Will GM “bankruptcy” include renegotiation of union contracts?

What was the problem the Obama administration had with the General Motors plan to restructure the company? What was the plan GM CEO brought to the government that resulted in his ouster from the company?

Jim and I were discussing this last night, and the Sound Off Sister deserves the credit for getting us thinking. This post may be appended with comments from Jim and the Sound Off Sister, so stay tuned.

Last night, we questioned why General Motors CEO Rick Wagoner was kicked out. The assumption is that the plan was not good enough for the Obama administration. He failed at his task so he was tossed under the bus.

What if Wagoner wanted to go the straight Chapter 11 route? This would allow the car not-so-giant to restructure while keeping operations rolling, stay protected from creditors, and allow the company to specifically rework union contracts.

Our guess – after the review of the facts to find out more about bankruptcy and of Obama’s statement yesterday – it has become clear that this will not be a straight Chapter 11 bankruptcy, but a more modern union-friendly version using specific parts of the bankruptcy law to avoid having to renegotiate the union contracts. If Obama let GM go full Chapter 11, to say the United Auto Workers would be ticked off at The One could be the biggest understatement of the decade. But maybe Wagoner understands that one of the key issues is current union contracts that are unsustainable in the current marketplace.

Can’t have that, so Rick… meet bus.

From Obama’s statement yesterday, with my emphasis added.

Now, while Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plan they develop. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger. Now, I want everybody to be clear about this. I know that when people hear the word “bankruptcy” it can be unsettling, so let me explain exactly what I mean. What I’m talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so that they can get back on their feet and onto a path to success; a tool that we can use, even as workers staying on the job building cars that are being sold. …

While the steps I’m taking will have an impact on all Americans, some of our fellow citizens will be affected more than others. So I’d like to speak directly to all those men and women who work in the auto industry or live in countless communities that depend on it. Many of you have been going through tough times for longer than you care to remember. And I won’t pretend that the tough times are over. I can’t promise you there isn’t more difficulty to come.

But what I can promise you is this: I will fight for you. You’re the reason I’m here today. I got my start fighting for working families in the shadows of a shuttered steel plant. I wake up every single day asking myself what can I do to give you and working people all across this country a fair shot at the American Dream.

FYI: no mention of concern for shareholders who own the company.

For those interested, I’ve included the full video from the Obama statement posted by the White House Press Office (18 minutes).

6 replies
  1. Dimsdale
    Dimsdale says:

    "I got my start fighting for working families in the shadows of a shuttered steel plant."

    If you want to see how those working families fared, check out
    http://directorblue.blogspot.com/2008/07/photo-ga

    "I wake up every single day asking myself what can I do to give you and working people all across this country a fair shot at the American Dream."

    He must not ask himself that for very long, given the fact that he is singlehandedly (presuming he isn't being told what to do by Soros, Ayers, Wright and other Democrats) destroying the American Dream for the foreseeable future.  The mountain of debt, Mt. Everest quality, that he has begun to create in the last two months is staggering not only in its size, but its scope.

    It is hard to imagine someone this inept and naive, so I am starting to go with the thought that he has a master plan to destroy the United States.  The might make me conspiracy minded, but to paraphrase Groucho Marx, just because you are conspiracy minded, it doesn't mean there isn't a conspiracy out there.   It may be a conspiracy of idiots, but the results will be the same.

  2. SoundOffSister
    SoundOffSister says:

    Steve, you nailed it.  Couple what you wrote with the fact that the government not only  fired Wagoner, but also intends to replace the entire board of GM.  As that may take some time, GM has a 60 day reprieve, but Chrysler only 30 days.  Chrysler is toast, but I'll leave that for another day. 

    Under Chapter 11 bankruptcy, any debtor (here, GM) has the right to either "accept" or "reject" any outstanding contracts.  If acceptance is chosen, the contract proceeds under its current terms.  A rejection means that the contract is either renegotiated, or it ceases to exist.

    Obama will appoint labor friendly members to GM's Board, thus insuring that GM will "accept" GM's current contract with the UAW.  Problem solved.

    I believed that Obama would never let GM go into bankruptcy because of the unions.  But by ousting Wagoner and reconstituting GM's board, he has accomplished the same thing.  Union contract saved.  And instead of blaming Bush, he can blame the Bankruptcy Court.

    Try as any Republican might, he or she will never be able to explain to the average American the bankruptcy law of  acceptance or rejection of existing contracts.  What we will hear is that the Bankruptcy Court left the contract with the UAW in place, so it must be good.

  3. Justme
    Justme says:

    Are we in violation of our foriegn trade agreement while offering  government warrenty to GM and Chrysler and not Honda, Toyota, BMW and etc? If I was a foreign automaker selling in the US I would be very concerned about how government bailouts are legal under international trade laws.  Our government gets very upset with Airbus when Europe subsidizes air plane manufacturing and I was wondering Europe will bring any complaints about our dealing with automobile manufacturers.

  4. SoundOffSister
    SoundOffSister says:

    @Justme, what would you rather have, a government warranty, or a Toyota warranty?  I know which one I'd pick, and it starts with Toyota!

  5. Rick-WH
    Rick-WH says:

    It is too bad for the taxpayers (as well as other stakeholders) that GM and Chrysler didn't file Chapter 11 from the outset.  The US Government could have then arranged Debtor In Possession financing (directly or through loan guarantees) for the companies and have the bargaining power of the bankruptcy laws over the labor and other contractual obligations.  As it turns out, the US Government has invested billions of dollars, wasted several months and, in the end, will also back up the car warranties.

    Did anyone really believe that the unions would cave without a Chapter 11 filing?

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