the employer and to the employee of unfunded pension promises. The UAW leadership was just as short sighted as anyone at GM. G35 asserted that SUV profits allowed GM to be blind to the risks associated with their promises to the UAW. That's completely wrong as the fundamental benefits promises were all made before SUVs became an important product in the market. The guaranteed retirement benefit was originally agreed to in 1955. I believe health care was added in the late 1960s. As I've said before, these issues date far back.

G35 was also wrong in claiming that the UAW doesn't share any blame. The UAW demonstrated with IH that they would strike to the point that the company collapsed. That was stupid on their part because in the end they got far less than what the company was offering and the company also suffered irrevocably. In modern times even the UAW rank and file realized that GM couldn't afford the burden of the UAW. However, rather than agree to better terms the UAW insisted on keeping things like the Job Banks and other terms. The moment they used their considerable power against the company to demand things that simple analysis said the company couldn't afford, the UAW because part of the problem.

Who runs corporations----management or unions? Power and authority is bestowed on whomever runs the corporation, isn't it? To suggest that the UAW is so powerful as to negate any type of management action/authority designed to thwart any ill-effect of UAW actions/power, is simply spurious and unrealistic. UAW may have power but management/executives have authority. Power is not authority or include it. However, authority does include power. Authority is a function of legitimacy assigned to the holders of an office. No one has given the UAW any authority over the decisions, planning, strategy, and operations of the US auto companies. At best, of the 5 main forms of power available, the UAW only has one type of power---expert power which is why their strikes may appear benignly effective, while managers/executives hold multiple sources of power as a consequence of their authority----legitimate power, reward power, coercive power, etc. So, why is GM management not using their vast array of power on behalf of owner's of capital (share holders)?

You said, "some in the UAW leadership understood the dangers to both the employer and to the employee of unfunded pension promises." My question to you is, how do you know this? Are you lodged in their hearts and minds to know this or are you omnipresent?

As far as benefits are concerned or when they were established (1955), is irrelevant in this conversation. Many US corporations in the last 2 decades have been moving their benefits from a "defined benefit plan" to a "defined contribution plan". So, what was the managment of GM and other US auto companies waiting for----Santa Claus or Zeus or the second coming of Jesus Christ, to get moving???

In fact, i also mentioned that management had middle-to-late 70s to end any legacy benefits (defined benefit plans) they had promised in the 50s. So, again, i ask you, why did management fail to work towards ending the so-called defined benefits plan (legacy benefits) in the middle-to-late 70s, that is now crippling management of US auto companies in 2009?

I am trying to establish the sequence of poor decisions and missed opportunities by US auto company managment/executives which has led to the current demise of the US auto companies, and all you are doing is sticking to this unsubstantiated beleif that UAW is so wrong, and yet evidence of this wrongness is unavailable, without pointing fingers back at management ineptitude.

Right or wrong is not a matter of consequence in this debate. Business ideals that rest on being right or wrong without any supporting theories, are far more dangerous than time tested heurestics that at least allow individuals/teams and their organizations to better understand what works and what doesn't.

[henk4]

G35
I think you are missing an essential point. As far as I understand Culver is trying to establish the role of UAW in all of this. This is totally dissimilar from attributing all the guilt to the UAW for the things that went wrong, of which you seem to accuse Culver.

[G35COUPE]

The white collar workers used to have pensions similar to the UAW pensions. Over the years the white collar benefits were cut as it was clear that the company couldn't afford them. For instance, free health care was promised back when health care was relatively in expensive. When the costs started to rise the company started co-pays and other cost reducing measures for the white collar workers. The UAW's contracts didn't allow co-pays so for a long time they actually had better/cheaper health benefits than the white collar workers.

At some point, I'm not sure when at GM, most older US companies moved away from plans that were open ended to the capped plans we have now. I think Motorola made the switch in the late 90s for their white collar workers. I just missed the option to ever have an open ended plan. Now I believe all non-UAW employees who stated after a given date (likely sometime in the mid 90s) would have some type of capped plan. I'm pretty sure that was what they offered me years back (I might still have the paperwork). I turned down the offer for other reasons so I don't recall that detail.

When GM originally agreed to some of these guarantees (ie when they opened Pandora's box) it's arguable that they weren't that risky. Part of the problem was many of these benefits originated in a time when GM was VERY successful. In the 1950s GM was the possibly the most influential company in the world. It was the first company to earn over $1B dollars and was raking in money at the time. It was politically very hard not to share the wealth with labor. Also, in the 1950s people simply didn't live long after retirement. You would work for 40 years then live in retirement for 5 or so. Health care was about fixing bones and not much else. So at the benefit levels of the 1950s and 1960s even GM likely could afford the promises they made. It was still dumb to make open ended promises but they weren't totally unreasonable. That's not to say people did the calculations or asked the what ifs but that's another mater. When people started living 20+ years after retirement and health care figured out all sorts of ways to fix us at a cost, well now the true cost of those promises became clear. As early as the late 70s and early 80s companies started moving away from these open ended retirement promises and into fix benefit promises. Companies that couldn't move away as often as not died. The collapse of big steal, the rail roads, many autopart suppliers and many US airlines can be tied to the same sort of pension and health care promises. Many city and state governments in the US are also feeling the pinch. Public sector jobs historically paid less but had stable retirement benefits. Now that we have a large number of retirees on the city tabs, taxes are going up while services are going down. As often as not we blame the current politicians even though the real problem was promises made by politicians two decades back. Many companies and even some city governments, heck event the California state government have already collapsed or are collapsing under this weight. GM was SO big that it took much longer to collapse than many other institutions.

So, who made these promises to the workers and did the UAW hold a Colt 44 pistol to the heads of those making the promises at GM (GM management and executives)? Once again, much of what you have said, continue to point to poor decisions made by GM management/executives, both in the past and in the present. Yet, you continue to claim that unions are the cause of GM's failures.

[G35COUPE]

G35
I think you are missing an essential point. As far as I understand Culver is trying to establish the role of UAW in all of this. This is totally dissimilar from attributing all the guilt to the UAW for the things that went wrong, of which you seem to accuse Culver.

The republican party in the US wanted to use the UAW as their scapegoat to make it hard to bail out the US auto companies. Yet, the same republican party had no qualms in bailing out the Us financial services sector which failed without unions. They were mum on the bailout, until their political base began agitating with their sorry "Tea Parties".

My point here is this: If anyone is going to attribute the failure of GM to the UAW, then they need to provide something substantial and compelling beyond employee benefits, which surprisingly was agreed to and implemented by poor GM management without duress. Afterall, corporations that did not have unions and who offered the same set or better benefits than GM, also failed in the same economic crisis of 2009. In so saying, this suggests that the union-benefits theory as it relates to the auto companies, is questionable.

The contribution of unions to the failure of GM and the auto companies is as peripheral as any other organizational factor such as "poor workmanship" in the design of GM cars. To overstate the importance of UAW (unions) in that failure equation, is highly suspect.

[henk4]

My point here is this: If anyone is going to attribute the failure of GM to the UAW, then they need to provide something substantial

as I said, establishing the role of the UAW is something totally different from attributing the failure to it. UAW was one of the players and so were the successive GM managements (and Chrysler and Ford Managements as representatives of the total automotive sector).
As far as I remember there were no bailouts required for other US automakers such as Honda/Acura, Nissan, Toyota, BMW, VW and Mercedes. Would that be because of the quality of their management of because of their different relationship with the unions? (or even because of their different product-mix?)

[culver]

G35,

I’m afraid this conversation with you is really going no where.

You ask who runs the company, management or unions? Well any time the union gets something that management didn’t want to give them I would argue that it’s clear the union has some influence.

I know the UAW leadership understood the dangers because I have read historical quotes from UAW leaders talking about the dangers. The book I have mentioned has some quotes. I have read other quotes in other sources over the years.

When the benefits were started IS of concern. When the benefits were established frames the level of understood risk. In today’s world if I promised to pay $1000 to you for every year after you turned 65 I wouldn’t reasonably expect that you would live to be say 160 years old. The precedent of defined benefit was set when it was reasonable to expect to only pay for a few years. Thanks to improvements in health it is now reasonable to expect to pay for a few decades.

GM et al. would love to have changed the UAW plans. However, you have to get the UAW to agree. That isn’t easy. From the UAW’s view they get nothing for something (ignoring the risk of a GM et al collapse). It’s that much harder to convince a UAW work force that’s getting closer to retirement to agree to end their gray train benefits. When you’re 25 you might agree. When you are five years from retirement you have VERY little incentive to agree to what amounts to a big reduction in your retirement benefits.

I’m not arguing that the management didn’t miss opportunities. One several occasions one has to wonder what they were thinking! However, that doesn’t mean the UAW was passive nor does it mean the UAW has no influence over management. If they had no influence then why would they strike? Certainly a strike costs them money so they must figure they have something to gain at the bargaining table.

You are correct when you say GM cars had poor workmanship. However, WHY did they have poor workmanship? Well for one, GM’s labor costs (including retirement benefits) were higher than the competition. That means money had to be saved elsewhere. As often as not quality and content were taken out of the product. Did the UAW make that choice? No. Was that choice made in part because of the UAW, YES. Engineers or suppliers come up with better ways of doing things. However, existing work rules negate the benefits of implementation. A newer assembly process speeds up a line. Rather than using fewer workers, the UAW workers used it as an excuse to leave work early when they met their production target for the day. Having a supplier work on equipment on the line might be more efficient but shop work rules require a union electrician and tool worker to do the job. Out side contractors aren’t allowed. So a union rule negates a potential benefit. Again, the unions didn’t design the cars or the factories but they did put up road blocks. In this way YES, the UAW can force the company to design lower quality products. That doesn’t mean that the UAW workers aren’t capable of good work but that they often prevent the flexibility that is needed to progressively improve the system.

Contrary to how you characterize my statements, I am NOT claiming GM corporate never screwed up. However, I am claiming that the pension benefits and health care costs (ie the large financial drain) is the key factor in the fall of GM. Both sides are guilty in this mater. Management is guilty for initially acquiescing to union demands. The unions are guilty of not seeing the dangers of what they were pushing for. Management was guilty of not successfully taking back what they had promised when it was clear those promises were unsustainable. The unions were guilty of being short sighted and not seeing the clear evidence that things had to change. Plenty of guilt to go around. I don’t see how you can possibly claim the UAW has no “iota” of responsibility.

[G35COUPE]

as I said, establishing the role of the UAW is something totally different from attributing the failure to it. UAW was one of the players and so were the successive GM managements (and Chrysler and Ford Managements as representatives of the total automotive sector).
As far as I remember there were no bailouts required for other US automakers such as Honda/Acura, Nissan, Toyota, BMW, VW and Mercedes. Would that be because of the quality of their management of because of their different relationship with the unions? (or even because of their different product-mix?)

Toyota requested a bail out loan of about $2 billion from the Japanese govt this year. Whether or not they received the full money or partial sum of money, is unknown to me. And the money they requested was simply to shore up the balance sheet for the shor-term, and rightly so, as Toyota had losses for their first time in their entire history in 2009, as a result of the global recession. Unlike GM, Toyota needed short term assistance which they would pay back in short order. They continue to build cars without unions in the USA.

The same republican senators who attack the big three US auto makers (Ford, GM, and Chrysler), are the very same senators of the south-east USA, who allow healthy tax deductions for Japanese auto companies that have plants in the south east, and where unionization is almost impossible.



BMW, Mercedes Benz, and VW, enjoyed the benefits of a German cash-for-clunkers program. So, their balance sheets were bolstered by this.

[G35COUPE]

G35,

I’m afraid this conversation with you is really going no where.

You ask who runs the company, management or unions? Well any time the union gets something that management didn’t want to give them I would argue that it’s clear the union has some influence.

I know the UAW leadership understood the dangers because I have read historical quotes from UAW leaders talking about the dangers. The book I have mentioned has some quotes. I have read other quotes in other sources over the years.

When the benefits were started IS of concern. When the benefits were established frames the level of understood risk. In today’s world if I promised to pay $1000 to you for every year after you turned 65 I wouldn’t reasonably expect that you would live to be say 160 years old. The precedent of defined benefit was set when it was reasonable to expect to only pay for a few years. Thanks to improvements in health it is now reasonable to expect to pay for a few decades.

GM et al. would love to have changed the UAW plans. However, you have to get the UAW to agree. That isn’t easy. From the UAW’s view they get nothing for something (ignoring the risk of a GM et al collapse). It’s that much harder to convince a UAW work force that’s getting closer to retirement to agree to end their gray train benefits. When you’re 25 you might agree. When you are five years from retirement you have VERY little incentive to agree to what amounts to a big reduction in your retirement benefits.

I’m not arguing that the management didn’t miss opportunities. One several occasions one has to wonder what they were thinking! However, that doesn’t mean the UAW was passive nor does it mean the UAW has no influence over management. If they had no influence then why would they strike? Certainly a strike costs them money so they must figure they have something to gain at the bargaining table.

You are correct when you say GM cars had poor workmanship. However, WHY did they have poor workmanship? Well for one, GM’s labor costs (including retirement benefits) were higher than the competition. That means money had to be saved elsewhere. As often as not quality and content were taken out of the product. Did the UAW make that choice? No. Was that choice made in part because of the UAW, YES. Engineers or suppliers come up with better ways of doing things. However, existing work rules negate the benefits of implementation. A newer assembly process speeds up a line. Rather than using fewer workers, the UAW workers used it as an excuse to leave work early when they met their production target for the day. Having a supplier work on equipment on the line might be more efficient but shop work rules require a union electrician and tool worker to do the job. Out side contractors aren’t allowed. So a union rule negates a potential benefit. Again, the unions didn’t design the cars or the factories but they did put up road blocks. In this way YES, the UAW can force the company to design lower quality products. That doesn’t mean that the UAW workers aren’t capable of good work but that they often prevent the flexibility that is needed to progressively improve the system.

Contrary to how you characterize my statements, I am NOT claiming GM corporate never screwed up. However, I am claiming that the pension benefits and health care costs (ie the large financial drain) is the key factor in the fall of GM. Both sides are guilty in this mater. Management is guilty for initially acquiescing to union demands. The unions are guilty of not seeing the dangers of what they were pushing for. Management was guilty of not successfully taking back what they had promised when it was clear those promises were unsustainable. The unions were guilty of being short sighted and not seeing the clear evidence that things had to change. Plenty of guilt to go around. I don’t see how you can possibly claim the UAW has no “iota” of responsibility.

I am more in agreement than not, with the balanced argument you are now presenting. However, that balance remains slightly tilted towards management/executive incompetence at the big three (Ford, Chrysler, and GM) automakers. My understanding of your previous comments seemed to tilt heavily towards pointing the finger at the UAW or unions for the demise of the big three automakers.

I wanted to make sure that all fingers are pointing to the failed state of US corporate leadership which continues to exemplify the worst of corporate soundness and ethics. Another classic example of a US corporation that may likely fail someday as a result of poor leadership/managment is "BOEING". Watch and see how a great giant such as Boeing, becomes a door mouse. Why? Poor and incompetent leadership. When that time comes, they will point the finger elsewhere because management/executives feel they can do no wrong.

From my observations, most US corporate leaders are sycophants and narcissistic idiots who think the corporations they run should serve them rather than the other way around. They play these silly corporate political games as though they were still kids in high school and they get hailed for running multi-billion dollar companies into the ground. And most of them lack the integrity to do the right thing because they never had one to begin with or were not taught integrity as children.

They even lack the shame and decency to resign their appointments as CEO when they run their corporations to the ground. They stay until they get disgraced and pushed out. Can anyone say Rick wagoner?

All the while these leadership act as though they are doing their organization and this nation a favor, when in fact, under agency theory, they are simply hired guns or "agents" to the "principals" who have contracted with them with the hope of running their corporation in a sound manner.

[henk4]

Toyota requested a bail out loan of about $2 billion from the Japanese govt this year. Whether or not they received the full money or partial sum of money, is unknown to me. And the money they requested was simply to shore up the balance sheet for the shor-term, and rightly so, as Toyota had losses for their first time in their entire history in 2009, as a result of the global recession. Unlike GM, Toyota needed short term assistance which they would pay back in short order. They continue to build cars without unions in the USA.

The same republican senators who attack the big three US auto makers (Ford, GM, and Chrysler), are the very same senators of the south-east USA, who allow healthy tax deductions for Japanese auto companies that have plants in the south east, and where unionization is almost impossible.



BMW, Mercedes Benz, and VW, enjoyed the benefits of a German cash-for-clunkers program. So, their balance sheets were bolstered by this.

I was not aware that republican senators were attacking the big three... in what sense?
BMW and Mercedes hardly profited from the German c-f-c programmes, sales boosts were noted in particular for cheap import cars, like Fiat, Dacia and Toyota/PSA triplets, small economy cars. You could also say that c-f-c in Germany helped Opel to "strengthen" the GM balance sheet, as technically the dissolution has still not taken place.