Today's Wall Street Journal further drives home the difficult position in which the United Auto Workers, Chrysler, and General Motors are likely to find themselves as a result of the UAW becoming part owner of GM and majority shareholder of Chrysler. First, the lead editorial notes the political risks inherent in the arrangement:
Some Treasury officials have told the media that 50% government ownership is important to ensure that taxpayers get repaid for the $16.2 billion in Treasury loans. But this is false logic. Taxpayer-shareholders are likely to be far better off with a smaller stake in a truly private company that is better insulated from political meddling. Private owners are more likely than the Treasury or the unions to try to run the company for profit, and so increase its equity value over time. Treasury says it would be a hands-off owner, but that hardly seems plausible and in any case that would merely leave the UAW in control. At the next labor contract bargaining session, the union would sit on both sides of the table.And former Journal Detroit correspondent Paul Ingrassia points out the conflicting incentives that the UAW will have to control after it assumes such a huge stake in the two troubled automakers (which Holman Jenkins also mentioned this week) -- as well as the irony of it all.
Having burdened the Detroit companies for decades with restrictive work rules, enormous health-care obligations and generous retiree benefits, the United Auto Workers union will now end up controlling two of them. Specifically, the UAW will own 55% of Chrysler and 39% of General Motors, where only the government will have a larger ownership interest. Assuming that negotiations over the next few days or weeks don't change things, it's hard to know whether this outcome is perversity or poetic justice. The UAW finally will end up having a direct stake in the survival and prosperity of General Motors and Chrysler -- even though the union's shares in the companies will be held by special trust funds instead of by the UAW itself. Whether the union's rank and file will recognize its interest in the companies and act accordingly is another matter. Consider that one of the terms of Chrysler's pending deal with the union is that workers won't receive overtime pay until they work more than 40 hours in any given week. One might well ask: Wasn't it always that way? Well, no. Often enough, the union negotiated production quotas in local plant contracts that workers could fill in five or six hours a day -- after which any work they did qualified for overtime pay. Now you understand one key reason why Detroit has arrived at this unhappy juncture.That two of the major protagonists in this sorry history -- the UAW and the federal government -- are gaining more power over GM and Chrysler gives little reason for optimism about the companies' future. More political manipulation is the last thing troubled companies need, and the new ownership structures now being finalized for GM and Chrysler are unlikely to avoid it. By seeking private financing, Ford may be about to dodge a bullet.