auto-unions, rescue plans & state capitalism

my understanding with the chrysler deal is they cannot meet their obligations to the union's pension fund and so the union is accepting equity in lieu of payments in the hope of selling off the equity position at a later date.

i'm not sure if it's the same with gm or not, but it certainly does crystalize the unions' role as an agent of capital.

Yeah I've been following, I think it's totally crazy. The fact that the conflict of interests hasn't been discussed by much of anyone (as far as I'm aware of) is amazing and shows just how little the UAW has to do with the interest of autoworkers.

Not much on it, but there is a thread in the Regions/North America section.

http://libcom.org/forums/north-america/uaw-own-chrysler-28042009

I think the fact that there hasn't been much discussion (not on Libcom, but more in general in North America) reflects the degree to which big unions such as the UAW are seen as fully integrated into the operations of capitalism ("the economy" for most), especially a sector so central to it as the auto industry.

Not wanting to sound daft but what is 'equity'?

In this case equity refers to shares of common stock. Essentially it is an interest in a company which isn't a debt. So shares of stock are equity but bonds aren't, because bond represent debts while shares of stock are actual ownership interests.

This may help or it may confuse you more.

http://en.wikipedia.org/wiki/Security_(finance)#Debt_and_equity

Right, I think I get it. Basically, this bit that I was confused about earlier,

Means that in order to honour the workers' pension fund, the union is taking on a share of the company in the hope that they can sell the shares later.

I'm assuming that the problem with this is that they will now have to be (even more) directly complicit in any cutbacks to make the firm viable again so that the shares will be worth enough to fund the pensions on sale. This could even mean selling job losses to workers as a means to save pensions! Is that a logical train of thought (on my part)?

Sorry to slow down the discussion, I'm just trying to straighten out a few things in my head..

Hi all,

just to chip in: the UAW deal is worse than awful. Firstly, as reported here, the shares in Chrysler won't be owned directly by the union but by an entity called VEBA, the Voluntary Employee Beneficiary Association health care trust. This puts a layer between the union and the board and creates a conflict of interest between past and present employees.

Secondly, even on the nine-member board, the VEBA - which would hold 55% of the stock - has only one seat, like the Canadian government, which owns 2%. Further, the VEBA would have to vote the way of the independent directors of the company.

And should Chrysler get back on its feet at some point in the future, and should the union fund wish to sell its shares and cash in on the capital gains ... well, it can't. Any money in excess of a pre-agreed $4.25bn would go straight to the US government. The company was valued at about $9.25bn several years ago when it was healthy. Assuming that it returns to that level of health, VEBA's share would be worth $5.1bn, except that under this plan the union fund will not benefit from a recovery.

The combination of government and union control of a company certainly sets up Limbaugh and co. to make their Obama as a Manchurian candidate/closet Communist argument. They must be salivating at the opportunities.

at the surface level it does make the contradiction more transparent, however if you read the post by Parker above that sets out some details of the deal, it's fairly clear that the union is not going to be in a position to act out this (particular) contradiction as they are effectively a majority shareholder with fuck all say in the running/direction of the company (which probably suits all parties as it allows the union to say their hands are tied when decisions are taken that screw the workers)

even from a pure financial point of view they've ended up with 55% of effectively next to nothing

Oisleep is right about the UAW's inability to control Chrysler, see this article.

But they will still have an interest in maximizing profitability in order increase the market value of the shares they hold, so this most definitely intensifies the conflict of interest between the union and the workers.

And looking around on the web, there does seem to be at least one person who recognizes the conflict of interest in creates, and welcomes it as he wants labor to take a hit.

http://www.slate.com/blogs/blogs/kausfiles/archive/2009/04/29/uaw-as-owner-let-the-bosses-take-the-losses.aspx

lol!

Corrected! I'm tired.

Ford is now following GM and Chrysler by offering a portion of its stock - 300m shares worth up to $2bn - to a UAW VEBA to fund health care for retirees.

Unlike under the terns of the Chrysler deal, the relationship here between the union fund and the running of the company is more distanced. Nevertheless, Ford is also using the present situation "to reduce its cost structure by winning more wage concessions from its unions." (Nice inversion there: the bosses winning concessions from the workers).

I would be very surprised now if GM doesn't head for liquidation. GM bondholders have until June 1 to decide whether to swap their $27bn debt for 10% of the company as part of the deal the US government has forged to try to rescue the firm (not forgetting also all the upstream businesses that depend on it). It is believed that bondholders, which comprise mainly of hedge funds and mutual funds, but include a fair-sized portion of retail investors, ie individuals, are covered by credit default swap contracts - sort of like insurance policies - that would pay out if GM went to the bankruptcy courts. CDS holders (ie those that have bought protection) would stand to gain $2.4bn in profit should GM default. Surprisingly enough, none of this group want what the government if offering. (ETA: of course there are sellers of protection who also hold bonds and also those who have staked a position on default without owning bonds at all, so the FT story is on second thought a little misleading).

FT story

And another thing: if any the CDSs had been written by AIG, it would be the American government picking up the tab ...