Gingrich Skewers UAW Role in Federal Auto Industry Bailout

Newt GingrichAt least one major American political figure is calling the recent Obama administration-engineered bailouts of General Motors and Chrysler the political payback to the United Auto Workers (UAW) that they really are. In the cover article for the June 15 issue of the conservative weekly Human Events, former House Speaker Newt Gingrich, R-Ga., termed the bailout a “scandal,” similar in behavior to the Teapot Dome scandal of the Harding administration but far larger in scope. Gingrich lays out the case for why “saving” the automobile industry, with $50 billion in taxpayer-backed loans ($30 billion of it yet to come) for GM alone, constitutes an unconstitutional tax on bondholders and taxpayers.

In its political activity, the UAW, like most unions, operates as an adjunct to the Democratic Party. During 2000-08, the union gave more than $23.6 million to the party and its candidates. That compares to the $193,540 it gave to the Republicans. It’s little wonder that when the deals went down, the federal government granted the Auto Workers stakes of 55 percent in Chrysler and 17.5 percent in GM. Taking note, Gingrich argues rule of law was a primary casualty:

In a rigged proceeding in which the federal government disregarded bankruptcy law in favor of the political outcome it desired, the Chrysler bankruptcy laid the predicate for the much larger General Motors bankruptcy to come. Against law and precedent, the unions were moved to the front of the line when it came to who would benefit from the bankruptcy.

The author notes that even the U.S. Supreme Court is partially complicit. Earlier this month, a group of secured creditors, led by a group of Indiana retirement funds, went to court charging the Chrysler bailout had violated federal bankruptcy law and their own rights as senior lenders. The High Court initially put the bankruptcy on hold, but then last Tuesday dismissed the case.

As for GM’s bondholders, previously owed $27 billion, they will receive a 10 percent stake in the company, effectively recovering a mere 15 cents on the dollar. That’s small change compared to the 60 to 70 cents on the dollar the UAW will get. Yes, the union did make wage and benefit concessions, but those concessions have to be put in context. Among the givebacks were a paid Easter Monday holiday and the right to qualify for overtime pay after putting in less than 40 hours in a given week. And though the union traded away certain health benefits, its package is still more generous than what most households get. As GM has lost a combined $82 billion over the last four years, it’s hard to see how the UAW, whose demands were responsible for so much of the losses, will resist the temptation to reshape the company in ways friendly to its interests. As for the U.S. and Canadian governments, with a respective 60 percent and 12.5 percent stakes in the company, they’re not going to waste a golden opportunity to redefine the range of choice available to consumers.

Politics rather than economics dictated the auto industry takeover. And politics will dominate decisions about running the company. “The President has said repeatedly that he wants to get out of the auto business as soon as possible,” Gingrich writes. “But does anyone seriously believe that he would accept an arrangement in which GM becomes profitable at the expense of the union and its gold-plated benefits?” Taking this point further, does anyone seriously believe the Obama White House and the Treasury Department won’t try to commandeer a similar set of arrangements in the event of bankruptcies in the steel, airline and other industries? The current administration functions as a favor factory to its most generous benefactors. The bailouts may have been legal, but as Gingrich notes, that doesn’t make them right.