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Thursday, April 30, 2009

Government intervention will only destroy Chrysler and the UAW

Bankruptcy economist Andy Martin says Obama should let the auto companies go bankrupt—on their own

Martin predicts that an Obama-inspired bankruptcy now will lead to repeat bankruptcies in the future. Martin also points out that the Obama “plan” merely shifts pension fund losses from the UAW to other company and state/municipal retirement programs. “No one has asked other retirees whether they want to subsidize the UAW,” Martin points out. “Does anyone believe Steve Ratner and Tim Geithner can do a better job than the market?”

Internet powerhouse Andy Martin asks: who is Obama really bailing out, the auto industry or the UAW?
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Andy Martin says that as currently structured, Obama’s bailout of the UAW will doom Chrysler to failure.

“Would you buy a car from a retirement fund?” asks Andy

Obama wants to turn ownership and control of the automobile firms over to the very people that destroyed them

(NEW YORK)(April 30, 2009) As this column is written, it appears Chrysler Corporation will file for bankruptcy. But whether Chrysler formally files or not, Obama is in the process of destroying the American automobile industry. In his own words, Obama is harking back to the Viet-Nam era refrain, “we had to destroy [the auto industry] to save it.”

First, full disclosure: my family owns two (2) Chrysler products. I will go to bed tonight and sleep like a baby, confident that the vehicles will endure, be serviced and have parts available to the end of their useful lives. Chrysler will endure, in spite of and not because of Obama’s bailout of the UAW.

Second, if anyone can be deemed a prophet of the auto industry’s demise, sadly it is me. Back in 2005 I predicted the auto bankruptcies. Again last fall I said bankruptcy was inevitable:

Obama’s latest machinations have been styled as a “bailout” of the automobile industry. Far from it. Obama is really bailing out the United Auto Workers and, in the process, ensuring the demise of the UAW.

Are you listening UAW members?

Here is Obama’s plan in a nutshell: Chrysler ownership would be transferred to a UAW “pension plan,” with the plan receiving 55% ownership and control. Fiat, an Italian auto maker, would receive up to 35% and the US Government would get 8%. In this “assemblage” going to be able to run a complex manufacturing enterprise? Highly unlikely.

Excuse me, but wasn’t it the UAW’s excessive pensions and benefits that contributed to the demise of the auto industry? Is the UAW now going to be rewarded for bankrupting the auto companies by being given control of the firms it destroyed? Does this make any sense at all? This is a viable industrial policy?

In olden days the UAW would threaten to exterminate one auto company at contract time, to force an agreement with excessive wages and benefits. The UAW would then transfer the same excessive terms to the other automakers. Over the decades, the UAW effectively destroyed its own industry. General Motor’s employment shrinkage is projected to be approximately 90% of its peak employment. A union that ends up with 10% of the employment base it started with is corrupt, incompetent and self-destructive.

And I am a friend of the UAW. I have a deep affection for the men and women on the shop floor. I believe they have been betrayed by their union leaders. But whether the union members were betrayed or not, handing Chrysler (or GM) control over to a “pension plan” is sheer stupidity. It is a “plan” that is doomed to failure.

Four years ago I correctly predicted the industry would go bankrupt. I did it again last year. And if Obama’s current “bankruptcy plan” succeeds, I can confidently predict the companies will go bankrupt again in the future, to rid themselves of UAW control, mismanagement and inefficiency.

What is the current battle about? There are approximately $7 billion dollars in “secured” claims at Chrysler. That means the debt is backed by security of some sort: factories, inventories, etc. In addition, there are probably assets that Cereberus Corporation, Chrysler’s current owner, stripped out of the company that can be recovered as fraudulent conveyances.

Obama is demanding that people holding secured claims of $7 billion surrender them for approximately $2 billion, when market predictions are that in a bankruptcy these creditors could recover $4 billion or more on their debts.

Who owns big slices of the hedge funds that hold these claims? Why other "retirement plans," of course. Obama wants “other” companies’ employee retirement plans to write off their assets to subsidize the UAW's retirement program. Is that fair? I don't think so. Of course no one but me is correctly analyzing what Obama is actually doing by trying to bail out the UAW, which is shift the losses to other employee retirement plans, a classic case of robbing one union, Peter, to pay another union, Paul.

Sure the UAW voted to accept this thievery. But what about the “other” pension plans that have invested in the auto industry’s claims? These “other” plans include public employee pension funds. How do those workers and retirees feel about their funds being taken away to benefit UAW retirees? Not surprisingly, no one has asked the victims whether they want to be victims and whether they want to surrender billions of dollars of their assets and retirement savings to the UAW. (You heard this first, here.)

Why would a creditor take less than half from Obama, when the same creditor would get more than double in a bankruptcy? Why are automobiles any different than the numerous airlines that went bankrupt? No one bailed out the airline pension plans.

Obama says he is going to have a quick and easy bankruptcy. Not so fast, Barry O. Bankruptcy cases are seldom quick and easy, and restructuring the auto industry will take much more time than Obama realizes. After all, he is a failed lawyer who is no more of a competent bankruptcy attorney than he is a competent auto executive. He has no background in either.

My combined experience in economics and bankruptcy tells me that the bankruptcy proceedings are not going to be anywhere near as quick and easy as Obama believes or predicts. Creditors have lawyers, and lawyers fight for their clients. Clients have a right to maximize their return. And (reminder, again) many of these claims are ultimately held by plans funds which are owned by the retirement programs of other companies and organizations.

Creditors of other companies’ retirement plans are not required to surrender value merely so that overpaid and over compensated UAW members can receive a comfortable retirement.

At the next level, the bankruptcy confusion gets even more interesting. The “big banks” are willing to knuckle under to Obama. In other words, having been bailed out themselves, bank managements are willing to stick their stockholders with billions of dollars in unnecessary losses, by writing down their secured claims, merely to please the “Anointed One, Barry O.”

Well, who owns these banks? Large blocks of stock are owned by pension funds such as the UAW’s.

In other words, the very people who will suffer losses if the banks write down their secured claims are the UAW members who Obama claims to be bailing out at the other end. You can pick which end is the front, and which is the back.

OK, here comes the Republican Party commercial, an “editorial” on why I am a social moderate but still an economic conservative.

Bankruptcy is a brutal process. It is a bloodthirsty process. But at the end, the firms which emerge are going to survive because they have been restructured into viable enterprises, not because they have been converted into employment dens for union bosses and political commissars. Anyone remember the "union owned" cars built in the former Soviet Union or East Germany?

Obama on the other hand, proposes to “restructure” the auto companies in such a manner as to make it impossible for them to survive. So if Obama succeeds, the auto companies (and, yup, the UAW, again) are doomed to failure. Whether UAW workers lose “up front,” with a bankruptcy, or lose at the back end, when the banks in which their retirement plans hold shares write off capital to take losses on auto company loans, they will be losers either way.

Long term, Obama “saves” the UAW by killing it off. With a “terminal” prognosis long term, is he really that much of a friend of organized labor? Or working families?

My plan: let the markets work. Obama should simply say, in another departure from George Bush’s failed policies, “enough,” and walk away from the auto industry. He will be doing everyone a big favor. The federal government should simply write off its loans and say “Bye.” Soon enough, labor, management and the bankruptcy courts will work things through quite nicely on their own, without any government intervention.

Can anyone really say that New York swindler Steve Ratner and goofball Treasury Secretary Tim Geithner are going to do a better job?

Left alone, in no time there will be people bidding to buy auto assets and restart production lines. Jobs will survive. Fiat will still be trying to make a deal.

And my two Chrysler products will continue to hum away. I am a satisfied lifetime customer of American-made automobiles, and I say “Thank you, UAW members. I am only sorry your union leadership misled and disappointed you.” But the only way for a single UAW job to be secure is to keep Barack Obama off the shop floor.

Yes, mine is a “conservative Republican,” proposal, not a George Bush disaster bailout or a Barry Obama rescue extravaganza. People were building cars before Bush and Obama, and they will be building cars after Bush and Obama. If Bush and Obama would only stay out of the way.

I was right in 2005. I was right in 2008 and I am right in 2009. Let the automobile companies file for bankruptcy, and let the process work normally. It’s not a pretty sight to watch, but at the end of the process, our economy will be strengthened, not weakened, and workers will be safer than they would be if their positions were being protected by Obama’s political commissars.

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Andy Martin is a legendary Chicago muckraker, author, Internet columnist, radio talk show host, broadcaster and media critic. He has over forty years of broadcasting background in radio and television and is the dean of Illinois media and communications. He is currently promoting his best-selling book, Obama: The Man Behind The Mask and producing the new Internet movie “Obama: The Hawai’i years.” Andy is the Executive Editor and publisher of

Martin comments on regional, national and world events with more than four decades of experience. He holds economics and law degrees from the University of Illinois and is a former adjunct professor of law at the City University of New York. He is an announced candidate for Barack Obama’s former U. S. Senate seat.


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