Wednesday, April 22, 2009

Why Ken Lewenza Is Wrong, and Right

First let me start off by thanking everyone who has viewed this blog, regardless of which side of this issue you stand. And never in my wildest dreams did I expect to be quoted in both the National and Financial Post. I still stand on my opinions posted previously regarding CAW head Ken Lewenza's refusal to concede anything further than the concessions already given to GM. To his credit, and many GM, Ford, and Chrysler workers relief, he now appears to be softening that stance. So while the title of this post might be confusing. Lewenza is both right and wrong at the same time. Let's review.
Ken Lewenza is wrong because:
1. Without further concessions, neither the American nor Canadian governments will provide any further financial loans. This would have the effect of throwing both GM and Chrysler in front of a bankruptcy court in weeks, if not days. It would also immediately close a number of parts factories, many of them unionized.
2. While $19 per hour is a big hit, it is a cut that does not affect your hourly wage or current pension level. In other words, you will see no change on your weekly paycheck or pension cheque. Yes, you will be out some money from co-pays and such but that would be minimal.
3. Public opinion! Whether Lewenza is right or wrong in his stance, it's the average worker feeling the wrath of the general public. Read newspaper comments, blogs, listen to people at Timmies. Everyone seems to think its the guys and girls on the line that are the problem, when in fact the problem is much deeper than that.
4. Leading by example. Rather than play the blame game, with management and bondholders refusing to give anything up until the union does, and vice-versa, do our part first. Perhaps the union should go public after giving up the concessions with what management should concede, and then get the government to put the pressure on them in the same way. No further assistance until everyone from the CEO down also concedes a comparable cut to benefits and perqs.

Now lets look at why Ken Lewenza is right:
1. Cerberus, which owns Chrysler, and is made up of a number of billionaires with available funds totalling in excess of $18 billion, refuses to invest their own money into Chrysler. I'm sure in the event of a bankruptcy Cerberus will want to be first in line when liquidation begins, even if that means looting pension funds.
2. A newspaper report a few days ago is deeply disturbing. Chrysler dealers have been reporting they are losing between 25%-40% of sales because buyers cannot get financing. That is, the dealership has a signed sales contract but the buyer cannot obtain funds. This was improved recently by both governments when they provided funds to both GMAC and Chrysler Financial. Now here is the disgusting part. Obama recently offered Chrysler Financial another $750 million in funds, with the caveat that there would be a cap on executive salaries and bonuses. Now you would think a company in dire circumstances, who are demanding that workers take a 26% pay cut, would jump at the financial help, right? Nope, Cerberus, and Chrysler Financial turned down the $750 million, and got it elsewhere at a higher interest rate, all in the name of maintaining salaries and bonuses for executives.
Now let me quote another great blog, called At Home In Hespeler.
The author of this blog is Brian Gardiner, who is a co-worker at Brampton Assembly, and it was Brian's most recent blog entry that inspired me to do this post. The following is a partial take of Brian's blog posting, and it really shows the ineptitude of management as well as the corporate greed that got us into this mess: "Just over ten years ago, successful, profitable Chrysler had a bankroll that was rumoured to be close to $10B. This was money that properly belonged to the stockholders, who had forfeited dividends to create a cushion, they were told, for the next time there is a downturn in the industry. That downturn came in early 2000, and the money was gone. Somehow, the money made it’s way back to Germany, somehow, Chrysler had no money. Daimler, it could be well argued, profited nicely from the “merger of equals.”
In 2007, Cerberus capital picked up 80% of Chrysler, as well as Chrysler financial. They also own GMAC, GMs financing arm. The extremely profitable Cerberus, has refused to put any of it’s assets into helping Chrysler, deeming it bad investment. That’s a problem, but here’s worse. The financial arm of Chrysler and GM, both Cerberus owned, heavily tightened rules regarding leasing. People buying cars these days report they can’t get financing through Chrysler credit: off to the banks they must go. So the ownership of Cerberus won’t invest in Chrysler, the financial arm of Chrysler, owned by Cerberus won’t loan people money to buy cars. And finally, Chrysler Financial won’t be taking $750M in federal bailout money, it is reported, because executives don’t want limits on their pay.
These are the people I am supposed to take a pay cut to help?
A new player on the scene is Fiat. Here’s their idea: they pay $0.00, they assume debt equalling $0.00 and they get 20% equity in Chrysler. The condition, I have to take a pay cut. In short, Fiat will take the 20% with no risk only if I, and my fellow workers, buy it for them."

And finally, I would like to thank Joanne at Blue Like You. This is in my opinion the best political blog out there, always well written,thoughtful posts, great opinions expressed in comments. Joanne's blog is what all bloggers should use as both a template and inspiration.


Brian Gardiner said...

Thanks for the shout out Paul.

Regarding number three, this is one of the problems I have with the concessions. Everyone seems to think if they just pay the workers less...

Concessions are a band-aid, but this has gone beyond a minor cut. Which is why your number four is an excellent suggestion.

However, at the end of the day I just can't get past the feeling we are the North American television makers from thirty years ago.

Anonymous said...

The headline on the front page of the London Free Press today is that Toyota's adding another shift.

Just saying that there are some happy campers(er...Corollas) out there Paul.

paulsstuff said...

"However, at the end of the day I just can't get past the feeling we are the North American television makers from thirty years ago."

Wow, your right Brian, that's an excellant way of looking at it. One thing I've wondered is if Lewenza could actually negotiate in managements concessions as well, in that he agrees to the cuts demanded with the proviso that those cuts are enacted on the condition management has cuts mandated as well.

maryT said...

Just announced on cnn, GM to close all US factories for 9 wks this summer.

paulsstuff said...

Wow. Thanks for that MaryT. I had no idea. I'm sure the others will follow suit.

Brian Gardiner said...

9 weeks? I haven't had that kind of time off since we made Jeeps back in 1989/90.

Paul, interesting idea. You know the problem here? We can just keep going back and forth, pro or con, and come up with shoulda, woulda couldas all day. It's a complicated, and interesting issue. A few years from now when this is all put to bed one way or another, this whole scenario is going to make an excellent case study in MBA programs.

paulsstuff said...

Brian, I saw Lewenza a few hours ago saying he hoped to have the deal done today. Should be interesting.

Gabby in QC said...

Paulsstuff, great post.

I particularly like points 3 and 4 under "Why Lewenza is wrong." Everyone must do his/her part, and not just in the auto industry.

I may be completely off on this, but isn't part of the problem in the auto industry that there are far too many different models?

In addition to all the concessions you mentioned on both sides, would it not make sense to cut down the number of models? Would the factories need to be re-equipped, or could they go on to produce a different line?

Could the Big Three agree among themselves to produce just a particular line? For instance, Ford could be the company producing primarily pickup trucks and SUVs, Chrysler minivans, and GM passenger cars - or different configurations of those.

In other words, if these are indeed hard times in which everyone has to pull in the same direction, shouldn't the Big Three co-operate among themselves, rather than revert to the cutthroat model?

paulsstuff said...

Yes Gabby, to many different models is a major problem, especially for GM. For example Chevrolet and GMC trucks, which are identical save for a few cosmetic differences. One reason Ford is in better shape is that they began to eliminate redundant models a few years ago.

In Chrysler's case, they have made some completely idiotic blunders. The Dodge Nitro for example. It is the same chassis as a Jeep Liberty, which was and still sells well. So in effect, by introducing the Nitro, Chrysler was competing against itself.

The biggest mistake Chrysler made was building vehicles that nobody had ordered. I used to work on the certification line, which is where the cars are prepared for shipping, all stickers and paper work added, and the car is bought off as complete and shipped in the system. Most cars usually have paperwork marked sold, that being either a dealer has ordered the car, or a customer has ordered that specific car with those options.

We began to see a large number of cars marked ship to storage, meaning the cars had no buyer, and were going to be sitting in a holding yard for the foreseeable future. Of course management still continued to recieve performance bonuses for these vehicles being produced, even though the company would recieve no financial gain as there were no buyers. In the end, these cars were sold at a great discount, and the company actually lost money.

So to put it in perspective, executives recieved bonuses for producing cars that they were selling at a loss. Matter of fact this occurred at the time Tom Lasorda was receiving almost $20 million in bonuses. By the way, Lasorda admitted a year later it was him who ordered the vehicles produced despite having no orders.

Joanne (True Blue) said...

Another excellent post, Paul.

Perhaps you could help me out with a few things I've been wondering about:

If any of the Big Three goes bankrupt in the States, how would that affect any Canadian agreement if one were reached?

Also, what happens to the Canadian union if the company goes bankrupt in Canada? Does the union agreement still survive?

My understanding is that any union agreements in the States would be void in such an event, but not in Canada. Is that true? Thanks.

paulsstuff said...

Hi Joanne. You are right. In the event of a bankruptcy, or chapter 11 in the States, the union contracts are wiped clean, and negotiations start as though it's a new company. In Canada, it occurs under CCAA, and whatever contracts are in place t the time remain in effect. Which is what my first post was all about.

As noted today, both the CAW and UAW have or are about to sign concession deals with Chrysler, something I was pushing Lewenza on, and contained in those agreements is that in exchange for the huge concessions both American and Canadian workers pensions and retiree health care benefits will now be protected in the event of a bankruptcy filing. That was the exact reason I thought Lewenza was wrong to dig in his heels on the concessions issue, and I give him and the negotiating team full credit now for getting this done.

I'm assuming he will pass along the same deal to GM and Ford, which he should. In the case of GM, having the pension and retiree health benefits protected in a bankruptcy effectively saves the Ontario taxpayer $6 billionn+. McGuinty has taken the stance he won't pay the GM pensions, but he and the province are legally obligated. Thanks Bob Rae.

Joanne (True Blue) said...

Thanks for clearing that up, Paul.

Just watching the presser with the CAW & Chrysler deal. Maybe you can give us your spin on it later? Thanks.

paulsstuff said...

Going to do a post tommorrow Joanne once I have all the final details. They gave up a lot more than what Lewenza glossed over, and I have no problem with that.

At the end of tthe day maintaining rate of pay and pensions seems like a pretty good trade-off to reduced benefits. This agreement also gives the Canadian assembly plants a huge advantage as the exchange rate in the U.S. dollar was not factored into labor costs. So effectively, Canada has about a 20% advantage where our dollar stands at today.