Let’s just call it “fair and balanced.” Yes, GM’s debtholders are crying to the media and the government that the offer they’re getting is not “reasonable” is “absurd,” and “amounts to using taxpayer money to show political favoritism of one creditor over another,” according to a report on Bloomberg.com.
That last one really made me laugh. These people apparently believe their own rhetoric. Political favoritism? Who’s been on the receiving end of that for the last, say 150 years? Bloomberg quotes an analyst saying, “You have a gun being put to your head saying that if you don’t take this, we have something that’s even worse for you.” My heart goes out to them. Their situation sounds remarkably similar to that of the unions who were asked to cut members’ pay, cull the workforce by a third, various work rule changes, and take stock instead of cash for their pensions.
Why should bondholders lose their shirt while the government gets a majority stake? Perhaps because they made a bad investment, and continued to dump money into a poorly managed company. So now they’re losing most of their investment. Last time I checked, the champions of capitalism said that’s how “The Market” works. The government for its part appears to have made its continuing investment contingent on an actually viable business plan. Is that socialism? Or smart business?
Did the UAW get a better deal than the bondholders? Yes and no. In addition to the bedrock capitalist principle mentioned above, it’s worth pointing out that GM was contractually obligated to pump something like $50 $20 billion into the Voluntary Employee Benefit Association (VEBA) that will relieve the corporation of its pension and retiree health care obligations. Instead of cash, they’re getting GM stock. The union-haters out there cry that those benefits are ridiculous and should be zeroed out. That’s a fine opinion, as long as you don’t dress it up on fairness to non union workers or the moral rectitude of the free market. Instead this is just some misguided desire to drive peoples’ wages and benefits down for no good reason. It’s just mean spirited.
Unlike our great American bankers, the government (and likely GM management) seem to understand that you need autoworkers to build cars. That is why the UAW may be getting an allegedly “good” deal.
Update: The Washington Post reports Tuesday morning that the Treasury and Chrysler reached a deal with the company’s major debtholders for a stock swap. If the deal holds it leaves the UAW as the majority shareholder via the union’s VEBA.