REP. Thaddeus McCotter Defends Auto Industry Smacks Down Dems CAFE

REP. THADDEUS MCCOTTER (R-MI): I thank the chairman. Thank you for your indulgence, and I will have an opening statement and some questions, and I'll try not to take up too much time. And if I cover ground that you already have, please feel free to disregard it and put in your own points.

I come from Michigan's 11th District. My district borders Detroit. Heavy automotive industry. Lot of dealers, lot of suppliers, lot of white collar, lot of blue-collar employees.

One of the first things I would like to make clear that I personally find offensive is the implication that the domestic American auto industry has not done anything since the 1970s to restructure.

If anyone believes that the Big Three were not restructuring prior to the credit crisis bringing them here today, or the CAFE mandates that have brought them here today, I invite you to my district.

I invite you to look at how the fragile fabric of people's lives has been rendered asunder by a necessary restructuring process that has involved give and take on both sides, from labor and management.

I will show you the white-collar workers that are out of work. I will show you the blue-collar workers that are out of work. I will show you the pensioners that are worried about their health retirement benefits being lost. And I will show you the Wixom Assembly Plant that is closed.
I bring this up not for your pity for my constituents. I bring this up to show you that the automotive companies and the UAW have been doing what they believe they possibly can to restructure and become globally competitive and ensure that America has a domestic manufacturing base for the generations to come.

The second point I wish to bring up is why they're here. Throughout the entire process of the restructuring, we would hear rumors in Washington that the Big Three were coming for a federal assistance package, for one reason or another. And yet, as the white- collar workforce and the blue-collar workforce and the pensioners suffered the restructuring, they did not come.

They did not come to Washington with their hands out. They were not here begging, as it has been pejoratively put in the press. They wanted to restructure, without us making it harder for them to do so.
Unfortunately, the first thing we did as Congress was we passed a $100 billion CAFE-standard mandate on the auto industry, which would have been far worse had it not been for the strenuous efforts of the dean of the United States Congress, John Dingell.

Secondly, through no fault of their own, as they went through the restructuring process, the whiz kids on Wall Street, with their computer algorithms, decided to screw up the entire credit market of the United States. This was critical to the restructuring of the auto industry.
And then this Congress, in my opinion, passed a very bad piece of legislation, a $700 billion bailout of the very people on Wall Street who caused the problem. And now you see hundreds of billions of dollars slated to go to, quote-unquote, "healthy banks" to free up the credit system -- that has yet to free up, or they would not be here today.

So the question that the chairman puts before us in terms of the legislation he is proposing is to me not a matter of a bad policy that has already been imposed on the American people and has yet to work. It becomes a question of equity.

If the $25 billion is appropriated for Wall Street -- some of it probably targeted to healthy institutions, financial institutions, however nebulously defined -- a no-vote on a bridge loan to the auto industry means that that 25 billion (dollars) will continue to go to Wall Street and to healthy banks.
A yes vote means that it actually goes to Main Street, not just for the structure of the Big Three, the labor leaders, the auto leaders, but for the very hard-working men and people whose taxes have gone into the $700 billion bailout, which has yet to free up the credit markets.

So we are in the realm of equity here. And while I did not support that bad policy, we had here yesterday Secretary Paulson, who explained that he believed one of the fundamental problems that we face in stabilizing our financial system is the problem with home foreclosures.

I would agree with that. I would agree that the biggest problem we have are real working people's ability to pay to stay in the homes that they have.
If we turn our back on Main Street, if we continue to send all the money to Wall Street, who caused the problem, and the auto industry does have to go into bankruptcy, you will see foreclosure rates in this country skyrocket from people who have played by the rules and are currently paying their mortgages and are not part of the problem that Mr. Paulson says is already big enough to be worthy of addressing.

Finally, I want to issue -- address the issue of labor costs. I have long said that one of the problems Michigan suffers is the fact that we are currently still operating under the industrial welfare model of governance. And this is where the Big Three and the UAW get a very bad rap.

They talk about, quote, "shedding labor costs" that have been duly negotiated, because it makes them uncompetitive. My response to that is, where do those labor costs go?

The traditional model of governance throughout the 20th century of the United States, because we were an industrial power, was that business would pick up some of the benefits of employees and government would pick up some of the social needs of employees. And there was always the tension as to which would do what, but you had two pillars to help undergird American prosperity.

As we move into what people call the new global economy, the post-industrial economy, my question is this: If the business entities, in negotiation with labor entities, decide that they can no longer be competitive with these "labor costs," quote-unquote, where do those go?

They're going to go to the federal government. And so we have another instance where we can be penny wise and pound foolish, and we can say we're not sending a $25 billion loan to help the auto industry survive, and we can let real human beings go into the process of bankruptcy and watch the stresses and strains on their families as they endure that pain.

And you will not have saved the American taxpayers anything, because the pension costs will be picked up somewhere from the retirees who were cheated out of a lifetime of hard work. You will see the healthcare costs of hard working people that they have enjoyed because of the fruit of their labor put into the federal system. And you will see prosperity throughout the Midwest and the rest of the country crash and you won't have enough worker retraining money to take care of their needs.

And finally, for some of my more conservative friends, I point this out: if America does not have a manufacturing base, a manufacturing base which some may think is not necessary in this new global world, the United States will cease to be able to defend itself. We will be reliant on other nations for the innovative technologies, not only their creation but their provision, from friendly nations such as communist China and others, and the arsenal of democracy in our lifetime will have been dismantled in a time of war.

In the end, this issue is even larger than the Big Three, in many ways larger than the economy. It is what type of nation do we become. Do we become a nation that no longer produces wealth, that no longer has a path to middle class prosperity? Do we remain the America we inherited? Or do we just let it go and watch real people suffer in the process?

And my answer is no. Now if you can find a question in there, my hat's off to you. Thank you. (Applause.)

The times, they are a-changin’- A GM Retiree's Perspective

I ran across this paper from my 2005 Writing class, titled "The times, they are a-changin’" in which I wrote about GM’s financial woes. Since then I have retired and the question I asked then " "Will it be too little too late to save GM?" is still being answered.

As a retiree who worked for General Motors for 30 years, my ties are not just financial but emotional as well. I remember the "hay days," when we sold a history making amount of autos. I remember working six days a week, nine hour days in order to supply America with the cars they wanted. I remember the Toronado line, Oldsmobile 98's and 88's, and Cutlasses that were produced here in Lansing.

And its from that perspective, as an insider, a former employee, a current retiree of General Motors, I believe the best interest of the company would be to go into Chapter 11. I do not say this lightly as I have a huge financial stake in the outcome, my health care is on the line and my pension could be reduced. However, with that being said, I believe Chapter 11 to be in the best interest of not only GM but Michigan and other "Union states" for several reasons.

1. The ability to make the UAW Union contract null and void

In 1984 the Supreme Court ruled that employers can unilaterally break an existing collective bargaining contract upon filing a Chapter 11 bankruptcy petition.

2. Keeps doing business and its stock and bonds may continue to trade in our securities markets. This is extremely important as almost 4% of the Gross Domestic Product is auto-related. Three million U.S. jobs ( and families) are dependent on the health of U.S. automakers, and they are not all in the Midwest.

3. Hold debt at bay while restructuring for profitability

Federal bankruptcy laws govern how companies go out of business or recover from crippling debt. A bankrupt company, the "debtor," might use Chapter 11 of the Bankruptcy Code to "reorganize" its business and try to become profitable again. Management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court.

The question is, do GM Executives have the fortitude to try and entangle themselves from the chains of the Union in a Chapter 11?

In an e-mail I received from GM which asks employees to write/call their reps to encourage the "bridge loan", GM addresses the Myth of "GM’s biggest problem in North America is its union contracts" :

As The most recent GM-UAW agreement, signed in 2007, helps close fundamental competitive gaps with our import competitors, and we anticipate significant savings as we implement the key provisions of the agreement between now and 2010.

GM’s unionized North American factories compete with the best in terms of quality and productivity.

We are confident that a collaborative relationship with our unions continues to be in everyone’s best interest.

August 26, 2008

But then at this point what can they say as the UAW with its support of Barack Obama and Democrats is the best hope of a "bridge loan".

However with all the GM bashing, the fact is that GM has made significant improvements. In the last contract in 2007. GM freed itself of its obligation to pay health care benefits to its nearly 400,000 retirees and their dependents by setting up a multi-billion-dollar union-controlled trust fund—known as a Voluntary Employees’ Beneficiary Association, or VEBA, that will pay out benefits. In addition, the agreement establishes a two-tier wage system—the first ever in a national UAW contract—that will drastically reduce wages and benefits for the next generation of auto workers.

Cost-of-living increases will be diverted to help offset the cost of retiree health benefits. The four-year contract includes three lump-sum bonuses but no wage increases, The two-tier wage agreed to by the UAW will reduce labor costs (wages and benefits) for new-hires in so-called “non-assembly jobs” to an average of $27 per hour, compared with the current average of $73 per hour. The union and company will offer buyouts and early-retirements to move current workers out of their jobs, so they can be replaced with far cheaper labor

The jobs bank, which pays laid off workers while they are jobless, will be changed so that the geographical area within which workers will have to move to an open position or lose their incomes will be expanded

In addition:

GM cars and trucks have improved significantly over the past decade. Critics are taking note, and customers are responding.

In 2007, the Saturn Aura, and Chevy Silverado won North American Car and Truck of the year.

In 2008, the Chevy Malibu was named North American Car of the Year, The Cadillac CTS was Motor Trend’s 2008 Car of the Year.

Customers have responded just as enthusiastically as the critics. Although total U.S. vehicle sales are down almost 13% so far this year, a number of GM cars and crossovers have enjoyed significant sales increases:

Saturn Vue +5%
Chevy Cobalt +6%
Pontiac G6 + 8%
GMC Acadia +8%
Saturn Aura +10%
Cadillac CTS +25%
Chevy Malibu +36%
Pontiac Vibe +39%
Buick Enclave +124%

October 1, 2008

However as I have said I also have an emotional tie to GM as a large part of my life up to this time was spend as an employee and part of the GM culture. But its not just that, GM IS part of not only Michigan's heritage and culture but America's also, a great American automobile company,conceived and build by Americans.

From the 1905 song, "In My Merry Oldsmobile", to the 1950's image of Dinah Shore throwing a kiss after singing,"See the USA in Your Chevrolet". Mel Torme's "What a thrill to take the wheel of a Rocket Oldsmobile!" To Bob Seger’s "Like a Rock" Chevy Truck To Cadillac's "Breakthtrough" commercials with Led Zepplin. Great GM "muscle cars", Chevy Chevelle ss 454, Chevy Camaro Z/28, Olds 442. And GM cars and trucks in the movies

Add to that the GM cars and trucks driven by millions of Americans throughout its history. And generations of Americans who worked hard, raised their families and built their communities as GM employees.

GM is a part of the American Landscape and Experience. There is an old saying, What’s good for GM is good for America”. Although perhaps in a smaller measure now, I still believe that’s true.


November 23, 2005

The times, they are a-changin’
Bob Dylan

September 18, 1978. To most it’s just another day without any significance To me, this date proved to be a milestone in my life.

September 18, 1978 was the day I started my career at General Motors (GM).GM had just opened a new assembly plant that summer in Lansing. I was one of 20,000 new GM employees. My staring wage was $6.50, per hour (good money then) plus benefits. GM employees build over 359,825 Oldsmobile’s that year. (Lansing Production 4 )

Fast-forward 27 years. The same plant where I started working in 1978 closed in May of 2005 and will soon be demolished. Total number of GM employees in Lansing is approximately 6,200. My hourly wage is over $27.00 plus benefits. GM build approximately 240,000 vehicles the year before the assembly plant was closed. Most astonishingly, GM’s debt rating has been downgraded to junk bond status. Immediate costs saving cuts are needed to stave off bankruptcy. As I write this paper, the United Auto Workers (UAW) has just set a precedent by opening up its contract with GM before it expires in 2007 to re-negotiate for concessions in health benefits and wages for its membership.

So who is responsible for the financial descent of one of America’s largest corporations? Some will say the culprit is management, while others contend the UAW as a whole is to blame. As a GM employee of 27 years, I feel I am in the unique position to make a qualified judgement regarding the downfall of GM. I believe that both management and the UAW share the responsibility. However, ultimately, I believe that the burden of blame rests with management.

First, let’s review the UAW’s role in GM’s current crises. Foremost is the UAW contractual costs incurred by GM. Contractual demands for higher wages and benefits have increased with each contract. These costs have made it unfeasible for GM to be competitive with other automobile companies and make a profit in a global economy. Health care costs are exponentially higher for GM than many other companies and are unaffordable. For example, “UAW workers currently pay 7 percent to 10 percent of their health-insurance costs, compared with 20 percent for GM’s white- collar workers and 40 percent for Americans generally, according to union data.” ( GM Powertrain par 33 )

In addition to unaffordable health care costs, there is another unsustainable contractual cost, the “jobs bank” This is a program that is initiated after a large layoff or plant closing. A displaced employee attends a job bank and may not do any work, yet still receive a full paycheck and benefits. In Lansing, because there is a lag between the old plants being closed and the new Delta Plant being built, some job bank employees show up at a given place and spend the entire day doing nothing. Others may do community service, while others, like me go to school as my “job".

I estimate because of my position of being in the job bank, that there about 200 people in Lansing’s job bank. The payroll, based on my weekly salary, for job bank employees is over $216,000 per week! What business could possibly survive by paying its employees full wages not to work?

Another indefensible contractual cost to GM in light of a global economy is the “30 and Out” rule. An employee who hired in at the age of 18 may retire at 48 and can collect pension plus fully paid health care for another 30 years or more. For health care alone in dollars and cents…”GM provides $5.2 billion in health care annually to 1.1 million workers, retirees and dependents. Retirees outnumber current U.S. employees 2.5 to 1. About $4 billion goes annually to retirees does not go into developing products people want to buy.” (Will, pars. 11)

GM cannot continue to incur these costs and survive in the face of manufacturing moving into and competing globally with companies that pay far less to their employees,in wages and benefits, and therefore can design and produce less expensive cars which generate the kind of profits necessary to survive, prosper and grow in a global market. Of these companies, most are non-union including those with plants in America. And because they are non-union, these companies are not forced into contracts that they can ill afford.

To illustrate the difference in union and non-union on profits, “Toyota generated the highest revenues per vehicle last year, an average $26,514, once you stripped out incentives and other discounts. By comparison, General Motors’ net was a meager $20,659 per vehicle. “That’s an alarming number,” stressed Harbour, “all the more alarming because it hasn’t changed much in seven years.”

It is clear that GM cannot continue to give in to Union contractual demands and be profitable. (Eisenstein, pars. 21)

On the other hand, although GM management has been burdened with these demands, management is not without blame.

Management has capitulated to the Union’s unrealistic demands despite the reality of the monetary bottom line needed to successful compete in the global market place. Moreover adding to the financial overtaxing to GM is the huge salaries and bonus packages given to executives and CEOs even in the face of the coming financial maelstrom.

One case in point, according to Richard Freedman, for Executive Intelligence Review,Counting some other benefits, GM CEO Rick Wagoner’s total compensation came to over $10 million; this does not count an additional lavish pension benefit. GM’s Chairman Bob Lutz, and its chief financial officer, John Devine, each received total compensation packages of $6.4 million in 2004. It is estimated that the GM top management team took in more than $50 million in compensation for the year. (Freeman, pars.17)

In the final analysis, both management and the UAW are responsible for the GM’s current financial woes.

I believe that at one time the union was necessary to fight for the working conditions and wages of the “Average Joe” However, the UAW has become what they have fought against, a bureaucratic organization that has lost focus of what is good for the company is good for its employees.

I acknowledge I have benefited from many of the UAW benefits, good wages, health care, benefits such as tuition assistance and I am grateful. But at what cost to GM, my employer of 27 years and to my post retirement life?

In summary, the UAW shortsighted and prohibitive costly contractual demands in the face of a changing business economy has contributed to its membership not just losing pension and health benefits, but also perhaps their jobs as well.

Conversely GM management’s own self-created bureaucratic management hierarchy has contributed to highly paid executives, whom in turn, capitulated to UAW’s demands of higher wages and costly benefits in spite of the changing market in the automobile industry. Such demands have made it impossible for GM to compete with other automobile companies and make a profit.

To GM’s credit some changes have been made. GM has consolidated its divisions at the RenCen in Detroit to facilitate communications, implementing new assembly technology, cutting salaried and blue-collar jobs and closing aging plants and cutting benefits.

But will it be too little too late to save GM?

Nevertheless, the ultimate responsibility and blame for GM’s current financial position must lie with GM management. Management is the final arbitrator of all company decisions and as such carries sole responsible for acquiescing to the unworkable, and unrealistic UAW financial demands, in addition to paying huge salaries and bonuses to non-producing executives.

Of course I cannot view these events dispassionately. Not just because I face a monetary loss but in view of the fact that a large portion of my adult life was spend as a GM employee. But also in a much larger sense because General Motors is a part of Americana. Cultural and historically, GM, is a part of our American heritage, a great American automobile company, conceived and build by Americans.

There is an old saying, What’s good for GM is good for America”. Although perhaps in a smaller measure now, I still believe that’s true. So then it is my hope and prayer that like the mythical Phoenix General Motors will rise from the ashes to a new prominence.

WORKS CITED


Dylan, Bob, “The Times They Are A-Changin’” The Times They Are A-Changin’
Atlantic, 1964.
Eisenstein, Paul A. “Detroit’s productivity gains aren’t enough to outclass Japan.” The Carconnection.com. 6 June 2005. 23 Oct. 2005 21 pars .
Freeman, Richard. “Corruption in America:Big Three Execs Get Huge Pay To Ruin Auto Sector .” Executive Intelligence Review 2 Sep. 2005. 23 Oct. 2005 17 pars .
GM Powertrain. 23 Oct. 2005 (http://uawlocal14.org/News/Regional/04-14GMBoard.htm)
Lansing Production. 2004. Lansing: GM Heritage Center, n.d.
Will, George. “GM Makes Turn Toward Fiscal Sanity .” The Grand Rapids Press 20 Oct. 2005. 11 pars. InfoWeb. NewsBank. Lansing Community College. 23 Oct. 2005