President Barack Obama announced Monday that he will appoint, not a “car czar,” but a “Presidential Task Force for Autos” to “fix” the Detroit Three. The task force will headed by Treasury Secretary Tim Geithner, but it is the first name appointed by Geithner — “Senior Advisor” Ron Bloom — is of real interest for a number of reasons.
The first is that Bloom is Special Assistant to the President of the United Steelworkers. He is also a Wall Street investment banker that will be serving in an Administration that has enjoyed using Wall Street bankers as a populist punching bag. Apparently, it depends on which side of the Street you’re on.
Bloom is a partner with former Lazard Freres pal Eugene Keilin in Keilin & Bloom, a well-heeled investment firm that has carved out a niche representing troubled unions in troubled industries while charging their blue-collar clients outrageous fees that have made them millionaires.
Bloom is rich, tough, and colorful. “If you are involved with the insolvency of a steelworker represented company,” he told a business conference in 2006, “let me give you some advice. First, we are big believers in dentist chair bargaining. For those of you not familiar with this approach, it is inspired by the story of the man who walks into his dentist’s office, grabs the dentist by the balls and says, ‘now let’s not hurt each other.’ ”
But most significantly, Bloom (and Keilin) made their reputation battling steel companies which, burdened by excessive union costs, suffered through a very similar experience to the Detroit Three thirty years ago. In fact, as the New York Times’s David Streitfeld points out in this superb article, five U.S. steel companies received over $300 million in bailout loans from the Carter Administration in the 1970s.
“If they were allowed to go under, their partisans warned, the consequences would ripple through the economy at a cost too high to bear,” writes Streitfeld of Big Steel’s predicament in the Carter years. “The old saying, ‘As steel goes, so goes the nation,’ was as much a threat as a boast.” Sound familiar?
Yet, despite that government rescue — the domestic steel industry continued to whither because its unions would not make the concessions necessary for Big Steel to become competitive against foreign competition. In the late 1980s, Keilin and Bloom — representing steelworkers with Bethlehem Steel and LTV — even proposed a national solution with labor, industry, and government involvement.
Yet, as Prof. Richard Fruehan, a steel industry expert with Carnegie-Mellon points out, it was only bankruptcy in the early part of this decade that finally saved U.S. steelmakers. Suffocated by their union and pension overhead costs, Bethlehem & Co. went into Chapter 11. And they emerged only when venture capitalist Wilbur Ross told labor that the mills would re-open if the unions took the concessions they had resisted for years.
“It was very painful — and very successful,” says Prof. Fruehan. “Once the companies were in bankruptcy, the union played the game.”
“Bankruptcy changed the rules,” adds the Times’s Streitfeld. “Steel’s turn-around was dramatic. The 17 leading companies went from a combined loss of $1.1 billion in 2003 to an after-tax profit of $6.6 billion in 2004.”
No doubt, Mr. Bloom has been brought in by the union-friendly Obama administration for his expertise on health-care trust funds (an issue on which the UAW has been unwilling to give an inch since the Bush bailout in December). And, no doubt, he will help negotiate more government transfusions to keep GM and Chrysler — and their unions — alive.
But in the end, the real lesson of Ron Bloom is that it is only Chapter 11 — likely structured with government as the debtor-in-possession as well as guarantor of manufacturer warranties — that can make this U.S. manufacturing industry viable again.