FacebookTwitterRedditEmail

Restructure the Big 3, But Not With Bankruptcy

Bankruptcy talk for the troubled automakers GM and Chrysler is accelerating, and President Obama—as well as the companies themselves—is raising the frightening prospect of mass layoffs and plant closings.

If the car companies are too big to fail, too poorly run to put right, it’s time to take them over. But Obama made a point of ruling out a takeover today, saying that the government doesn’t want to run the companies. If they can’t present turnaround plans that restore them to profitability, he prefers bankruptcy—which, without significant alterations, will be a disaster for wide swaths of the Midwest.

Obama insists that GM and Chrysler submit to “fundamental restructuring.” He issued a call for the auto industry to remake itself along the lines seen in World War II. Then, the U.S. desperately needed war material, and Detroit had the factories and the willing workers. Within weeks the “Arsenal of Democracy” was churning out machines of war instead of four-door sedans, and the government poured money into Michigan to make it happen, spending $56 billion in today’s dollars over the war years.

The Arsenal of Democracy resulted not from private initiative, not from patiently waiting for the “ingenuity” of executives, but because government demanded it.

TOO HALF-HEARTED

This moment is crying out for that kind of resolve, not the half-hearted jawboning Obama described on Monday. GM’s problems can’t be solved by a symbolic (and well-compensated) firing of the CEO. What’s needed is to transition shuttered auto plants into a new transportation and energy sector that can wean us from oil. Obama should insist that the dozens of excess auto factories be put to work building clean cars, mass transit, and those 6,000 components of a wind turbine.
While he’s at it, he should dump the employer-based health care system that, at the Big 3, is about to collapse.

That’s because our jobs, health care, energy, environment, and transportation problems are all linked, and solving them means connecting the hip bone to the thigh bone: With car sales plummeting 41 percent last month and no bottom in sight, Detroit’s automakers could shutter upwards of 30 factories and still meet current demand. Auto workers face tens of thousands of job losses and billions of dollars in benefit cuts. A million retirees and their families could lose health care. The highways and bridges we depend on are falling to pieces. Those highways feed sprawling suburbs brimming with foreclosed homes.

Let’s address all those problems at the same time. In other countries, it’s called an “industrial policy,” a comprehensive strategy to make sure we’re investing wisely. (It’s no accident that Spain and Denmark make the world’s wind turbines now, and that France and Japan make its railcars.)

WHAT’S THE ALTERNATIVE?

The alternative is putting failing auto companies through what industry insiders are calling a “quick rinse”: a pre-packaged bankruptcy that would start by tearing up the contractual obligations made to former workers as they labored for decades. First on the chopping block are “debt obligations,” the code name for money promised for retiree health care through the voluntary employee beneficiary association (VEBA).

Obama furthered the likelihood of bankruptcy by guaranteeing that service warranties would be honored if that happened. GM, too, has softened its tone on bankruptcy recently.

Company executives must be coming to understand what other corporations have long known: a trip into Chapter 11 has been the excuse for airlines, steelmakers, and other companies to gut union contracts, impose layoffs, and destroy the jobs that promised a pension, health care, and decent wages in exchange for 30 years of intensely demanding work.

HOW’S IT WORK?

In bankruptcy, the company proposes a restructuring plan to the bankruptcy judge, which in three months must settle all debts, restructure contracts, and pay off the financers who kept the business running during bankruptcy. (These financers are known as “debtors-in-possession.”)

Bankruptcy judges and their “bankruptcy masters,” who are appointed by the court to handle the day-to-day negotiations, use the power granted to them in the bankruptcy code to shred contracts and force unions to take concessions.

Though their future wages, pensions, and benefits are being decided, workers often have no say in these negotiations, under current rules.
Usually the best case for labor is to get a rump-end seat on the least-important committee, the unsecured creditors committee, where labor reps can plead with other committee members and the bankruptcy master to try and get a few scraps thrown their way.

The debtor-in-possession financer, meanwhile, jumps to the head of the line in terms of who gets paid first by the bankrupt company.
Not only is it paid first, the debtor-in-possession is also the key decision-maker in restructuring. Workers at auto-parts supplier Delphi discovered this when the private equity firm Appaloosa Partners provided bankruptcy financing and dramatically reshaped the company.

ANY LIGHT IN THIS TUNNEL?

GM’s or Chrysler’s bankruptcy would be disastrous for millions of workers and their families. Entire communities would be emptied of decent jobs and retirees could see pensions and health care coverage gutted. GM’s auditor predicted in early March that bankruptcy could mean 47,000 jobs lost and 14 additional plant closures. That doesn’t even begin to suggest the impact of the failure of up to 100 parts suppliers, a likelihood, according to a UAW researcher’s estimates.
The time is ripe for bolder action, but if Obama insists on bankruptcy, he should rewrite the script for bankruptcy proceedings to avoid this kind of devastation. Here’s three modest proposals.

Have the government function as the “debtor-in-possession” financer. Running the show would give us the leverage we need to break with car-dependent transportation and put the engineers and the plants to work on the transit of the future.

Don’t let the car companies shop around for friendly judges. Bankruptcy courts are often chosen by companies based on their willingness to rule in favor of employers. That should be out of the question. And because the government is driving the reorganization, the bankruptcy master should be designated by the White House, the Department of Labor, and the Department of Transportation.

Set up a labor committee. Instead of shunting labor to the side, put it on an equal footing with the creditors’ committees. Give the labor committee input into the governance and planning of the company under bankruptcy, including veto power on the “plan of reorganization.”
Of course, the bankruptcy czar could just push for concessions, and a labor committee under the control of the current UAW leadership could just stand meekly alongside the same executives that dragged the companies into the ground. They’ve chosen to do so, so far.
“You never want a serious crisis to go to waste,” said Rahm Emanuel, President Obama’s chief of staff.

But that’s what he and his boss are doing with the auto industry—throwing billions at a sinkhole and making workers pay for their bosses’ mistakes.

We could use this moment to craft an industrial policy that marries good blue-collar jobs, pensions, and health care to a green economy. Bankruptcy, unless we rewrite it, is a one-way ticket to disposable jobs in a hollowed-out Midwest.

Mark Brenner, Mischa Gaus and Jane Slaughter write for Labor Notes.

bernie-the-sandernistas-cover-344x550

Weekend Edition
June 14, 2019
Friday - Sunday
Michael Hudson
Trump’s Trade Threats are Really Cold War 2.0
Bruce E. Levine
Tom Paine, Christianity, and Modern Psychiatry
Jason Hirthler
Mainstream 101: Supporting Imperialism, Suppressing Socialism
T.J. Coles
How Much Do Humans Pollute? A Breakdown of Industrial, Vehicular and Household C02 Emissions
Andrew Levine
Whither The Trump Paradox?
Jeffrey St. Clair
Roaming Charges: In the Land of 10,000 Talkers, All With Broken Tongues
Pete Dolack
Look to U.S. Executive Suites, Not Beijing, For Why Production is Moved
Paul Street
It Can’t Happen Here: From Buzz Windrip and Doremus Jessup to Donald Trump and MSNBC
Rob Urie
Capitalism Versus Democracy
Richard Moser
The Climate Counter-Offensive: Secrecy, Deception and Disarming the Green New Deal
Naman Habtom-Desta
Up in the Air: the Fallacy of Aerial Campaigns
Ramzy Baroud
Kushner as a Colonial Administrator: Let’s Talk About the ‘Israeli Model’
Mark Hand
Residents of Toxic W.Va. Town Keep Hope Alive
John Kendall Hawkins
Alias Anything You Please: a Lifetime of Dylan
Linn Washington Jr.
Bigots in Blue: Philadelphia Police Department is a Home For Hate
David Macaray
UAW Faces Its Moment of Truth
Brian Cloughley
Trump’s Washington Detests the Belt and Road Initiative
Horace G. Campbell
Edward Seaga and the Institutionalization of Thuggery, Violence and Dehumanization in Jamaica
Graham Peebles
Zero Waste: The Global Plastics Crisis
Michael Schwalbe
Oppose Inequality, Not Cops
Ron Jacobs
Scott Noble’s History of Resistance
Olivia Alperstein
The Climate Crisis is Also a Health Emergency
David Rosen
Time to Break Up the 21st Century Tech Trusts
George Wuerthner
The Highest Use of Public Forests: Carbon Storage
Ralph Nader
It is Time to Rediscover Print Newspapers
Nick Licata
How SDS Imploded: an Inside Account
Rachel Smolker – Anne Peterman
The GE American Chestnut: Restoration of a Beloved Species or Trojan Horse for Tree Biotechnology?
Sam Pizzigati
Can Society Survive Without Empathy?
Manuel E. Yepe
China and Russia in Strategic Alliance
Patrick Walker
Green New Deal “Climate Kids” Should Hijack the Impeachment Conversation
Colin Todhunter
Encouraging Illegal Planting of Bt Brinjal in India
Robert Koehler
The Armed Bureaucracy
David Swanson
Anyone Who’d Rather Not be Shot Should Read this Book
Jonathan Power
To St. Petersburg With Love
Marc Levy
How to Tell a Joke in Combat
Thomas Knapp
Pork is Not the Problem
Manuel García, Jr.
Global Warming and Solar Minimum: a Response to Renee Parsons
Jill Richardson
Straight People Don’t Need a Parade
B. R. Gowani
The Indian Subcontinent’s Third Partition
Adolf Alzuphar
Diary: The Black Body in LA
Jonah Raskin
‘69 and All That Weird Shit
Michael Doliner
My Surprise Party
Stephen Cooper
The Fullness of Half Pint
Charles R. Larson
Review: Chris Arnade’s “Dignity: Seeking Respect in Back Row America”
David Yearsley
Sword and Sheath Songs
FacebookTwitterRedditEmail