As Hearings Resume, UAW Offers Concessions
Urging an Auto Bailout, Union Retreats on Terms Of Health Care, Jobs Bank

By Steven Mufson
Washington Post Staff Writer
Thursday, December 4, 2008 9:46 AM

With new union concessions on the table and plans they say will restore the U.S. auto industry to viability, chief executives of the Big Three Detroit carmakers return to Capitol Hill today for two days of congressional hearings that could prove critical in their quest for tens of billions of dollars in help from taxpayers.

The hearings begin this morning in the Senate Banking Committee, as the three try to convince still skeptical lawmakers that their plans for an industry turnaround justify a commitment of as much as $38 billion in public funds. An earlier round of hearings adjourned amid criticism of the executives -- for flying to Washington on corporate jets while complaining their companies were running out of cash, and for not presenting a more specific vision of how to make the U.S. industry competitive.

This time they arrive having agreed to cut their own salaries to a dollar a year, driving hybrids and prototype electric vehicles, and presenting their ideas for making Detroit competitive with the rest of the world.

They also have an offer of fresh cost-cutting measures from the United Auto Workers.

Yesterday, UAW President Ron Gettelfinger said that his union was ready to make new concessions despite a landmark cost-cutting labor contract signed just last year, as he urged Congress and the Bush administration to step forward with a multibillion-dollar auto industry rescue plan.

The UAW, whose membership at the Big Three Detroit car manufacturers has dropped by half in the past five years, said it would let General Motors, Ford and Chrysler delay payments owed to a massive health-care fund for retired workers and suspend a program that pays laid off workers for up to two years.

Gettelfinger made the new concessions reluctantly, complaining that the federal government was stepping in to rescue financial institutions while letting the car companies dangle near collapse. "I'm having a little problem myself understanding why there's a double standard here," he told reporters after a meeting of union leadership. "But we accept it and we'll play by those rules."

Despite the union's moves, the chances for a government bailout -- which GM and Chrysler say they need before the end of the month to avert financial collapse -- remained uncertain at best. Democratic leadership aides said prospects for the $28 billion to $38 billion package sought by the companies were dim in the House. Auto industry sources said that House members were being flooded with mail from constituents opposed to federal help for the companies.

The White House, however, appeared to leave all possibilities open. Spokeswoman

Dana Perino said the administration, which has urged Congress to divert $25 billion in funds authorized last year to promote fuel efficiency, needed more time to evaluate the plans.

"I think that to the American people, that giving $25 billion in taxpayer dollars to a specific industry is generous," Perino said. "But these are very serious times, and I'm sure the companies have spent a lot of time thinking through what they think they will need."

The union's concessions came as top executives for the companies made the rounds in Washington to rally support for the bailout.

During an interview at The Washington Post, Ford chief executive Alan R. Mulally said he was pressing Congress for money even though his company currently does not need federal help because if any of Ford's rivals collapsed, the pain would spread to suppliers and Ford itself.

Mulally, who said he drove from Detroit in a hybrid Ford Escape, said he saw no sign of improvement in the economy. He acknowledged that the automakers' public pleas for help are likely scaring off buyers.

"This conversation is hurting us," Mulally said.

The president of Chrysler, Jim Press, stopped at an auto dealership in New Carrollton where dealers and local officials said the collapse of the automakers would spread pain far beyond Detroit. "If we don't get these loans, and for some reason we have to stop producing cars," Press said, "the dealers would have no business. It's catastrophic."

"It's not just the dealer," said Tammy Darvish, vice president of the chain of Darcars dealerships. "I have 233 local vendors that I do business with, and I pay them combined over $83 million a year. You have oil guys, messenger services who would be affected."

But lawmakers and analysts were still asking whether the three major U.S. automakers had plans to become viable or whether they would end up asking for even more money from taxpayers. A Goldman Sachs report issued yesterday took a more pessimistic view of GM's international sales than the company and said that GM might need even more than the $18 billion it allowed for in its worst-case scenario.

With cash shortages running so big, it was hard to see what could save the companies other than federal aid. Gregg Lemos-Stein, an auto expert at Standard & Poor's, noted that GM's total annual interest payments on its debt came to less than half the cash the company went through during the third quarter of this year alone.

"The cash losses are so severe that debt reduction alone can't be the entire solution," Lemos-Stein said.

Gettelfinger asserted that labor made up only 10 percent of the cost of a car. "To be honest with you right now, if a UAW membership went into these facilities and worked for nothing, according to our research department, it would not help the companies that much," he said.

UAW members number fewer than 150,000 at GM, Ford and Chrysler, down from about 300,000 five years ago, the union said.

Many critics of the auto industry have cited high labor costs. However, cutting those costs were at the heart of the past two contracts. Yesterday, Ford's Mulally called the 2007 UAW contract "transformational" because of the savings it generates.

"The word concessions, I used to cringe at that word," Gettelfinger said in his news conference yesterday. "But now, why hide from it? That's what we did."

According to Ford, by the time the contract expires in September 2011, hourly labor costs, including wages and benefits, would be $58, just $4 an hour more than foreign-owned companies with nonunion plants in the United States.

But that calculation assumed that the companies would be able to hire new workers at lower wages and that these new hires would make up about 20 percent of the companies' workforce. Because of the economic downturn, however, Ford said it hasn't hired any new workers and that the differential was currently about $9 an hour.

The 2007 contract also transferred the cost of retirees' health-care plans from the auto companies to an independent trust known as a voluntary employee beneficiary association, or VEBA.

The changes reduced the companies' liabilities for retiree health care by 50 percent, according to the UAW. In return, the companies promised to make huge lump-sum payments into the trusts to cover much of the retirees' plans. Ford, for instance, paid $2.7 billion into the VEBA in January. GM is due to make about a payment of about $7 billion in 2010. The companies want to defer future payments, and there might be enough money in the trusts to allow them to do so without affecting retiree benefits for some time.

While the UAW can delay VEBA payments and eliminate the Jobs Bank without a vote of the membership, further concessions would require a vote.

"We recognize that going forward there's going to be a restructuring of the companies and all the stakeholders are going to have to make sacrifices, and we're prepared to do our part," said Alan Reuther, the union's Washington legislative director. "But that path forward, as painful as it may be, is preferable to bankruptcy, not only for our workers but also for the economy and whole country."

Robert L. Shanks, a Ford vice president and controller, said that UAW concessions on the program aiding laid off workers, known as the Jobs Bank, would be helpful, but that Ford has only about 1,200 workers in the program, which costs the company about $120 million. While that number is substantial, it pales next to the $9 billion to $13 billion Ford said it might need if the economy weakens.

For now, Mulally said, "We don't want to borrow any more money." He added that if Ford were to need the full $13 billion, it would be because the company faced a worst-case scenario that assumed "depression-level economics."

Gettelfinger in Detroit said that neither the companies nor the unions were to blame. "I want to stress that this issue is not brought on by the companies. It certainly wasn't brought on by our union," he said. "We're just in a major economic downturn that's rapidly spreading around the world."

Staff writers Kendra Marr and Thomas Heath contributed to this report.