2008-2009: AUTO INDUSTRY CRISIS

Photo: Jim West

In late 2008 our nation’s economy – and the auto industry in particular – entered its deepest crisis since the Great Depression. Almost overnight, demand for new automobiles fell from an annual rate of over 17 million units to an annual rate under 10 million units. In December 2008, UAW President Ron Gettelfinger, along with the chief executives of GM, Ford and Chrysler, appeared before Congress to describe the situation facing the industry.

To prevent the imminent collapse of the industry, the Bush administration granted GM and Chrysler federally guaranteed loans to allow them to survive into early 2009.

An important condition of that loan agreement was that the companies would work with the UAW to develop a restructured contribution formula for the independent trust fund, known as the Voluntary Employee Beneficiary Association, or VEBA, with half of the company contributions made in the form of stock.

In early 2009, within a month after taking the oath of office, President Barack Obama appointed an Auto Task Force to review the available options. With the loans running out and no recovery in sight, the task force held the future of GM and Chrysler in its hands.

Without a government-supervised and supported restructuring of their debt, both GM and Chrysler would have collapsed, throwing hundreds of thousands of American workers on the street and leaving the retirees without medical benefits of any kind.

The UAW was a full participant in the work of the task force. During difficult bargaining in spring and early summer 2009, a package emerged that the UAW could support.

Under that arrangement, both GM and Chrysler filed for bankruptcy, and were able to restructure their ownership and debt to give them the greatest possible chance of long-term survival. Bondholders and banks that had previously loaned tens of billions of dollars to the companies received “pennies on the dollar.”

In order for the UAW to support the restructuring, we insisted that the package provide continued protections for key aspects of the 2007 VEBA agreement, including many aspects of the basic funding commitments for it.

Consistent with the original government loan agreements, and at the insistence of the task force, the VEBA contribution obligations at GM and Chrysler were modified to include significant contributions of company stock. The task force insisted on this modification to the funding formula in order to reduce the cash drain on the companies.

Why Ford was different

In spring 2006 Ford set a plan in motion to borrow a considerable amount of cash at low interest rates. This financing plan came to fruition in early fall 2006 and was key to keeping Ford out of bankruptcy proceedings because it provided the company with sufficient cash reserves to weather the global auto crisis.

But Ford still faced the same economic calamity as the rest of the industry. Changes were also negotiated with Ford on the VEBA contributions during 2009 to help address the company’s long-term solvency.