Paper: Auto Bailout Was A UAW Bailout

Moody’s has been less than impressed with GM’s recent pension cuts/buyouts:

“GM’s plan has some constructive elements,” said Bruce Clark, senior vice president at Moody’s. “It will reduce the company’s pension assets and liabilities by $26 billion and relieve it of the obligation to make future payments to most of its salaried retirees. It will also free it from the volatility associated with pension investment returns, long-term interest rates and mortality rates.”

“These benefits come with a cost. GM will spend $3.5 billion to $4.5 billion on this undertaking, and when all is said and done, the company’s total underfunded pension liability will be reduced by only $1.0 billion. The aggregate underfunded liability will still be a very large at about $24 billion.”

There could have been a more cost-effective solution: Bankruptcy. Before you scream “unfair:” What about the nesteggs that had GM stocks and bonds in them? Why are GM pensions sacrosanct when others aren’t?

A new paper out today, by George Mason University prof/Mercatus Center scholar Todd Zywicki and Heritage Foundation scholar James Sherk, argues that the auto bailout was really just a transfer of $20+ billion from taxpayers to the UAW:

“The U.S. government will lose about $23 billion on the 2008-2009 bailout of General Motors and Chrysler. President Obama emphatically defends his decision to subsidize the automakers, arguing it was necessary to prevent massive job losses. But, even accepting this premise, the government could have executed the bailout with no net cost to taxpayers. It could have—had the Administration required the United Auto Workers (UAW) to accept standard bankruptcy concessions instead of granting the union preferential treatment. The extra UAW subsidies cost $26.5 billion—more than the entire foreign aid budget in 2011. The Administration did not need to lose money to keep GM and Chrysler operating. The Detroit auto bailout was, in fact, a UAW bailout.”

Another summary in a Heritage blog post on the paper:

“We estimate that the Administration redistributed $26.5 billion more to the UAW than it would have received had it been treated as it usually would in bankruptcy proceedings. Taxpayers lost between $20 billion and $23 billion on the auto programs. Thus, the entire loss to the taxpayers from the auto bailout comes from the funds diverted to the UAW.”

Zywicki, argued in RealClearPolitics last year that GM could’ve been in a better competitive position had it gone through a normal bankruptcy:

“But perhaps most misleading about the myth of the auto bailout success is that by restructuring through a politicized bailout process both companies were left in a weaker competitive position than they would have been had they simply gone through a traditional chapter 11 process. Rather than a restructuring process focused on maximizing the economic value and viability of the firms, they were saddled with 535 new members of their boards of directors driving decision making through the lens of politics rather than economics.”