Published: November 18, 2008 10:50 am            

No wage, benefit cuts, Gettelfinger says

WASHINGTON -- United Auto Workers President Ron Gettelfinger will tell a Senate panel today that Detroit's Big Three automakers face liquidation if forced into bankruptcy and warned that taxpayers would have to pay at least $3 billion a year if the companies stopped paying for retiree health care. He also rejected new concessions by the union on wages or retiree benefits as some in Congress have demanded.

"GM, Ford and Chrysler are burning through their cash reserves at an unprecedented rate. As the recent earnings reports indicate, this scenario is not sustainable," according to a copy of Gettelfinger's written Senate Banking Committee testimony obtained by The Detroit News. "If the government does not act to provide immediate assistance, GM, Ford and Chrysler could be forced to liquidate."

Gettelfinger rejected new wage cuts for UAW workers or a reduction in payments to a $60 billion UAW-run health care trust that takes over responsibility for retiree health care in 2010.

"We do not believe there is any justification for conditioning assistance to the Detroit-based auto companies on further deep cuts in wages and benefits for active and retired workers. We would also note that in the cases where the Treasury Department has acted to rescue financial institutions, it has only imposed restrictions on executive compensation. It has never mandated cuts in wages or benefits for rank-and-file workers and retirees. Thus, there is no basis for singling out the auto industry for different treatment," Gettelfinger said in his prepared remarks.

Gettelfinger will join Detroit's Big Three CEOs at a 3 p.m. hearing to make the case that Congress should quickly approve $25 billion in loans.

They are lobbying Congress for the aid to help them weather one of the worst auto markets in 15 years and the effects of the tightened credit markets. All three auto companies are making cuts and trying to save money because they are unable to raise cash for their ongoing operations because their credit ratings are below investment grade. That has raised the specter of bankruptcy among analysts and others, though the auto companies deny that's an option.

A bankruptcy would not be "painless," Gettelfinger will tell Congress. "Consumers will not purchase vehicles from a company that has filed for bankruptcy. And bankrupt auto companies would not be able to obtain 'debtor-in-possession' financing to enable them to continue operations. Thus, the stark reality is that these companies would be forced into a Chapter 7 liquidation, with their operations ceasing entirely and their assets sold for pennies on dollar."

The liquidation of the Detroit-based auto companies would have devastating consequences for millions of retirees, Gettelfinger's remarks said. A failure of the pension plans of the automakers could require immediate government intervention and a shifting of those responsibilities to the Pension Benefit Guaranty Corp, or PBGC. To "prevent the collapse of the PBGC, which would jeopardize the retirement security of millions of workers and retirees, the federal government would have to provide a huge bailout for the pension guarantee program.

"Furthermore, under existing law, the federal government would be liable for a 65 percent tax credit to cover the health care costs of pre-Medicare auto retirees costing about $3 billion per year," Gettelfinger said.

He also was prepared to testify about working with Democrats on new fuel efficiency measures when President-elect Barack Obama takes office on Jan. 20. "We recognize that President-elect Obama campaigned on a platform that included increases in fuel economy and the production of plug-in hybrids, as well as assistance to the auto industry to ensure that the vehicles of the future are produced in this country. The UAW is looking forward to working with the Obama administration and the next Congress to help achieve these objectives."

During the campaign, Obama called for doubling fuel efficiency requirements to a fleet-wide average of 50 mpg by 2027. Congress has mandated at least 35 mpg by 2020 -- a 40 percent increase over the current average.

The UAW supports conditions included in House and Senate bills introduced Monday for such things as granting the government stock in the auto companies. "As with other rescue efforts under this program, the bridge loan to the automakers would be conditioned on stringent limits relating to executive compensation, as well as provisions granting the federal government an equity stake in the auto companies in order to protect the investment by taxpayers." Gettelfinger said.

Ford Motor Co. and General Motors Corp. said during their third quarter earnings release that they had burned through $14.6 billion in cash. They want Congress to approve $25 billion in emergency bridge loans this week before they adjourn for the year. GM has warned it could run out of money by early next year. The bills introduced by House and Senate Democrats each would make available $25 billion to the auto industry by mid-December, but differ on the severity of the conditions.

Brian Johnson, an auto analyst at Barclays Capital, said in a research note Tuesday that the Senate auto bailout bill may provide GM with the most support. But shareholders are still likely to get hurt by the dilution of the stock through a bailout and reiterated his $1 price target on GM's shares.

"The bill favors GM over smaller competitors, as it prioritizes on the basis of impact on the US economy," Johnson wrote. The bailout would "create a highly levered GM and leave no equity value for shareholders."

Ford's president and CEO Alan Mulally told CNN it would apply later today for a share of the $25 billion Energy Department retooling program to fund new advanced technology projects, joining Chrysler LLC and at least two other auto companies who have sought access to the funds. The White House wants to drop some provisions in that bill and allow companies to quickly access the money.

        

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