Analyst dissects the politics of a Bush bailout
Over the weekend, analyst Brian Johnson of Barclays Capital issued a report suggesting that the White House may still demand some significant concessions from the United Auto Workers as a condition of any short-term financial aid.
"Based on comments on the CBS show Face the Nation this Sunday morning by Senators Corker (R-Tenn.) and Levin (D-Mich.), we believe it is highly likely that the White House bailout may impose many of the same conditions Senator Corker insisted upon on Thursday in his attempt to forge a compromise," Johnson said.
That amendment would have required General Motors, Chrysler, the UAW and bondholders to replace half of the companies VEBA contributions with stock, eliminate the jobs banks and buyouts and agree to competitive wages, benefits and work rules by March 31 or be forced into bankruptcy court. Johnson has advocated many of the same provisions in his roadmap for a GM turnaround.
"As was revealed in the UAW press conference Friday, the UAW would not agree to bringing wages to parity in 2009 - preferring 2011, when a new contract would take effect (or attrition would allow newly hired Tier Two workers to bring down the average hourly package)," he continued. "We note that the wage and benefit gap with transplants is roughly $9 per hour -- $6 in benefits and $3 in wages, excluding the VEBA/OPEB costs from active worker pay. Closing the $9 per hour gap would save GM roughly $1.2 billion annually."
Johnson believes the Bush administration may still insist that those strings remain firmly attached to any bailout it offers Detroit. And he has astutely pointed out that this is as much about realpolitik as it is about the economy.
"We can see ample political logic (from the point of view of the Republican minority) for imposing strings along the lines of the Corker proposals. By including strings around union concessions, the Bush administration would be setting up a political challenge for the incoming Obama administration," he said. "If the new administration leaves the strings in place, they would risk union ire, upsetting a large constituency that was helpful in winning the White House and a larger Senate majority. On the other hand, if the new administration were to introduce new legislation to override the strings, it could create a political stage for Republicans to argue that a 'union giveaway' was in progress. Moreover, this would focus public attention on union demands, perhaps making it harder to pass the Employee Free Choice Act, which would allow union organization by way of signature cards as opposed to secret ballots."
