Bailout Watch 514: Would American Leyland Violate Anti-Trust Laws? And What About the UAW's Tax Status?
TTAC Commentator 70 Chevelle SS454 raises some good points about rumors (perpetually perpetuated here) that the feds’ plan to combine Chrysler and GM into “American Leyland.” The clever member of our B&B wrote his analysis in response to John Horner’s comment, which addressed the UAW’s role should they parlay their (allegedly) forthcoming shares in Chrysler and GM into shares in the combination of the two.
100% mergers of competing companies are happening all the time, so I don’t think one entity having major ownership stakes in two competitors is going to run afoul of whatever is left of anti-trust enforcement.
70 Chevelle SS454‘s reply
No. That’s not how DOJ/FTC review of mergers goes. They look to see whether the resulting company would have power over price, or market power. There’s actually a formula that’s used to combine market shares and calculate the resulting company’s market power, called the Herfindahl-Hirschman Index (HHI). Anything with an HHI score above 1800 is considered “highly concentrated,” and is rarely approved.
A merger of GM (~20% market share) and Chrysler (~13% market share) would result in an HHI of about 5200. There is no way in creation that DOJ (Department of Justice) or FTC (Federal trade Commission) would ever approve a merger of GM and Chrysler. The UAW would have power over price in the U.S. auto market.
That said, UAW’s antitrust problems are the least of its concerns, because it has MAJOR tax problems. The simple fact is that UAW is incorporated as a 501(c)(5) tax-exempt organization. That means that the UAW doesn’t pay taxes on income related to its tax-exempt purposes, namely, labor representation. There is no way any independent review of the UAW owning the companies its members work for would ever fly as encompassed within its tax-exempt purpose.
UAW will be stepping over a serious line, and since loss tax-exempt status means you owe tax on all income going back 7 years, this won’t be cheap. Watch for UAW to try to spin off the ownership interest into some face-saving vehicle, but that vehicle to still be controlled by the UAW leadership. They won’t be able to stop themselves from trying to control those companies.
That said, the ONLY reason this is being allowed to happen by Federal regulators is because Obama has instructed them to ignore the law. It will be interesting to see how the False Claims Act lawsuits against the UAW pan out. Of course, Obama will order Eric Holder to oppose the claims, but the courts will see right through his purpose, and as long as the cases aren’t brought in the Ninth Circuit, they will proceed, and Obama will lose. After all, Obama can’t order the courts not to enforce the law, can he?
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