Jeff Duntemann's Contrapositive Diary Rotating Header Image

December 28th, 2008:

The Real Problem With Big 3 Bankruptcy

I’ve been very puzzled by Big Media’s consensus that we simply can’t allow the Big Three to file for bankruptcy. I guess too many people think that “bankruptcy” means sending everybody home, closing the doors forever, and selling off the machines for ten cents on the dollar. There are, of course, forms of bankruptcy that work that way, but that’s not what anybody’s talking about. Chapter 11 bankruptcy is about reorganization with an eye toward continued operation. The reorganized company is forgiven some of its debts and is given more flexibility to remake itself as a profitable operation. That’s what all three of our automakers should be doing, and should have been working in that direction for some time. But GM’s board says that bankruptcy is not an option.

In cruising online articles, I find it peculiar that no one is raising an interesting possibility: Bankruptcy for the Big Three means an end to the UAW as we know it—and the Big Three can no longer operate their plants without the UAW’s help. Chapter 11 would basically allow a judge to tear up an automaker’s union contracts, allowing the firm to cut salaries, lay off as many people as it wants to without union consultation, and nullify work rules. It basically turns a union shop into a union-less shop (not a non-union shop, but a shop in which the union exists without any power) and the unique problem with that is that without UAW cooperation, it’s unclear whether GM, Ford, or Chrysler management know enough about their own SOPs to make the plants work. The UAW, seeing its own inevitable death (or at least irrelevancy) would have no strong motivation to work with reorganized automakers. Whether or not the rank and file would want to keep working, the UAW could shut the American portion of the industry down, in a strike not so much against management as against American society. It would be a weird twist on the goofy Ayn Randian idea of creative people withdrawing from society to punish society for not “appreciating” their self-defined importance. “Give us billions of dollars annually forever or you won’t be able to buy Chevies anymore!” Uhhh, no. It won’t work for the Objectivists, and it won’t work for the UAW.

On the other hand, such a shutdown, as hard as it would be on the workers, could be the only way to force the changes that have to happen: The Big Three would close for perhaps as much as a year, and maybe more, while plants are shuttered, marques retired (do we still need Buick? Or Pontiac?) and the entire process of making autos rebuilt from the ground up, more along the lines of non-union plants operated in the South by overseas companies. There’s a good description of what such a process might be like over at The Deal, and although it goes deeper into the finance than most of us could follow, it’s worth a look. This would not be the end of the world. It needn’t be the end of the UAW, either, but the UAW will have to retool itself every bit as much as management will have to retool the plants.

The other and perhaps more serious problem with the UAW is that GM (as an example) has three times as many retiree members as working members, and retirees have voting rights. In effect, the UAW is no longer a worker’s union but a pension management organization, and this should make us a little uneasy. Keeping the plants running is no longer the overriding concern of UAW membership. The Feds absorbed the pension plans of dying railroads, and this may be one reason we cannot make passenger rail service work over here. (The article is ten years old but worth reading.) There is some danger that a special autoworkers’ retirement system could make it impossible to produce autos profitably here, but I haven’t been able to find enough on this to have a strong opinion.

I guess the whole situation is a lot more complex than anyone has understood prior to now. Taylorism and the century-long one-time labor shortage created by industrialization made trade unionism inevitable, but both of those forces are now history. The Big Three need to be remade along the lines of the Little Five, the foreign-owned “transplant” automakers that seem to be doing quite well in the US. They are not sweatshops, and their people seem to be happy. The UAW may refuse to do this, and management probably doesn’t know how. Without cooperation by both, the task may be impossible, and American automaking may go the way of the railroads, or become impossible except for foreign corporations. It’s a weird, sad business.