A loophole wide enough to drive a GMC truck though

The Bush administration’s outline of its automaker bailout package lists some seemingly sensible changes in labor practices that GM and Chrysler need to make. (Ford, to its credit, is seeking private financing instead.)

Targets: The terms and conditions established by Treasury will include additional targets that were the subject of Congressional negotiations but did not come to a vote, including:

  • Reduce debts by 2/3 via a debt for equity exchange.
  • Make one-half of VEBA payments in the form of stock.
  • Eliminate the jobs bank.
  • Work rules that are competitive with transplant auto manufacturers by 12/31/09.
  • Wages that are competitive with those of transplant auto manufacturers by 12/31/09.


These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.

Conditions with a loophole wide enough to drive a GMC truck through are hardly the stuff of which corporate transformations are made. To be fair, the Bush administration has recognized the biggest labor-related problems affecting these companies, so it is particularly unfortunate that it is being this timid.

The requirement to pay contributions to VEBAs (voluntary employee benefit associations) draws welcome attention to a looming problem. VEBAs are intended to serve as health care trusts that allow companies to pass their health insurance obligations on to another party, in this case a union. It makes sense for a company to want to shed those costs, and GM has already passed $35 million on to the United Auto Workers.

But, as Brian Johnson and Ryan Ellis of Americans for Tax Reform point out:

[T]he United Auto Workers has been given a free hand to define “health care” under the Treasury regulations—not coincidentally written by IRS officials of Presidents Lyndon Johnson and Jimmy Carter—which implement VEBAs.

Payments in the form of stock would at least help make VEBAs less liquid and thus prone to abuse — but even then, the requirement is only for half of payments, and is only a non-binding target for use of taxpayer money.

Finally, handing a large union a large wad of cash requires holding the union to a high standard of accountability, something for which President-elect Obama’s pick for Labor Secretary doesn’t provide confidence.