The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Auto Concessions:
A Battering Ram Aimed at the Whole Working Class

Jan 22, 2009

After weeks of suspense – would GM and Chrysler go bankrupt? would the government bail them out? – President Bush, on December 19, not only gave the companies the loans they had asked for, he also mandated that they take major concessions from their workers.

Autoworkers have been faced with demands for concessions before, most recently in 2005 and 2007. But this is a much worse attack, by far. And it is a test of force pitting the auto companies, backed up by all the forces of the government, against the autoworkers. It is a preview of what all the bosses intend to do against the rest of the working class.

Bush demanded a series of concessions that, taken together, would mark an enormous drop in the standard of living of autoworkers, active and retired.

• Slash wages and benefits to make Detroit workers “competitive” with what Toyota, Honda, and Nissan pay – in other words, steal another $15 an hour from their standard of living.

• Use company stock to repay at least half of the companies’ debts to the VEBA trust fund for retiree medical care – a VEBA which, by the way, is severely underfunded because it’s already loaded with stock and bonds issued by the auto companies (according to Fitch Rating Service, December 9).

• Eliminate all wage and benefit coverage during periods of layoff – not only the jobs banks and SUB, etc., but also medical insurance – just when GM plans to cut 30,000 more jobs.

• Eliminate work rules that are not “competitive” with those at the transplants – work rules workers once fought for, protecting such things as seniority, break time, job descriptions, procedures for protesting speed-up, discipline or unsafe conditions, etc.

• Freeze pension payments so long as the pension trust is underfunded – which threatens to be a long time, since GM’s pension fund is today 20% underfunded, and Chrysler’s is 34% short. (Ford’s is 27% underfunded.)

Union officials were given until February 17 to sign papers signaling their agreement to these or similar concessions, and until March 31 to get workers to ratify the contract revisions.

Ford, which hadn’t asked for loans, wasn’t “required” to get concessions from its workers, but Ford’s CEO quickly declared he expected to get them anyway, and the UAW leadership promised to match any concessions negotiated at GM and Chrysler.

Bush’s announcement of the loan agreement concluded the first act of a Congressional soap opera, which had started last October, when whispers about a GM and/or Chrysler bankruptcy swelled to a noisy media roar. That’s when Congress had begun the debate: should the government offer aid to the domestic auto companies? Southern Republicans, many from states where the “transplants” had located their factories, declared, “Let the Detroit dinosaurs go bankrupt.” House Democrats led by Nancy Pelosi said they wanted to give the auto companies loans, and Bush and some Republican senators said they wanted to give loans – but they couldn’t agree on how to fund them. But both parties warned the union it would have to give concessions.

Barack Obama warned that all “stakeholders” should be prepared to make sacrifices in the “restructuring” effort, and he singled out workers for specific concessions: calling for the elimination of “outdated work rules” and of layoff protections. Robert Reich, former Clinton labor secretary and Obama’s labor adviser, declared that the union should be ready to “accept broad wage and benefit cuts, [as a way] to assure Congress that public money would be well-spent”!

The high point of this drama came on December 2nd, when executives from all three companies returned to Washington, driving “fuel-efficient” and “environmentally-friendly” hybrids, carrying with them “restructuring” plans.

In fact, quiet as it was kept, the first list of specific demands for autoworker concessions came from the auto companies themselves – in those restructuring plans presented to Congress while UAW President Ron Gettelfinger sat alongside them. All parties involved, the auto bosses, the UAW leadership, Republicans and Democrats in the House and Senate, the outgoing Bush administration and the incoming Obama administration all agreed on one thing – autoworkers must be forced to give up major concessions. They only differed on the details. And in the end, Bush’s plans basically repeated what the auto companies had asked for at the beginning.

If all Bush had been going to do was repeat company demands, there would have been no need for this three-month-long drama about loans and bankruptcy. But the Congressional soap opera had a more profound meaning: it was part of a campaign the political establishment is carrying out, trying to brainwash the autoworkers to believe they have no choice but to accept big sacrifices.

Talking about Bankruptcy to Extort Concessions

On November 22, weeks before the deal was cut, a New York Times business columnist took on the bankruptcy issue. He said:

“It is critical for General Motors to be able to break its contracts with both its unions and its dealers. It needs to dramatically reduce its legacy benefits, perhaps even eliminating health care benefits for union retirees. It needs to close plants. It needs to pay its workers what Toyota workers are paid in the United States – and not a penny more. It needs to reduce the number of brands it sells – which means closing down thousands of dealerships, which is difficult to do because of state laws that protect car dealers.... Under the current rules of the road, only bankruptcy will allow GM to cram down a new contract on the union, or get out of its dealership agreements.... But bankruptcy is anything but a snap. It is a long, difficult drawn-out process with no guarantee.... So is there another way to get to the same place? I think there is, but it will require the active involvement of both Congress and the new Obama administration.... [they could] force the union and the company to renegotiate their contracts. Congress could pass a law dealing with the state laws governing dealerships.... With the government in the room, it would be much harder for the parties to say no...”

Well, Bush’s loan agreement put the government in the room. Not only did Bush “require” the companies to get concessions from the workers, he also “required” the auto companies to eliminate a good portion of their dealerships – which means to eliminate jobs for many of the 740,000 people who today work for GM, Ford and Chrysler dealers.

And what happens if the companies don’t succeed in getting their workers to surrender? According to the loan agreement, the companies would have to repay the loans immediately and forego any further government money. And that could mean the end of GM and Chrysler – or so the two companies warned.

It’s flat-out extortion! Threatening company bankruptcy to scare the workers into voting directly against their own interests.

Bankrupted by Shareholders

Certainly, in the current economic crisis, bankruptcy at the auto companies cannot be ruled out. But workers’ wages and benefits will not be the reason!

First, Chrysler. Bought by private equity company Cerberus Capital Management in 2007, Chrysler was immediately broken up. Cerberus itself took ownership of Chrysler’s headquarters building and its land – an office and commercial complex “under one roof,” so big that only the Pentagon is bigger – and then immediately began to charge Chrysler rent for using its own headquarters. Cerberus also walled off Chrysler’s finance arm, separating it from Chrysler factories, which it apparently intended to junk. Cerberus mortgaged almost every plant to take out 12 billion dollars in loans, and systematically refused to put any of its own money into production. Almost as soon as Cerberus bought Chrysler, it was trying to line up a deal for someone else to take over some or all of the indebted plants, with little success. Finally, in January 2009, Fiat announced it had made a “non-binding agreement” with Cerberus, giving Fiat a 35% stake in Chrysler. However, for the deal to go through, the U.S. government had to give an additional three billion dollars, and workers had to give up the concessions. Fiat would get access to Chrysler’s dealer network in North America and one of Chrysler’s plants, which it would retool to produce its own cars. Cerberus expects to walk away, free as a bird, after having drained Chrysler of much of its capital. As for the remaining plants – they are left dangling over the cliff, which Chrysler top-level executives seem to recognize. Four of them have already left.

But GM and Ford are not immune to bankruptcy either. With the possibility of unemployment scaring most people out of the car market, and with frozen credit preventing others from financing a purchase, industry sales plunged last year down to about 13 million, after a decade when sales varied from 16 to more than 17 million vehicles a year, with most years at 17 million. In the last three months of 2008, sales were even worse, running at a yearly rate of about 10 million. 2009 production is expected not to be much more than 10 million.

That being said, there is one indisputable fact: if the domestic auto companies today face bankruptcy, they brought it on themselves. And we’re not speaking here about the asininity of trying to push only trucks and SUVs on the whole U.S. market – although that certainly contributed to some of the problems facing the three companies.

Rather, the auto companies’ financial practices – widespread throughout the whole economy – prepared the route to possible bankruptcy. Like other manufacturing companies, the auto companies squeezed every bit of profit they could get out of their production lines, bestowing it on equity holders and banks, not to mention executives, throwing the rest away into financial speculation.

Even Ford and GM’s own spiffed-up balance sheets show that. Over the 12 years from 1996 to 2007, Ford reported a profit of 23.8 billion dollars. But they broke down that profit, claiming they actually lost 8.9 billion dollars in production, while gaining a 32.7-billion-dollar profit in financial services. To put that into plain English, Ford pretended it couldn’t make money in producing cars – only in financing the sales of cars and trucks! All it took was a little creative book-keeping, and Ford was able to transfer income it made in production over into finance.

GM did the same. And the profits it shifted over into GMAC then went down the drain of speculation in sub-prime mortgages.

Chrysler’s books have been sealed since Cerberus bought it, but the convoluted organizational form Cerberus set up leaves no doubt that it was doing the same thing.

Whatever financial and tax reasons existed for shifting profits into the finance side, one of the results was to reduce and then eliminate worker profit-sharing, which had been sold to workers as the replacement for wage increases. During the last four or five years, finance gobbled up all the profits produced in production, and even more. The contrived losses for production then became the justification for bigger and bigger concessions: reduced medical coverage in 2003; then the 2005 re-opener attacking retiree medical care and workers’ wages; and the 2007 contract, which established wage and benefit rates for new hires less than half the total wage package of current workers, and which relieved the companies of their obligation to pay for retiree medical care, handing it off to the union-run VEBA fund.

But that’s only the beginning of the story. For decades, the auto companies made huge profits, only to give away more than they made. Even their own fuzzy balance sheets show that. As we already said, between 1996 and 2007, Ford reported total profits of 23.8 billion dollars. But in the same time period, Ford paid out 19.2 billion dollars in dividends, and used at least another 10 billion to buy back stock. In other words, Ford paid out 29.2 billion to major investors, including the Ford family, 5.4 billion dollars more than they made in profits.

This development became more pronounced in the last few years, when losses overtook company balance sheets. From 2005 through 2007, GM recorded no earnings, only a combined loss of 16.6 billion dollars. Nonetheless, it found some 2.3 billion dollars to hand out to stockholders in dividends. Its five top executives racked up 87 million dollars – apparently as a reward for giving so much money away while the company was reporting losses.

To top that all off, the auto companies went on a buying binge. Ford spent another 30 billion dollars to buy up or increase investments in 22 companies or overseas plants, including the largest Japanese supermarket chain. GM bought up more than 20 mortgage companies through its finance arm. As if supermarkets or mortgage companies had anything to do with automobile production!

Where Did All this Money Come From?

There’s only so many ways to skin a cat – or in this case, pay out more than you have in hand. What the auto companies couldn’t squeeze out of the workers in production, they borrowed. But borrowed money comes with interest strings attached – not to mention that new loans just added to the weight of debt already carried on company balance sheets.

If GM is today crushed under debt, that’s because it paid out more than it earned to the wealthy parasites who feed off the productive economy – that’s the dirty little secret behind GM’s brush with bankruptcy today.

In fact, it’s not much of a secret. The whole economy, including especially its very biggest companies, is in the exact same situation. According to Floyd Norris, writing in the January 9th New York Times, the big companies listed in the S&P 500 paid out 900 billion dollars in dividends during the four years from the end of 2004 up to the end of 2008, and they also repurchased shares of their stock, to the tune of 1.7 trillion dollars. All told, the companies handed out 2.6 trillion dollars to shareholders – which happened to be 200 billion more than their total net income for the period.

How did they do it? Norris explained: “Many companies were financed by bank lines of credit that had to be renewed every few years. Even bond issues were only for 5 or 10 years.”

Company loans had to be continually “rolled over,” that is, refinanced. But then the credit markets collapsed, preventing companies from rolling over their loans again. Next year, it will be worse, with at least 700 billion dollars of such loans coming due.

So the big companies want the workers to pay for the debts they themselves ran up. That’s why they are carrying on a war against the workers. It’s why they are threatening bankruptcy today – perhaps only as an extortion threat, perhaps as their real plan.

In any case, whether a company goes bankrupt or not, the workers have no way to protect themselves, except by making a fight, insisting that the bosses be the ones to pay.

The Race to be “Competitive” Is a Race to the Bottom

The concessions in auto are being pushed on the grounds of “competition” with the transplants – the absurd idea that workers can protect themselves by competing to keep their own wages lower than the wages of other workers.

That’s not protection – it’s nothing but a race to the bottom. And the only ones to win are the bosses.

In early December, even before Bush had issued his loan deal, Toyota leaked an internal report. It proposed that Toyota should align hourly wages at each of its plants more closely with prevailing manufacturing wages in the state where that plant exists – rather than “tying itself closely to the U.S. auto industry or other competitors.”

In order to avoid unionization, Toyota, like Honda and Nissan, had historically pegged its wages in this country in line with Detroit wages, although it paid out significantly less in benefits. But the fact that Toyota and the others located almost all their plants in the low-wage South made a job at Toyota or Honda an enviable one there, despite the lesser benefits. While Toyota pays up to $30 an hour today, and Honda pays about $26, the median manufacturing wage in Southern states where they are located is much lower (Kentucky, $12.65 an hour, for example, or Alabama $10.80).

Apparently Toyota now believes it is free to cut its wages down closer to Southern rates, given how many cuts the UAW has accepted at the Detroit companies.

Where’s it going to end, this race to the bottom? One thing is certain: the companies will go on pushing down as hard as they can until the workers set themselves to resist.

Gettelfinger: The Union Wasn’t Consulted... But We Agree Anyway

From the moment this campaign started, the heads of the UAW, the autoworkers union, engaged themselves in a big effort to support the companies.

UAW President Ron Gettelfinger may have concocted a few sound bites, angrily denouncing the fact that other stakeholders weren’t being asked to give up anything and that the union hadn’t been consulted.

But from beginning to end, he justified the right of the companies to ask for concessions, and he eagerly pointed out how many concessions the union had already helped the companies put through. During his testimony to Congress, he cited the wage and benefit concessions of 2005 and 2007. He went so far as to brag about the 150,000 jobs eliminated by GM, Ford and Chrysler, attributing much of this reduction to the UAW’s acceptance of new work rules. And, in an article in one of the Detroit papers, he wrote that “all 10 of the most efficient plants in North America are union plants. Union workers get the job done in less hours per vehicle than the competition” – as though speed-up were something for a union to brag about!

Even before Bush demanded any concessions, Gettelfinger had already agreed to suspend the Jobs Bank, one of the layoff protections; to let the companies “delay” payments into the retirees’ VEBA; to suspend education benefits for workers; and to change vacation schedules. All these concessions were given up without a vote by the workers. And then Gettelfinger agreed to re-open the contracts for even bigger concessions.

“Concessions, I used to cringe at that word,” said Gettelfinger. “But now, why hide it. That’s what we did.” They certainly did – and in so doing, gave the companies a gold-plated invitation to come back for more.

It’s possible that the Obama administration may moderate or change the form of one or two of Bush’s demands – letting Gettelfinger brag they stopped the attack from being so big. GM might take the $15 an hour out of benefits, as well as from things like COLA, overtime supplements and holiday pay, leaving hourly pay rates alone. And they will certainly pretend that the VEBA is “secure.”

And government is already claiming that the other “stakeholders” will have to make sacrifices also. We have seen these supposed sacrifices from other “stakeholders” before. During the Chrysler bailout in 1980, Lee Iacocca claimed he would work for $1 a year, but somehow ended up being the highest paid CEO in the country, making 43 million dollars between 1980 and 1987, the highest amount ever paid to an executive up to then, much of it paid out in stock options and other hidden benefits.

It’s equally obvious that Bush’s requirement that the companies get two-thirds of their bondholders to exchange outstanding bonds for stock won’t be imposed. A similar requirement had been placed on GMAC, GM’s finance arm, but when GMAC got only about half of that, the government gave GMAC what it wanted anyway.

These supposed demands on the other “stakeholders” are nothing but window dressing – letting Gettelfinger pretend that everyone is sacrificing as he pushes the workers to give up without a fight.

What Is at Stake

For years, the autoworkers were the front line troops of the working class. In the decades during which the working class moved forward, autoworkers were often at the head of those fights, the standard bearers of the working class, pulling others after them.

There were the sit-down strikes at GM and Chrysler in the late 1930s. The 1941 strike at the Rouge, which forced Henry Ford to back down and accept the union. Hundreds of wild-cats during World War II. The 113-day GM strike in 1945-46. The 104-day strike at Chrysler in 1950. Many more wildcat strikes during the 1960s. The 72-day strike at Ford in 1967. The 69-day strike at GM in 1970.

The autoworkers’ fights helped to establish the so-called “middle-class” standard of living not only for themselves, but for millions of other workers who joined the autoworkers in fighting for a decent standard of living. The so-called “middle-class” standard of living enjoyed by workers was not given to anyone – it was won in struggles, many of them carried out in situations more difficult than the one we face today.

Their union, which for years organized workers in other industries, did so based on those gains, and on the willingness of autoworkers to put up tough fights.

It’s not an accident that the whole Congress and both Administrations – Bush and Obama – have engaged themselves in a campaign against the autoworkers. If this campaign can make the autoworkers cave in, it will be easier for the bourgeoisie to extort big concessions from the rest of the working class. The government is throwing its full weight against the bastion still held by the autoworkers, not only to help the auto companies, but in the interest of the whole capitalist class.

It couldn’t be clearer. Blue Cross of Michigan, whose workers are also represented by the UAW, just announced it intended to cut 1,000 jobs, the first time ever at this company. And it announced it was going to ask the union to agree to forego a wage increase just negotiated four months ago. Blue Cross can’t even claim to have lost money – its reserves have been growing from year to year. It just wants on the gravy train.

What is at stake today is critically important. The attack being waged today is for nothing less than deciding who will pay the cost of the crisis. Despite all the job cuts among autoworkers, there are still 160,000 working for the three Detroit companies. They still represent a stronghold of the working class, even today. If this political campaign against the autoworkers succeeds, if they collapse without any attempt to resist, it will be a big setback for all workers.

It’s obvious that autoworkers cannot depend on Gettelfinger and other top UAW leaders who argue for concessions – they are part and parcel of the campaign against the workers. But autoworkers have shown before the strength that is in their numbers. It’s important they try to find the way to gather their strength, to resist the attacks and, with the rest of the working class, make the bosses pay for their crisis.