The Corner

Holdouts

The Wall Street Journal reports that Ford has reached an agreement with the United Auto Workers that will reduce the cost to the company of funding retiree health care:

The agreement, announced Monday by UAW President Ron Gettelfinger, gives Ford added flexibility in how it funds a union-run health-care trust fund for retirees. Ford, which faces nearly $10 billion in health costs for retired union workers, now may make up to half its contributions in Ford stock rather than in cash.

Why did the UAW cut a deal now? Union officials are reportedly concerned by the fact that the Obama administration did not reach for its wallet the minute GM and Chrysler demanded a combined $21.6 billion in additional bailout money. The administration even floated the pre-packaged bankruptcy trial balloon, which is distressing to union officials because bankruptcy would mean much tougher concessions than any deal they might otherwise secure. That’s why they cut the deal with Ford. Ford has not taken any bailout money. Of the three, it is in the strongest position to weather the economic downturn.

Earlier today, I spoke to an industry insider who offered the following analysis: “If you cut the deal with Ford, you get better concessions than if you cut it with a weaker company.” Once the Ford deal goes through, the UAW hopes GM and Chrysler will agree to the same terms. This would allow the companies to tell the government that they have made significant progress on their labor problems — one of the conditions they agreed to when the government loaned them $17.4 billion last December. “They want to be in the position that if it all hits the fan with GM and Chrysler, they don’t end up with the worst deal.”

Every time bankruptcy starts looking like a serious possibility, the union makes another concession that it needed to make all along. (Last time it was the suspension of the jobs bank.) But the union is not the only player in the auto-bailout game: GM and Chrysler’s bondholders, shareholders and suppliers will also hold out for the best deal possible, and they will continue to defer hard choices as long as the government keeps the money flowing. That’s a recipe for wasting a lot of taxpayer money and making the fall more painful when it comes.

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