An interesting sidebar to the GM/Ford/Chrysler bailout talks: The junior Senator from my state, Bob Corker, is a member of the banking committee that is questioning and negotiating with the CEOs of the Big Three and the President of the United Auto Workers union. Mr. Corker is, as we may say around here, “bringin’ the wood“.
Before I quote Mr. Corker, let me say that he is somewhat unique among the Senators sitting at the table in that he is a self-made millionare, having run his own construction and real-estate development companies in his hometown of Chattanooga, Tennessee prior to becoming mayor of that city of about 200,000 (450,000 metro area). That is, he’s got some real experience as a corporate CEO. It must also be said that he has a reputation of being something of a bull in a china shop when it comes to politics.
His stance is pretty obvious from this single quote aimed at Bob Nardelli, CEO of Chrysler, from the Tennessean, my hometown fish wrapper:
“The fact is basically what your plan is about is that you want to hang around long enough so that you can date somebody and hopefully get married soon before you run out of money,”
Ouch! Of course, given that Chrysler is owned by private equity, Senator Corker is correct. The aim of private equity is always to buy low, keep the assets a brief period, then sell at a profit.
On GM, Mr. Corker has some other choice comments:
GM, he said, should offer its bondholders 30 cents on the dollar, which he said is above what the company’s debt is now selling for. The UAW should allow the company to reduce its scheduled $21 billion January payment to a fund that provides retiree health coverage, he said. And the union should eliminate a program under which the company pays supplemental unemployment benefits to fill the gap between state benefits and the worker’s usual salary.
Corker said he would not support any legislation without these provisions.
There are two items in that quote that should shock all of us. First, that the UAW is still insisting upon a $21 Billion payment from GM in January!! They’ve agreed to reduce the 2010 payment, but not the 2009. Doesn’t that seem to be a little counter to the message that has been transmitted by them to date? Second, that GM bonds have sunk well below 30 cents on the dollar. Not that it’s suprising given the circumstances, but that it’s shocking that a company like GM which is rife with assets could be seen as that worthless. It’s really an eye-opener.
The Big Three CEO’s will try to make Mr. Corker out to be an enemy with hidden motives given that our state has the Nissan USA HQ, two Nissan plants, a VW plant under construction and numerous tier one suppliers to the Toyota plant in Kentucky, the Nissan plant in Mississippi and the Mercedes-Benz plant in Alabama. That is, they would consider him in favor of transplant success. However, I believe that he would consider the loss of the GM Spring Hill, Tennessee plant and the loss of the Visteon (ex-Ford) auto glass plant in Nashville as failures, and the Tennessee suppliers to the Ford plant in Louisville, Kentucky (full-sized cars) and the GM plant in Doraville, Georgia would certainly suffer, too.
The UAW and their president Gettelfinger obviously exists in a severe reality-distortion field.
I managed to catch Corker’s questioning – and thought he was spot on in identifying the issue with bondholders and the even bigger issue of the January payment to the UAW health insurance fund. Always refreshing when a member of Congress with business experience cuts through the lawyerish double-speak. I was waiting to hear Hagel who also asks questions like the businessman he was, but Corker sure emerged as the thought leader willing to work out a solution.
Fun to watch Chris Dodd (can we make HIM resign?) acknowledge Corker’s significant contribution to helping the committee identify specific issues. Still not clear WHY this is before the House Financial Services and Senate Banking committees except to assess whether Fed Reserve and/or Treasury already have enough legal authority to do something in December without Congressional approval.
I thought the GM payment to the UAW health insurance fund due in January was the single biggest cash hurdle that has brought them to ask for these loans. And the inability to borrow anywhere else because of distressed ratings on existing bonds.
Seems to me postponement of the health fund payments, and granting GMAC a banking charter to allow the Fed to act can be done in a heartbeat.
I disagree that the Big 3/UAW will try to make Corker the enemy. Ranking member Shelby, Alabama, is closed to any action but bankruptcy. Corker is forging a pragmatic solution by separating out the key issues.
The UAW will ultimately have to give up their gold-plated retiree health coverage. Put every UAW worker/retiree over 50 into the Medicare system by transferring existing assets of that fund into Medicare trust fund. Should solve that huge legacy problem. Do that now. And do something similar with the UAW pension fund.
BREAKING NEWS: Saab and Volvo have merged.
saabyurk, At least everyone’s okay!
~P
You can’t enter medicare until you’re 65, so saying that everyone over 50 should be put into it is a none starter. Its not just the heath fund which is tied to the $9 billion that comes due in January, its also a lot of debt they need to pay off or refinance, and because the market is stuck as the banks are still scared, they can’t refinance.
Currently GM bonds are worth 21 cents on the dollar, which means the market expects them to go into bankruptcy (with a 95% probability) sometime in the next five years.
GM would be happy to renegotiate that debt, it all depends whether the bond holders would agree to it (just as I would be happy if my bank suddenly dropped my payments by 30%, unfortunately that isn’t going to happen).
Paul – merging the UAW health insurance fund into Medicare can be done by Congress, and an exception can be made for the age. Employer-paid health insurance already drove a lot of auto jobs to Canada since NAFTA, and is the single biggest cost disadvantage of U.S. manufacturing in general.
I used to work for a forest products consultancy from Finland, and the U.S. clients always freaked out when the Nordic mills had lower total unit labor costs.
De-linking health insurance from employment is going to happen anyway. Maybe botht he values of GM bonds and the probabilities of bankruptcy would dramatically change if GM wasn’t in the health care business facing another $21 billion to fund the UAW health insurance business.
By the way, anyone qualifying for Social Security Disability also enters the Medicare program, regardless of age.