The Corner

Auto Bailout or UAW Bailout?

The Treasury Department expects taxpayers to ultimately lose more than $20 billion on the Detroit auto bailout. President Obama defends those losses as necessary to prevent the domestic auto industry from collapsing.

They were not. The president could have kept the automakers running without losing money. In a new report released yesterday, Todd Zywicki and I find that taxpayers lost money only because the administration paid some $26 billion to subsidize the pay and benefit of UAW members.

Before the bankruptcy, UAW members in Detroit made more than $70 an hour in wages and benefits — a major reason GM and Chrysler went under. The automakers also owed tens of billions to a UAW trust fund that provided gold-plated health benefits to the union’s retirees. In a normal bankruptcy, the UAW would be required to bring this compensation down to competitive rates. Bankruptcy law also calls for all unsecured creditors to receive equal treatment. That did not happen in Detroit.

In the bankruptcy, the union gave only minor concessions for existing workers. The union accepted huge cuts for new hires, but as the president’s former Car Czar admitted, “We did not ask any UAW member to take a cut in their pay.” As a result, GM still pays $56 an hour in wages and benefits, more than any of its foreign “transplant” competitors. Not adjusting labor costs to market rates costs taxpayers more than $4 billion.

The UAW’s trust fund also recovered far more of the money owed to it than other unsecured creditors did. At GM the UAW Trust collected $12.2 billion more than it would have had it been treated like the other unsecured creditors. At Chrysler the administration gave the UAW assets worth $9.2 billion. That was a much greater recovery than the secured creditors got — and the reason the UAW wound up with half of Chrysler.

General Motors further spent $1 billion to restore the pensions of UAW retirees at Delphi, a bankrupt former GM subsidiary, to their former levels. GM had no legal obligation to do so, and did not do the same for the pensions of retirees in other unions or those of non-union employees. Former administration officials have refused to co-operate with the inspector general’s investigation into whether the administration played a role in this decision.

Add these handouts up, and you find that the taxpayers spent $26.5 billion subsidizing the pay and benefits of UAW members. Obama gave the UAW more than the U.S. spends on foreign aid. The UAW subsidies account for the entire net cost of the bailout.

Generous compensation is good, but the taxpayers should not be on the hook for paying it. The average worker makes about $30 in pay and benefits. The administration spent the taxes paid by all Americans to preserve union pay in Detroit. That was not an auto bailout. It was a UAW bailout. 

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