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| United Auto Workers (Photo credit: Wikipedia) |
No … he saved the United Auto Workers. The United Auto Workers are not, no matter how much they would like for you to believe that it is so, the auto industry.
To expose this “Obama saved the auto industry lie” I’m going to have to go back to before there were automobiles. Back, in fact, to before there was a United States. We’re talking English Common Law. For the most part the legal structure of the United States and of 49 of the 50 states was derived from the laws in effect in England when our country was founded. The English Statute of Bankrupts was enacted in 1542. Even Genghis Kahn recognized bankruptcy … but if you went bankrupt three times you were executed.
Let’s simplify this. An individual or a company has two basic types of creditors; secured and unsecured. If someone loans you money to buy a home or a car, that loan is secured by that property. If you don’t play, the lender can take the home (foreclosure) or the car (repossession) and either sell it or keep it as an asset to cover the money they lost when you defaulted on your loan. If you default on an unsecured loan the lender has little recourse but to sue you in court and attempt to get a judgment against you. The local sheriff can then seize some of your property – your bank accounts, for instance – to satisfy that judgment.
But … what if you go bankrupt? The law is and the law always has been that if an individual or a corporation goes bankrupt the secured creditors get paid first – then the unsecured creditors can pick over what’s left.
Sorry for the lengthy explanation here --- but this is necessary for you to understand what a crock of bat squeeze this “Obama saved the auto industry” line is.
Now .. there are two basic types of bankruptcy, both named after a particular chapter or section of the Bankruptcy Code. You have Chapter 7 and Chapter 11. Under corporate or business Chapter 7 bankruptch you close down the business and the business assets are sold off to satisfy the creditors. Under a Chapter 11 you ask the court to hold off the creditors – to keep them from seizing your assets due to your inability to pay back their loans – while you work, under the court’s supervision, to reorganize your business. If you manage to successfully reorganize your business structure you come out of Chapter 11 and continue to do business as normal. Several airlines, including the world’s largest, Delta Airlines, have used Chapter 11 to reorganize their businesses in rough times.
Now .. here’s the rub. And here is why Barack Obama stepped in and tossed the Bankruptcy laws aside with General Motors. Under a Chapter 11 bankruptcy the business can elect to void contracts which it deems to be injurious to the business or which the owners or managers believe would prevent a successful reorganization. Now one of the principal reasons the auto industry was in trouble was …unions. Over the years the unions had created an overwhelming array of benefits and wages that were killing the auto industry. Some of these auto workers were making the equivalent of $75 per hour or more in wages and benefits.
As a result of the recession, and the burden of it’s current union contracts, General Motors was hinting at a Chapter 11 bankruptcy to reorganize. The United Auto Workers Union was concerned that GM might use this bankruptcy to re-negotiate their contract, which would mean reduced pay scales and benefits. The UAW went to Obama, reminded him of their support in the past election, and hinted that he might want to do something to save them. Obama acted quickly. Not being a rule-of-law guy, Obama tossed the Bankruptcy Code aside and told GM’s secured creditors that they were going to have to take a back seat to the auto worker’s union in a restructuring of General Motors. What’s more, instead of going through traditional bankruptcy reorganization procedures, the government was going to step in with a massive multi-billion dollar bailout in exchange for GM stock. The bond holders, the SECURED bond holders, were told that they were going to have to sit back and lose money on the deal … and that’s just the way it was going to be.
So .. just what did Obama accomplish? At best, he saved the UAW. If Obama had allowed the laws of this country to take their course GM might or might not have sought court protection while reorganizing. If GM had filed for Chapter 11 it almost certainly would have emerged, just as American and Delta Airlines did, a stronger and more financially secure company. Obama did NOT save the auto industry. The laws were in place that the auto industry – GM – could have used to save itself. Obama intervened and saved his union buddies.
By the way .. just how did Obama’s interference in the business affairs of GM work out? If you want to know how GM is really doing, you can read this recent column by Michael Barone: GM goes from bad to worse despite Obama bailout.
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