We have a winner!
And perhaps no workers were less equal in the bailouts than the employees of GM and Chrysler dealerships. About 100,000 mostly [non-union] blue-collar jobs a number approaching the total work force of GM and Chrysler were put on the chopping block by Team Auto, the Obama administrations auto-bailout task force, which insisted on extraordinarily rapid closures.What the GM bailout really cost American taxpayers
In addition to the more than $50 billion given to General Motors in the bailout, the Obama administration quietly snuck in a special tax break for GM, which allows the company to write off approximately $45 billion in post-bankruptcy losses against post-bankruptcy profits.Sherk and Zywicki: Obama's United Auto Workers Bailout
The result? In 2011, GM paid nothing in federal income taxes despite claiming record profits of $7.6 billion, the highest profits in the 100 year history of that companyaccording to President Obama.
If the administration treated the UAW in the manner required by bankruptcy law, it could have saved U.S. taxpayers $26.5 billion.
In the auto bankruptcies, however, the administration gave the unsecured claims of VEBA much higher priority than those of other unsecured creditors, such as suppliers and unsecured bondholders.
At the time of bankruptcy, GM owed these unsecured creditors $29.9 billion, for which they received 10% of the stock of "new" GM, which went public in November 2010, and warrants to purchase 15% more at preferred prices. Yet VEBA got 17.5% of new GM and $9 billion in preferred stock and debt obligations. Based on GM's current stock price, VEBA collected assets worth $17.8 billion$12.2 billion more than if the administration had treated it like the other unsecured creditors.
The same thing happened at Chrysler, only to a greater degree. Chrysler's junior creditors recovered none of their $7 billion in claims. In normal bankruptcy proceedings, the UAW would have also collected nothing. Instead it walked away owning almost half of new Chrysler and a $4.6 billion promissory note earning 9% interest. Had the stock and note gone to the Treasury instead, the bailout would have cost taxpayers $9.2 billion less.
The administration also insulated the UAW from most of the sacrifices that unions usually make in bankruptcyat taxpayer expense. Section 1113 of the Bankruptcy Code enables reorganizing companies to improve their post-bankruptcy competitiveness by renegotiating union contracts to competitive rates.In April, for example, American Airlines proposed using this power to bring down its labor costs to the level of its rivals, just as Delta and United had in earlier bankruptcy filings.
The administration decided not to do this at GM. The UAW did accept sharp pay cuts for new hires. But they only made modest concessions for their existing members, like eliminating the much-maligned Jobs Bank that paid workers even when they were laid off.
As a result, GM still has higher labor costs ($56 an hour) than any of its competitors. Had bankruptcy brought GM compensation in line with its competitors' (approximately $47 an hour), we estimate the resulting savings would have increased the value of the taxpayers' stake in GM by $4.1 billion. This would still leave UAW members making 40% more than the average American manufacturing worker.
Finally, GM's decision to assume certain pension obligations of Delphi, the bankrupt former GM subsidiary, also increased the cost of the bailout. New GM no longer had an obligation to support Delphi's pensions. Yet it decided to spend $1 billion to top up the pensions of Delphi's UAW retirees.Delphi's nonunion retirees and retirees in other unions did not fare so well. GM gave them nothing.