Auto Bailout Predictions

cash Over a year ago, I wrote a blog post about how the UAW was killing Detroit and how the government would ultimately bail them out.  The topic I addressed was UAW retirement money, not the big-three’s solvency, so it was a little different. But what is interesting to me is that back in Oct 2007, there were only 3 comments to my blog on the subject, one of which was my own!  However, since the bailout news struck this year, there have been 9 comments to this blog post.  Commentators so far have all agreed with the post; despite my dramatic writing style.  Since there is such interest in the subject, I did a little research on how that post relates to the latest bailout package for Detroit.

It turns out that my predictions were correct, but not for the right reasons.  The retirement trust fund (called a VEBA – Voluntary Employee Beneficiary Association) started its establishment early this year.  By August, it was unclear if GM would have the financial capital to fund its portion of the fund.  And by December, of course, the VEBA is part of the reason GM is seeking handouts from Washington.  My prediction of a bailout was right, although the cause was wrong.  I blamed the UAW for mismanagement of funds, whereas it turned out that GM just didn’t have the cash to even get started.  I still stand by my claim that the UAW will mismanage the money.  I’m not the only one who didn’t understand how the UAW would agree to take on a $51B liability with only $30B in funding from GM.  Unless you’re anxious to skim off the top, it doesn’t make sense.

2 thoughts on “Auto Bailout Predictions

  • December 27, 2008 at 9:59 am

    My best guess at why they took the underfunded health care mandate is this: $30B is much better than $0B. And if this goes the bankruptcy route we can expect it to, $0B may be closer to what they get.

    My understanding (and it’s not a very thorough one, admittedly) is that the government pension guarantee setup covers cash payments to retirees when the underlying pension fund fails. But it doesn’t cover the rest of the perks, just the case payments. So auto worker retirees will end up on just-medicare. $30B / number of workers is still a significant improvement over that scenario.

  • December 28, 2008 at 12:28 am

    Could be. Of course, you’re kind of speculating that somehow the union leaders anticipated that either GM was about to go broke or that the economy was about to collapse (remember this agreement was initiated last year). I don’t think they had such foresight.


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