AFSCME 3357-HOF'S BLOG

Would $20/hour in Concessions Save the Detroit 3?

I'll save you the math, but Frank Williams, in an editorial at thetruthaboutcars.com website argues that even $20.00/hr in concessions from the UAW would not be sufficient to bail them out of their current financial mess. Actually, I lied. I'm not going to save you the math, at least not entirely. Williams figures that a $20.00 per hour concession will save GM $3.3 billion per year. He said that would barely pay for a 30-40 billion VEBA for retiree health care over a 10 year period. He also cites GM's current interest expense at $3.2 billion per year, its $80 billion in short term liabilities, and dwindling market share. He wonders where the income will come from to pay these liabilities.

Assuming his numbers are right, there are some factors it doesn't appear that he's considers, or at least he didn't go over. If GM has to borrow all of that money for the VEBA, then Williams could be dead-on or even understating the problem. If GM has already set aside some assets to cover future retiree medical costs (even if only partially), the effect could be mitigated. Regarding GM's other debt: yeah, it's high, but GM posted a nominal profit last quarter even with the high debt. It's true that GM is going to have to sell a bunch of cars to be successful in the long run, but that's true regardless of what numbers you use.

So let's do a little role-playing here. Let's say you're Ron G. and you're negotiating with General Motors. Let's say that you run the numbers, and you figure that even cutting pay and benefits $20.00 per hour, a figure that you're not convinced you can sell to the rank and file anyway, you still can't come up with numbers that make a GM comeback reasonably likely. What do you do? It seems to me that you hold firm for a "living" wage, with only minor cuts. You try to get another good year or two for the members before all hell breaks loose. The alternative is to cut your standard of living and leave that money on the table for the big wigs to gobble up until the end comes just about as quickly anyway.

Where does that leave us? Here's my prediction. If the UAW agrees to a contract with only mild cuts, fellow 3357 members, that's when you should worry; because that means that they're set to go down with the Titanic with the band playing. On the other hand, a contract with deep cuts means the UAW thinks they ship can be saved. They've left the deck, and they've gone below to work the bilge pumps. Of course, salvaging the ship could also mean casting off dead-weight off the top, and that dead weight could mean certain gold plated benefit plans.