The Little Glitch in the Automotive Bailout

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By now everyone has read the headlines – the Senate refused to move forward a proposed bailout plan for the US automakers. But the reasons remain less than obvious. The ultimate deal-breaker, tucked away neatly in the bowels of the story centers around this, according to a Thompson Reuters article: “Dodd (Sen. Dodd) said the main issue of disagreement was the date to require the Detroit autoworkers’ receive pay parity with workers at foreign owned US auto plants.” In other words, the UAW and GM did not agree on the date in which GM employees would see their total compensation (salary plus benefits) equal those of their lower cost “transplant” competitors (e.g. Toyota and Honda).

According to Ron Gettelfinger, President of the UAW, “The demands by the GOP caucus would have treated workers differently from every other stakeholder,” Gettelfinger said. “The GOP caucus was insisting that the restructuring had to be done on the back of workers and retirees rather than having all stakeholders come to the table.” Gettelfinger, according to this Washington Post article called out four other stakeholders “bondholders, executives, retirees, and others” who should be also share in the sacrifice. The inference is that only the UAW would bear the brunt of any type of financial concession. The point is a bit silly though. GM is and has been conducting a number of cost reduction efforts to improve its financial position including substantial cuts from salaried workers and executives. The reality, that labor costs represent the bulk of GM’s cost structure, make it that without the union concession (in this case the only point of concession needed for the bill to pass the senate was the approval on the date for said changes not if the changes would be made), a deal could not possibly happen.

How will all of this impact the metals industry? Undoubtedly more Tier 1 and Tier 2 automotive suppliers will also be forced into bankruptcy, particularly those that are heavily reliant on GM as a customer. And though that will cause much short term pain, when automotive demand does return (and eventually it will), fewer suppliers will be serving a growing market, which should help their businesses. We’ll also likely see higher metals prices and tighter supply markets for finished assemblies and components. And just as the metals industry has to cut capacity and make painful production cuts, so too should the automakers. Maybe now they will have their chance.

–Lisa Reisman

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