One of the problems with the on-going negotiations involving the automobile companies, government and the union that helped destroy General Motors and Chrysler is that, when it’s all over, the union ends up in the driver’s seat.
The United Auto Workers, an extension of the Democratic Party, will wind up with a controlling stake in Chrysler. General Motors bankruptcy filing is imminent and expectations are that the UAW will wind up with as much as 20 percent of the surviving company in exchange for wiping out $10 billion of the $20 billion that GM owes the union’s health care trust. Bond-holders, meanwhile, are being asked to swap the $27 billion they’re owed for 10 percent of the company. The government would get 50 percent for wiping out half of the $19.4 billion GM has gotten in bail-out money. Shareholders would be left with 1 percent.
Bond-holders understandably balk, pushing GM to bankruptcy. In the future, investors should and will be extraordinarily leery of investing in struggling businesses in competitive industries. Government is, in effect, confiscating investors’ money and transferring it to the union and to government. In the case of Chrysler, it confiscated money from teachers and policemen in Indiana and transferred it to the UAW.
Lawyers for the Indiana pension funds argued in court Tuesday that their rights were being trampled by the federal government in the Chrysler bankruptcy. The pension funds paid about 43 cents on the dollar when they bought Chrysler’s senior secured debt last August. The government offered holders of $6.9 billion in senior secured debt 29 cents on the dollar, while giving creditors with a lesser claim — the UAW — bigger payouts. The UAW, which is at least equally responsible for the auto industry’s plight, will end up with a 55 percent ownership stake.
The federal judge in Manhattan on Tuesday rejected the pension funds’ effort to delay today’s bankruptcy court hearing on Chrysler’s proposed sale. Pension fund lawyers had argued that the federal government doesn’t have authority to provide Chrysler money for a sale, a point that the judge said could be argued after the bankruptcy court acts. Chrysler filed for bankruptcy on April 30 and a sale is expected to close by June 15.