Obama and Chrysler

Obama’s Auto Plan: Workers’ Control or Bosses’ Management?

   Support Socialist Appeal – Subscribe or make a Donation!

President Obama has just passed the 100 day mark of his term in office. What a difference a few weeks makes! Even though GM and Chrysler have already been given millions in public money, Chrysler has now been allowed to go bankrupt. All of its plants will be idled until it emerges from bankruptcy. And despite putting forward the option of a UAW “ownership stake” in GM and Chrysler, Obama is at the same time addressing auto workers with the cold vocabulary of Wall Street: Viability, Profitability and Liability. And these words are not hollow. The administration’s restructuring plan is backed up with factory closings, mass layoffs, wage and benefit cuts and possibly the closing of entire companies. Despite being elected with the enthusiastic backing of the unions, less than four months after coming to power, Obama has already launched the worst attack on the key and heavily-unionized auto industry in decades.

Long-teetering on the edge of bankruptcy due to mismanagement, the “Big Three” U.S. automakers GM, Ford and Chrysler have all seen their profits collapse due to the economic crisis and a steep fall in car sales. GM alone has lost $82 billion in the last four years and its value on the stock market has fallen to its lowest level since 1934. Now bankrupt, Chrysler has lost $8 billion in the last year alone and sold 46 percent less cars this March compared to March 2008.

Despite remaining one of the better-paid sectors of the U.S. working class, over this same period auto workers have seen their wage and benefit levels consistently erode while dozens of plants have been closed and hundreds of thousands of jobs eliminated.

GM and ChryslerIn December, GM and Chrysler, the largest and third largest U.S. car makers, both announced that they were facing bankruptcy in 2009 and asked the Federal government for emergency financial help in order to keep the companies running. Under the TARP program, the then-Bush administration gave the auto companies a $17.4 billion loan package, which was followed by additional loans in February which brought the total to $39 billion of public funds loaned to GM and Chrysler.

In December, GM and Chrysler management, along with representatives of the United Auto Workers union, were brought to Congress for public hearings to negotiate the terms for the rescue package. From the beginning, the Democratic Party majority made it clear that their intention was to give the loans only on condition that GM and Chrysler show “fiscal responsibility” and “do all that is necessary” to make profits once again to repay the U.S. Treasury and Federal Reserve Bank. GM and Chrysler management were also given a deadline to complete restructuring plans to make the companies profitable.

President Obama personally demanded more concessions from the union. As he put it: “We think we can have a successful U.S. auto industry. But it’s got to be one that’s realistically designed to weather this storm and to emerge – at the other end – much more lean, mean and competitive than it currently is.” Obama also announced that he would create an auto industry task force, headed by Treasury Secretary Timothy Geithner, to administer the loans. Geithner would also effectively take on some aspects of managing the industry while leaving the management structure of the companies in place. In other words, they were put into a form of government administration. This is very different from nationalization under democratic workers’ and public control.

The GM and Chrysler management plans called for clawing to profitability entirely at the workers’ expense: eliminating 50,000 jobs at both companies, with GM closing 14 North American plants by 2012 and eliminating the Saturn and Pontiac brands altogether, in addition to further cuts in wages, pensions and health benefits. However, after reviewing the plans, the President’s auto task force rejected them and announced its own plan. It also forced the firing of GM’s CEO, Rick Wagoner and called for the removal of a majority of the company’s board of directors.

Seeing Wagoner go undoubtedly pleased many auto workers. Wagoner oversaw years of wage, job and benefit cuts and piecemeal plant closings at GM, all the while earning a multi-million dollar salary and giving himself a 64 percent raise in 2007. He represented GM management, which has seven levels, each of which has received big pay increases for several years in a row, while workers were told it was their compensation and “privileges” that were ruining the company.

But the lie to bosses’ argument is that labor costs are not to blame for GM and Chrysler’s problems. According to Jim Stanford, an economist for the Canadian Auto Workers union: “Economically, wage cuts are irrelevant to the future of Chrysler and any other auto maker. Whether these companies live or die depends on bondholders, on government, and – most importantly – on consumers. Direct labor accounts for 7 per cent of total auto costs: less than capital, less than materials, less than dealer margins. Cutting that to 6 per cent won’t sell a single car or truck.”

The culpability of bondholders in the crisis is highlighted by the fact that Chrysler’s bankruptcy declaration was triggered by the bondholders’ refusal to trade $27 million in company debt for partial ownership in the company. These wealthy banks, investors and other “financial institutions” didn’t see any profits to be made in propping up Chrysler any longer. This underlines why there is no real solution to the crisis within the limits of a system based on making profits.

However, the firing of just a few members of management (why not all of them?) only amounts to a public show that “something is being done.” Obama was elected based on his “pro-labor” image, and firing the CEO of a major company reinforces that image while leaving the management structure itself untouched. But the details of the new plan are more than enough to erase any doubts as to whose interests are being looked after.

The task force’s plan, called the “Obama Administration New Path to Viability for GM and Chrysler” actually outlines even deeper cuts than the auto bosses’ pushed for. While being short on concrete figures, the path outlined for the companies is a “supervised bankruptcy” for Chrysler and even deeper job cuts and more plant closings at GM. Both companies’ plans did not cut enough “long-term liabilities” – that is, workers’ pensions, health care costs and wages. Under the Obama plan, the companies must use bankruptcy protections to cut these costs  in a “quick and surgical way.”

The task force’s plan for Chrysler is to give an additional $8 billion in aid and to  back its warranties. Beginning on May 4th, all its plants were shut down. This same report also praised Fiat for its own recent cuts – never mind the effects this has had on Italian workers and their communities! It has given GM 60 days to agree to the new plan, which means it must approve a re-negotiated contract with the UAW. The UAW leadership and GM have already agreed on a new contract that gives the company more than $1 billion in cuts, although this still had to be ratified – or rejected – by a vote of the union’s members within the 60 day deadline. If the companies could not meet these deadlines, Obama’s task force would cut off all public funding, meaning total bankruptcy.

One day before Chrysler’s deadline of April 29th, under immense pressure, UAW members ratified approved a new deal full of concessions, including giving up an Easter Monday holiday, cutting of relief time, calculating overtime after 40 hours a week not after 8 hours a day, elimination of the “Job Bank,” suspension of COLA (Cost of Living Allowance) and performance bonuses. The UAW local leadership vote also put the final nail in the coffin of eliminating job classifications, lumping all hourly workers regardless of seniority, skill or age into one job class. Use of temporary workers will also increase; they are now no closer to full-time or union status and will have their wages frozen until 2015.

On top of it all, this new contract will be hemmed in by binding arbitration through a federal mediator and a “no right to strike” clause. Changes to the contract may be approved by the UAW’s vice-president for Chrysler, but not by the membership. The contract also leaves unresolved the problem of under-funding of VEBA, the union-administered health and pension fund, and dental and vision coverage would be eliminated. Auto workers are not to blame for the economic crisis. The fact that the UAW leadership presented no alternative to this contract should be enough to show the need for new leadership in the union, one that makes itself accountable to the membership and fights for their interests tooth and nail!

Chrysler and FiatIn four-way talks, the UAW, Chrysler, Fiat and the federal government also put forward the proposal of giving the UAW a 55 percent ownership stake in the company, with Fiat taking 35 percent and the government taking the remaining 10 percent, if the concessions were approved by UAW members. Not the UAW directly, but the UAW-administered VEBA fund would get a seat on the company’s board of directors. The idea is that the UAW could fund pensions by selling (now worthless) Chrysler stock and also give the impression that the UAW is “running the show now.”

But the problem is that simply giving the UAW majority stock ownership is just another form of “employee ownership” where a company’s stock is owned by workers, yet control remains in the hands of management. The same capitalist management structure remains in place, and most importantly, the profit motive. This means that there will be a continued effort by management to cut costs and increase profits, and the “worker-owners” will in the end be exploiting themselves! Layoffs, plant closings, pay and benefit cuts, and speed-ups will continue, while the UAW will get its shares of worthless stock and a negligible yearly dividend payment, or what’s worse, this stock can continue to decrease in value. Stock ownership does not equal real control, or real ownership for the class as a whole. This kind of “ownership” would be the worst option for the UAW.

“Employee-owned” or not, GM and Chrysler have been steered toward the bankruptcy courts because once there, the UAW’s contracts (and all other legal contracts) become void. If this is allowed to happen, it will mean that the bosses, through the courts, can dictate wages, benefits, rights and even union representation itself to auto workers. Far from “helping workers through the recession,” which was his stated aim when announcing the task force’s plan, Obama’s plan is to use the economic crisis to break the backbone of the UAW, one of the strongest unions in the U.S. The example of factory occupations by U.S. auto workers in the 1930s and the Canadian auto workers at the Aradco parts plant just a few weeks ago is sure to give U.S. auto workers plenty of food for thought!

As the crisis in the auto industry has deepened under the weight of the “Great Recession,” the UAW leadership’s “jointness” policy of concessions for profitability has not changed but instead has only gotten worse. The current leadership has not played an independent role, defending the members’ interests, but instead has given the auto bosses almost everything they have asked for. The reasoning explaining these concessions hasn’t changed either: “If we don’t give them what they want, they’ll go out of business and we’ll all be out of a job.”

The UAW has pursued this policy for decades, and what has happened? The companies are going bankrupt and hundreds of thousands have lost their jobs! The real problem is the weakness and rottenness of capitalism itself, which can only return to profitability by gutting quality jobs and slashing all of its costs to the bone. And if capitalism doesn’t work for us, why should we make sacrifices to maintain corporate profits and the “lifestyles of the rich and famous?” To really defend jobs, pay and conditions, auto workers need to look beyond the limits of capitalism and private, for-profit ownership of the “Big Three.”

Where there is public financing, there should be public ownership and control. Concretely, the only rescue plan for auto that preserves jobs and creates new ones would have to include the nationalization of the “Big Three” under democratic workers’ control, with production organized through elected factory committees, and at the national level by representatives of the government (representing the interests of the population as a whole), the unions (representing the interests of all workers) and representatives of the workers in the company.

By taking the auto industry into public ownership and eliminating the profit motive, the tremendous creative and productive potential of the industry could be put to use for the benefit of society as a whole. For example, by building electric vehicles (which, by the way, GM already has the technology to produce) and massively expanding public transit. What’s more, the billions of dollars given to the industry would be used to actually create new jobs and re-open closed plants, not for cuts and closings. This is what the UAW should fight for, along with defending every penny of wages and benefits and fighting for a socialized national health care system for all, a demand it adopted more than 50 years ago but which the leadership apparently forgot about!

The treatment given to the auto industry is in stark contrast to that given to the big banks and insurance companies. Over this same period, under the same TARP program which has been used to “aid” the auto industry, the huge insurer AIG was given $40 billion in public money without any conditions or ultimatums. This huge amount of the public’s funds, mostly paid by working class taxpayers, was given without even token firings of inept managers – instead, AIG management used these funds to give themselves multi-million dollar severance packages and weekend spa getaways in Las Vegas!

Obama’s economic policies, despite the “friend of labor” image he projects, are aimed at maintaining American capitalism and placing the burden for the crisis on the shoulders of the working class. The huge sums of money that have been handed over to the big banks are all debts, which fall on the tax payers to repay not just today but literally for decades to come. These debts will be paid for through tremendous cuts in public education, health and all other public services and will result in a qualitative decline in living standards for generations to come. This is the cold reality of capitalism, which is why many workers and youth in the U.S. today are not just beginning to question whether Obama can deliver fundamental change, but they are also questioning the system that he defends.

No to cuts, concessions, closures and layoffs! Nationalize the auto industry under democratic workers’ control!

Are you a communist?
Then apply to join your party!