Auto workers clear the way for bailout

The GazetteMarch 10, 2009

The Canadian Auto Workers union has a long record of spectacular success in its bargaining with what we used to call the Big Three auto-makers.

Long before foreign car companies opened plants in this country, the Canadian arm of the United Auto Workers - as the CAW used to be called - had perfected the tactics of focusing on one company, demanding big contract concessions, shutting down plants - and getting the company to cave in. Then, with a precedent set, the other two companies would fall into line.

Those lavish contracts are part of the reason General Motors, Chrysler, and Ford are in so much trouble today. And over the weekend the CAW got the better of the bargain again, emerging from crisis talks with a deal involving very few union concessions. We can’t help suspecting that the union and the company have together decided to put the squeeze on a different chump - the taxpayers.

By one estimate, the CAW-GMC deal announced Sunday will - if ratified by the rank-and-file - lower the company’s labour-and-benefits costs from about $70 an hour to about $63. This is a considerable saving but the deal involves no wage reductions for union members, only a freeze. Similarly, certain fat buy-out offers will not be reduced. The union did agree to abandon certain bonuses and to reduce holiday time, and in addition workers and retirees will now each make a "co-payment" on medical insurance.

The agreement opened the door for the company - and Chrysler, where a similar pact is likely - to go to Ottawa seeking $6 billion in loans from the federal government. The problem at this next step is that the auto-maker has no collateral. GMC President Arturo Elias told a Parliamentary committee last week that GM had already pledged its assets worldwide to the U.S. government, to get a loan from Uncle Sam. So any loan Canada makes to GMC will have to be unsecured.

A prudent person wouldn’t be willing to lend Elias lunch money right now, much less $6 billion. But the consensus is that unless it’s propped up, GM will crash - and bring down with it countless parts plants and other suppliers, a collapse which could trigger a wider economic tsunami.

On the other hand, it is not true that GM is in an inevitable death spiral. The prospect of disaster concentrates the mind wonderfully, and the current low level of auto sales will not last forever. In a downturn people might drive their cars an extra year, but demand for new ones is slowly accumulating. The real test for GM - for all auto-makers, in fact - will not be getting loans but designing and producing cars people want to buy. This is a challenge but not an impossibility.

It appears that Ottawa, and Ontario, are now cornered: They’ll have to go ahead with some kind of support package for GM and Chrysler - Ford has not asked for one - but this will amount to gambling taxpayers’ money in large amounts. No wonder politicians go gray.

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