Paul R. Hollrah, O.E.

GM's 330-Page Death Warrant
June 24, 2009

The ultimate fate of the General Motors Corporation... along with Ford, Chrysler, American Motors, and others... was determined the day that the auto manufacturers accepted the United Auto Workers (UAW) as the principal bargaining agent for their workers. But the date and time of GM’s final demise was established on September 25, 2007, when negotiators for GM and the UAW reached agreement on their final four-year contract agreement.

What should have been established by a single one-sentence agreement between GM and each of its 74,000 workers, i.e. “If you will agree to work for this company, show up for work on time, every day, and provide eight hours of your best effort for eight hours pay, we will agree to pay you the sum of X dollars per hour,” was expanded to a monstrous 330-page document in which GM signed away almost every management prerogative to the union, including the kind of cars they would produce, where they would be produced, which workers would perform which tasks, the plants that would stay open, and those that would close. Here are a few of the highlights

▪ When GM finds a need to temporarily augment its workforce, the company is required to justify the need for temporary workers with a vice president of the UAW. The request must be sent to the UAW in writing.

▪ When the need for temporary workers is agreed to by the union, GM may employ such workers only for a period of up to one year. Temporary workers may not be covered by GM benefit plans and may be paid no more than 70% of traditional wages.

▪ By mutual agreement, hourly wage rates are established to level the playing field between the slackers, the disgruntled, and those who are frequently absent, and the conscientious workers who are on the job every day and who always strive for excellence.

▪ Under the contract, wages remain the same for the duration of the four year contract. However, each hourly employee was to receive a $3,000 signing bonus upon ratification of the contract, followed by three years of lump sum performance bonus payments equal to 3% of each worker’s annual wages.

▪ The contract provides for a plant closing moratorium, specifying in advance which plants could be closed and which could not... regardless of consumer demand.

▪ The contract provides for a benefit plan that includes health insurance, life and disability insurance, supplemental unemployment insurance, dependent care reimbursement, retirement income, profit sharing, and a personal savings plan.

▪ The contract provides for the creation of Line of Demarcation Committees, made up of skilled tradesmen who would negotiate which workers could perform which tasks.

▪ GM agreed to establish a trust to cover its $51 billion unfunded retiree health care obligation for some 340,000 GM hourly retirees and their spouses. The company agreed to pay approximately $36 billion into the trust and to turn the administration of the trust over to the labor bosses.

Is that any way to run a railroad? No, and it’s not a good way to run an automobile manufacturing enterprise either. So is it any wonder that GM now finds itself in bankruptcy?

Because of the immense power labor unions have wielded within the Democratic Party, their usefulness and the rightness of the role they play in our economic system have gone largely unquestioned and unchallenged. Because of their unparalleled political power, and their unflinching willingness to use it, unionized workers have been given unique rights and privileges that they ought not have, and that non-union workers, rightly, do not enjoy.

So where would the Big Three be today if the UAW did not exist? Writing for the Ludwig von Mises Institute, Pepperdine University Professor Emeritus of Economics, George Reisman, examines that question. Professor Reisman suggests that:

1) The company would be without so-called Monday morning automobiles... cars poorly made because they happened to be made on a day when too few workers showed up for work, or too few workers showed up sober enough to do their jobs. Without the UAW, such workers would have been fired and replaced with able and competent workers.

2) GM would have been free to produce automobiles with efficiency and cost-effectiveness. In many instances, GM would have been able to have one or two workers available to do a variety of tasks instead of having to call on a half dozen workers, each with his/her own job classification, to do the same amount of work.

3) Without the UAW, GM’s average cost per automobile would be roughly equal to that of non-union Toyota. Toyota makes an average profit of $2,000 per automobile, while UAW-dominated GM loses approximately $1,200 per vehicle. (GM’s average cost of employing a factory worker is more than $72 per hour, including wages and benefits, while the cost of employing workers in non-union plants is approximately $48 per hour.)

4) Without the UAW, GM would not now find itself paying workers a premium of up to $140,000 per man, just to get them to quit and go elsewhere.

5) Without the UAW, GM would not now have healthcare costs which account for more than $1,600 of the cost of every automobile produced.

6) Without the UAW, GM would not now have retiree pension obligations which, if entered on its balance sheets, would leave the company with a negative net worth of $16 billion.

7) Without the UAW, tens of thousands of auto workers would not now face the prospect of losing pension and healthcare benefits... benefits which GM and others were forced to agree to, but which none of the companies were ever able to fully finance.

As Prof. Reisman suggests, “The UAW, the whole labor union movement, and the left-“liberal” intellectual establishment... are responsible for foisting on the public and on the average working man and woman a fantasy land of imaginary Demons (big business and the rich) and of saintly Good Fairies (politicians, government officials, and union leaders). In this fantasy land, the Good Fairies supposedly have the power to wring unlimited free benefits from the Demons.”

8) And finally, without the UAW, autoworkers would have been motivated to save from their earnings to provide for their children’s education, retirement, and other family needs. “Instead,” as Prof. Reisman suggests, “like small children, lured by the prospect of free candy from a stranger, they have been led to a very bad end. They thought they would receive endless free golden eggs from a goose they were doing everything possible to maim and finally kill, and now they’re about to learn that the eggs just aren’t there.”

Professor Reisman concludes with some ultimate truths about the demise of the auto industry... truths that should be learned by every schoolchild in America, but aren’t. He laments, “What is happening is cruel justice, imposed by a reality that willfully ignorant people thought they could choose to ignore as long as it suited them: the reality that prosperity comes from the making of goods, not from the making of work; that it comes from the doing of work, not from the shirking of it; that it comes from machines and methods of production that save labor, not from combating those machines and methods; that it comes from the earning and reinvestment of profit, not from the seizure of those profits for the benefit of idlers...

“In sum, without the UAW, General Motors would not be faced with extinction. Instead, it would almost certainly be a vastly larger, far more prosperous company, producing more and better motor vehicles than ever before, at far lower costs of production and prices than it does today, and providing employment to hundreds of thousands more workers than it does today.”

The presence of labor unions in the workplace creates divided loyalties. It is no more possible to have harmonious relations between employer and employee when the employee is constantly harangued with the notion that the union is his friend and the employer is his enemy... than it is for a worker to import a lover into his or her household, expecting that everyone will live happily ever after in peace and harmony.

In an article titled “Once, We Would Have Called It a Scandal,” former Speaker Newt Gingrich tells us that, “Between 2000 and 2008, the UAW gave $23,675,562 to the Democratic Party and its candidates. In 2008 alone, the UAW gave $4,161,567 to the Democratic Party, including Barack Obama.” In return, Obama and congressional Democrats have arranged for the UAW to own 55% of Chrysler and 17.5% of GM, while the shareholders and the secured bond holders received the back of Obama’s hand. It is the political payoff to end all political payoffs.