Oswald Letter

Careful What You Wish For: GM Management’s Payback to Obama and the UAW?

I read Tuesday that General Motors Corporation outlined a new plan that would give the U.S. government a controlling stake in the company. In addition, GM said it would use stock to pay off half of the amount it owes the United Auto Workers (UAW) to cover retiree benefits.

I checked my calendar. It wasn’t April Fools Day. So I’ve reached the conclusion that this is either a sick joke or an incredibly clever plan dreamed up by GM’s management in order to poke back at the Obama administration, which forced out GM’s CEO earlier this year while also getting in a shot at the UAW.

Is there any way this can be a serious proposal? The U.S. government would own at least 50% of the company, and the UAW would own another 39% — a combined 89% or more for the two.

The conflicts of interest are too numerous to mention them all, but humor me as I toss out a few. Let’s start with the UAW. The UAW represents the employees and sits across the table from management at negotiations. But management reports to the board, which represents shareholders. Who’s the second largest shareholder? The UAW.

So management is also representing the UAW. Can either side really win? The UAW rep does his job too well representing members and it hurts UAW the owner. If he doesn’t do his job well, the members won’t have any reason to be members any longer. So should the UAW act like an owner and maximize shareholder return, or should it act like a union and be the strongest advocate it can be for its members?

What about the U.S. government and its potential conflicts? I’m not even sure where to begin. Let’s start with a topic near and dear to the heart of the current administration — emission standards. The U.S. government sets emission standards. Let’s assume for a minute that raising the emission standards would allow GM to more effectively compete with Ford Motor Company, which, by the way, is the only one of the big three U.S. automakers not teetering on the edge of bankruptcy.

Maybe raising emission standards is the right thing to do for the environment. But if it benefits GM at Ford’s expense, how will it be perceived by Ford and others? The same goes for trade policy that might negatively impact foreign automakers. And what about tax policy that might affect the fortunes of the auto industry? And there’s always the issues surrounding foreign oil. Any move that the U.S. government made in these areas would be viewed with skepticism.

That’s why I believe this must be a clever — no, make that Machiavellian — plan put forward by GM’s management. The GM management’s thinking might go something like this . . . The Obama administration wants to call the shots including forcing out our CEO. GM management says, “OK, federal government, here are the keys to the kingdom. Have at it. Let’s see what you can do with the company.” And the UAW doesn’t want to make the concessions necessary to allow the company to survive. “Here you go federal government, you deal with it. You figure it out. You come up with the plan to pay everyone what they think they deserve and still keep the company solvent. Good luck!”

It’s brilliant! Suddenly GM’s biggest nemises own the company with all of its problems. Management must be reveling in the thought of the U.S. government and UAW trying to guide this massive company back to health. You take both parties from the sidelines, where it’s easy to be an armchair quarterback, and put them in the game. If GM’s plan is accepted as proposed, which doesn’t seem likely unless the other parties are incredibly naïve or arrogant, the ensuing drama that will unfold will be something to behold. They should sell tickets!

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