TESTIMONY OF
RON GETTELFINGER
PRESIDENT
INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE &
AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (UAW)
on the subject of
EXAMING THE STATE OF THE DOMESTIC
AUTOMOBILE INDUSTRY
before the
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
November 18, 2008
Introduction
Mr. Chairman, my name is Ron Gettelfinger. I am President of the International Union,
United Automobile, Aerospace & Agricultural Implement Workers of America (UAW).
The UAW represents 1 million active and retired workers, most of whom work or receive
retirement benefits from the Detroit-based auto companies or auto parts suppliers
around the country. We appreciate the opportunity to testify today on the state of the
domestic automobile industry.
The UAW strongly supports legislation to amend the Emergency Economic Stabilization
Act (EESA) to clarify that the Treasury Department should use the existing financial
rescue program to quickly provide a $25 billion emergency bridge loan to GM, Ford and
Chrysler to enable these companies to weather the current credit and economic crises
that have had such a devastating impact on our entire country. This bridge loan would
be paid from the funds that Congress has already provided under the financial rescue
program; there would not be any new federal funds. As with other rescue efforts under
this program, the bridge loan to the automakers would be conditioned on stringent limits
relating to executive compensation, as well as provisions granting the federal
government an equity stake in the auto companies in order to protect the investment by
taxpayers.
The UAW believes that the Treasury Department already has the authority under
existing law to make the bridge loan to the auto companies. But because there is
disagreement on this point, we believe Congress should act quickly to approve
legislation to make it clear that the Treasury Department should act now to provide this
urgently needed relief.
The Detroit-based Auto
Companies Are Facing a Crisis
The situation now facing GM, Ford and Chrysler is extremely dire. Because of the
credit and financial crises that have engulfed our nation, overall vehicle sales have
plummeted to the lowest level in 25 years. In October, sales were at an annualized
level of 10.8 million vehicles, far below the normal level of 16-18 million vehicles.
There is no great mystery as to why this enormous decline in sales has occurred.
Buying a vehicle is the second biggest purchase that families make. Because of the
overall credit crunch, most families cannot get credit on reasonable terms to finance the
purchase of a vehicle. And because of the general economic uncertainty, many families
are simply deferring any major expenditures.
The net result is that all auto companies, not just the Detroit-based automakers, have
seen a sharp drop in their sales. This means that the revenues received by the
companies have declined drastically. As a result, GM, Ford and Chrysler are burning
through their cash reserves at an unprecedented rate. As the recent earnings reports
indicate, this scenario is not sustainable. If the government does not act to provide
immediate assistance, GM, Ford and Chrysler could be forced to liquidate.
The UAW wants to underscore that this would not be a painless, "prepackaged"
bankruptcy reorganization as some columnists have suggested. Consumers will not
purchase vehicles from a company that has filed for bankruptcy. And bankrupt auto
companies would not be able to obtain "debtor-in-possession" financing to enable them
to continue operations. Thus, the stark reality is that these companies would be forced
into a Chapter 7 liquidation, with their operations ceasing entirely and their assets sold
for pennies on dollar.
Devastating Consequences if the
Detroit-Based Auto Companies Collapse
If the Detroit-based auto companies are forced into liquidation, the consequences would
be truly devastating, not only for UAW members, but also for millions of other workers
and retirees across this nation, and for the entire economy of the United States. In
addition to the hundreds of thousands of workers who would directly lose their jobs at
the Detroit-based auto companies, according to the Center for Automotive Research a
total of almost 3 million workers would see their jobs eliminated. This includes persons
who work for auto dealers, suppliers of components and materials, and thousands of
other businesses that depend on the auto industry. In addition, because the auto
manufacturers depend on many of the same suppliers, a disruption in the supply chain
would have serious negative consequences for the remaining auto manufacturers.
The liquidation of the Detroit-based auto companies would also have devastating
consequences for millions of retirees. The retirees from these companies and their
spouses and dependents - about one million persons - could suffer sharp reductions in
their pension benefits. And they would face the loss of their health insurance coverage
- an especially devastating blow to the roughly 40 percent who are younger than 65 and
thus not yet eligible for Medicare. In addition, if the automakers' pension plans are
terminated, the Pension Benefit Guarantee Corporation (PBGC) would be saddled with
unprecedented liabilities. To prevent the collapse of the PBGC, which would jeopardize
the retirement security of millions of workers and retirees, the federal government would
have to provide a huge bailout for the pension guarantee program. Furthermore, under
existing law, the federal government would be liable for a 65% tax credit to cover the
health care costs of pre-Medicare auto retirees costing about $3 billion per year.
The liquidation of the Detroit-based auto companies would have serious negative
repercussions for the entire U.S. economy. Almost 4 percent of our nation's GDP is
related to the auto industry, and almost 10 percent of our industrial production by value.
The collapse of the auto sector would severely aggravate the current economic
downturn, sending production and consumer spending into a deeper tailspin while
unemployment spirals higher. Federal, state and local government revenues would
shrink even further, forcing harmful cuts in a wide range of social services at precisely
the time they are most urgently needed.
The UAW submits that it would be far better for the auto industry and its workers and
retirees, and for the nation as a whole, for the federal government to take prompt action
now to prevent the imminent collapse of the Detroit-based auto companies. The human
toll will be far less. And the ultimate cost to the government will be far cheaper.
Myths About the Auto Industry
A number of objections have been raised by various commentators against this type of
government assistance to the Detroit-based auto companies. These objections are
largely based on myths about the auto industry that do not stand up on closer scrutiny.
A). The Current Problems Facings the Detroit-based
Companies Are Not Due to "Overly Rich Union Contracts"
Some commentators have asserted that "overly rich contracts" negotiated by the UAW
are to blame for the companies' current situation, and suggested that workers and
retirees should be required to take deep cuts in their wages and benefits. This totally
ignores the recent history in the auto industry and the facts regarding wages and
benefits at the Detroit-based companies.
The truth is that in 2005 the UAW agreed to reopen the contracts mid-term, and
accepted cuts in workers' wages and in health care benefits for retirees. Then, in the
general 2007 collective bargaining negotiations, the UAW agreed to what industry
analysts have called a "transformational" contract that fundamentally altered labor costs
for the Detroit-based auto companies. This contract slashed wages for new hires by
50%. Furthermore, new hires will not be covered by the traditional retiree health care
and defined benefit pension plans. In addition, this contract stipulated that beginning
January 1, 2010 the liability for health care benefits for existing retirees would be
transferred from the companies to an independent fund (a Voluntary Employee
Beneficiary Association, or VEBA). This agreement has subsequently been approved
by federal courts, which have appointed a majority of the trustees who will be
independent of the UAW and responsible for managing the VEBA. Taken together, the
changes made by the 2005 and 2007 contracts reduced the companies' retiree health
care liabilities by fifty percent.
As a result of all these painful concessions, the gap in labor costs that had previously
existed between the Detroit-based auto companies and the foreign transplant
operations will be largely or completely eliminated by the end of the contracts.
Indeed, one industry analyst has indicated that labor costs for the Detroit-based auto
companies will actually be lower than those for Toyota's U.S. operations. Thus, the
truth is the UAW and our active and retired members have already stepped up to the
plate and made the hard changes that were necessary to make our companies
competitive in terms of their labor costs.
It is also important to note that union negotiated work rules cannot be blamed for the
current problems facing the Detroit-based companies. According to the Harbour
Report, the industry benchmark for productivity, union-represented workers are actually
more efficient than their counterparts at non-union auto plants. And union-made
vehicles built by the Detroit-based auto companies are winning quality awards from
Consumer Reports, J.D. Power, and other industry analysts.
The current plight of GM, Ford and Chrysler is simply not attributable to "overly rich
union contracts." Instead, it is the result of the larger credit and economic crises that
have engulfed our nation, and the unprecedented drop in auto sales that has affected all
automakers.
Because the recent contracts negotiated by the UAW are now competitive with the rest
of auto industry in the U.S., we do not believe there is any justification for conditioning
assistance to the Detroit-based auto companies on further deep cuts in wages and
benefits for active and retired workers. We would also note that in the cases where the
Treasury Department has acted to rescue financial institutions, it has only imposed
restrictions on executive compensation. It has never mandated cuts in wages or
benefits for rank-and-file workers and retirees. Thus, there is no basis for singling out
the auto industry for different treatment.
B). The Current Crisis Cannot Be
Blamed on the Detroit-based Companies
Producing Gas Guzzling Vehicles
Some pundits also have asserted that the Detroit-based auto companies are to blame
for their current predicament because they insisted on producing gas guzzling vehicles,
rather than more fuel efficient vehicles that consumers wanted. According to this point
of view, GM, Ford and Chrysler simply were not producing vehicles that consumers
wanted to buy.
Unfortunately, this argument ignores the fact that the current credit and economic crises
have resulted in a sharp drop in sales by all auto manufacturers, including the
Japanese companies. The immediate problem is not just that consumers aren't buying
the vehicles produced by the Detroit-based auto companies. The problem is they aren't
buying vehicles from any company!
It is true that earlier this year the sharp spike in gas prices resulted in a sudden shift in
the product mix demanded by consumers, with sales of more fuel efficient vehicles
increasing, and sales of pickups, minivans and other larger vehicles dropping. This shift
in product mix hit the Detroit-based companies the hardest, because their product mix
was more oriented towards these larger vehicles. But it also caught Toyota and Nissan
by surprise. Because these companies had been aggressively expanding production of
larger vehicles, they also experienced significant dislocations.
The Detroit-based auto companies have been investing massive amounts of money to
change their product mix and to provide consumers with a wide range of more fuel
efficient vehicles. They are aggressively moving ahead with advanced fuel saving
technologies. For example, GM plans to introduce the Volt plug in hybrid in 2010.
The landmark energy legislation that was enacted by Congress in 2007, with the
support of the UAW and the auto companies, will require substantial improvements in
fuel economy until the entire fleet of autos and light trucks sold in the U.S. by all
companies achieves at least 35 mpg by 2020. In addition, the Advanced Technology
Vehicles Manufacturing Incentive Program (ATVMIP), which was authorized by this
legislation and subsequently funded by Congress in the fall of this year, will provide
assistance to all automakers - the Detroit-based companies and the foreign transplants
- to retool facilities in this country to produce the advanced, fuel efficient vehicles of the
future and their key components. This will help to accelerate the introduction of these
more fuel efficient vehicles, while ensuring that they are produced by American workers.
Some commentators have questioned why this advanced vehicle retooling program
doesn't provide sufficient assistance for the auto companies. The answer is the
ATVMIP is part of a long term energy policy that will provide assistance to the auto
companies and parts suppliers over a ten year period, tied specifically to the production
of very high mileage vehicles. This program was not designed to address the type of
immediate cash flow crisis that the Detroit-based auto companies are now facing as a
result of the sudden drop in overall auto sales. Even if the ATVMIP is implemented
quickly - which is by no means clear - at most it will only provide modest assistance to
the Detroit based auto companies in the coming years.
Other observers have questioned whether the ATVMIP could simply be expanded to
allow the Detroit-based auto companies immediate access to the entire $25 billion that
was authorized and appropriated for this program. The UAW believes this would not
make sense because it would undermine the fuel economy objectives of this program.
Furthermore, there simply are not enough retooling projects in the short term - for
advanced vehicles or more conventional ones - to make this approach feasible.
Some commentators and groups have suggested that any new assistance to the
Detroit-based auto companies should be conditioned on even greater improvements in
fuel economy. We recognize that President-elect Obama campaigned on a platform
that included increases in fuel economy and the production of plug in hybrids, as well as
assistance to the auto industry to ensure that the vehicles of the future are produced in
this country. The UAW is looking forward to working with the Obama administration and
the next Congress to help achieve these objectives.
But we firmly believe it would be an enormous mistake to rush to include these
important new initiatives in the current emergency bridge loan for the Detroit-based
companies. To begin with, we do not believe there is adequate time to develop
thoughtful proposals that are workable and effective. In addition, given the desperate
situation facing the Detroit-based auto companies, and the devastating consequences
their collapse would have for millions of workers and retirees and the entire U.S.
economy, the UAW does not believe it is appropriate to hold emergency assistance
hostage to broader fuel economy/environmental initiatives.
The Detroit-based companies need an immediate bridge loan from the Treasury
Department in order to have sufficient cash to be able to continue their operations.
These companies will not be able to continue on the path to producing the greener
vehicles of the future if they are forced to liquidate in the coming months.
Conclusion
The UAW appreciates the opportunity to testify before this Committee on the state of
the domestic auto industry. We strongly urge Congress to act this week to approve
legislation that will provide immediate assistance to GM, Ford and Chrysler to enable
them to continue in business, and to avoid the devastating consequences that a
collapse of these companies would have for millions of workers and retirees across our
country. Thank you.
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