If Detroit Fails, What about the pensions?

by Cody Lyon

For some, thoughts of a massive financial bailout for the American Automobile industry strike chords of unease that some might say, reward the lack of innovation and enterprise that has been exhibited by some foreign auto manufacturing competitors. Futher, the auto industry, at least on the surface, has appeared to be in bed with 'big oil' by continuously producing oversized automobiles, ala SUV's and the like, cars that only encouraged a gluttonous collective consumption of oil, as if that fossil fuel were pouring from spigots of plenty throughout the world. And, to top things off, executives flew in private jets to plea with leaders in Washington, furthering the epidemic of anger at what many see as a nation where greed and excess rule the day. And, its easy to understand why people subscribe to that image, thus, for vast swaths of America, it's become increasing hard to have sympathy for the legends of American industry and capital.

But there is another side that must be addressed with some sort of legislative mandate because if the auto world of Detroit is allowed to fail and sink behind the veil of protection that bankruptcy provides, the potential for great human tragedy becomes increasingly real for large groups of vulnerable Americans unless laws protecting pensions are fully protected.

Last week, I entered had a conversation with a woman in Alabama, who's husband worked for many years in a union job at a public utility in that state. While she had misgivings about bailing a large industry like automakers, worrying that perhaps, it would lead to a rash of bailouts for other companies in trouble, or at least, calls for more, she also expressed deep worry about people in the same position she's in. She said, who's to say other companies might seek bankruptcy protection and legally do away with 'obligations' to its former employees.

Being the wife of a union retiree, she and her husband are able to survive in tough economic times thanks to a small pension and company healthcare benefits. This Alabama couple's drug costs would bankrupt many, and the struggle to pay bills, simply get by, is cushioned by the benefits negotiated and fought for years ago. Her husband and thousands of other's paid union dues, labor negotiations and more than a few days on picket lines which allowed them to earn a decent living and retire with a sense of security. While there's little chance a public utility will ever be in the same boat as automakers, there is still the fear among those people, those older union family Americans who thought contracts between the union and company was sacred and would always be there once they reached the golden years. The point is, in bankruptcy, the fear is that almost anything is possible, in this case, there is a chance that if the automakers of Detroit are allowed to fail, thousands, if not millions could see their pensions, health insurance and other benefits greatly diminished or simply go away because a judge or arbiter might rule the company can no longer afford to pay for them. That the company's survival is more important than the older people's benefits who are no longer producing product for profit.

Despite assurances of government protection for pensions, it could be, that this is one the unfortunate and under-discussed potential tragedy of an auto-industry failure.

Cody Lyon November 23, 2008 - 8:26pm

Cody Lyon's diary | printer friendly version |

( categories: Opinion | USA )

It would be a massive,

It would be a massive, shuddering tragedy. My hometown would be decimated...and much of it ain't in the best shape to begin with. I wonder how many retired UAW employees are living in warmer climes? But i would suspect that all the legacy payments for the office workers would be the first to go since they don't have an organization to even raise a voice.

Not long ago, GM said it wasn't even considering the possibility. Now they're "reviewing" it but still don't consider it "viable".

http://www.freep.com/article/20081123/BUSINESS01/811230408/1014/business01

Delphi followed the same trajectory..."We'll never declare bankruptcy. dramatic pause Delphi has decided to enter bankruptcy protection."

The "free market" types will be happy though, it will finally break the labor movement. And what's a few crushed old people, right? They're standing in the way of corporate progress.

It would be a very GM move.

Lex November 23, 2008 - 11:50pm

"And what's a few crushed

"And what's a few crushed old people, right? They're standing in the way of corporate progress."

I may get flamed for this, but if the government acts to protect the pension plans of the GM workers, it's really one more example of privatized profit, and socialized risk -- unless the government starts providing similar benefits to others. People who over-invest in their own company are seen as foolish, and especially considering that companies can drop pension obligation as part of bankruptcy, it seems a bit bizarre that the pension plans are tied into the existance of single companies.

NateTG November 24, 2008 - 1:37am

I don't think that the

I don't think that the government should act to protect those pensions, but doing so might well be cheaper, in the long run, than having all those pensioners end up fully on the public dole.

My issue with this is that i could easily see (and i've lived most of my life in the shadow of the Big 3) GM deciding on bankruptcy because it is the easy way out of obligations that they agreed to. Obviously they didn't expect people to live on retirement longer than they worked, and that's a pretty big issue.

There's no good way to handle this, it will be choices between greater and lesser evils...or just evil. But the vitriol being sent the way of the Big 3 is kind of funny (in a sick way) when the banks can just walk in and get the kind of money that the Big 3 are asking for on a Sunday.

It does seem bizarre, but that's the way the companies chose to go (albeit in response to wage freezes during WWII) and they never changed the rules. Of course, national health care three plus decades ago would have helped this situation immensely.

Lex November 24, 2008 - 8:15am

"There's no good way to

"There's no good way to handle this, it will be choices between greater and lesser evils...or just evil."

Situations like this make me appreciate the value of strong social programs, especially medicine, a lot more, and, of course, hindsight is 20/20.

A big part of the problem for me is that there is a moral hazard. How do we decide that the former Enron employees have to take it in the pocket book, but the GM employees get bailed out? I suppose it's more 'too big to fail' syndrome.

"But the vitriol being sent the way of the Big 3 is kind of funny (in a sick way) when the banks can just walk in and get the kind of money that the Big 3 are asking for on a Sunday."

The word you're looking for is "ironic". It seems like the Big 3 haven't been making money for decades. (Consider how Chrysler's been kicked around like a red-headed stepchild.) So people are reluctant to throw good money after bad.

Notably, people here, and a lot of people all over this country are very negative on the bank bailout as well - IIRC the expression here was "let it burn".

NateTG November 24, 2008 - 8:49am

If i remember correctly,

If i remember correctly, both Ford and GM made pretty good money during the 90's. And i believe that their (major) foreign divisions were profitable even last year.

Lex November 24, 2008 - 7:35pm

Crisis creates a cultural divide b/w 'ants' & 'grasshoppers'

Posted on Sat, Nov. 22, 2008
By RICK MONTGOMERY
The Kansas City Star

Two-and-a-half millennia before anyone thought of bundling toxic derivatives, Aesop knew what bugged people.

The foolhardy grasshopper in the ancient Greek fable “The Ant and the Grasshopper” enjoyed his summer singing while the ant worked in earnest, “toiling and moiling” to store up food. Winter came and the grasshopper, starving, took to begging from the ant colony.

Even today, “it goes to the very marrow of American society,” said Randall Miller, a scholar of political and cultural history. “Work hard. Take responsibility for yourself. Don’t expect others to bail you out for your own bad decisions…

“But who’s the government going to help in this economic mess? The grasshoppers!

“I sense something building, a cultural phenomenon. A lot of resentment has surfaced, and the people in Washington are feeling it.”

The anger of the ants — antipathy, if you will — rose up last week when Detroit auto titans hopped into their private jets to plead desperation for $25 billion in taxpayer-funded loans. Pummeled by bitter e-mail, lawmakers told the executives to come back with a plan to make the troubled industry competitive and more efficient.

U.S. Rep. Emanuel Cleaver of Kansas City sits on the House committee that is weighing the Big Three bailout, and he plans to support it to spare local manufacturing jobs.

“I understand the anger,” Cleaver said. “All of this is causing people to wonder if the American way is changing.

“How many out there are saying, ‘I just want to buy Christmas gifts for my family, and these guys in their private jets want my tax money?’ ”

Certainly, not all species of grasshoppers fly so high.

They include the zero-down couple who borrowed far beyond their means to get a house — better than yours — and now might get mortgage relief from the government. In other cases, many low-income homebuyers simply defaulted on mortgages for which they never should have qualified.

In supporting costly efforts to rescue the economy, the Democrat Cleaver stressed another proverb over Aesop’s fable: “How about cutting your nose to spite your face? Doing nothing will bring about a cataclysm.”

401(k) chewed away

Aesop’s lesson about hard work and preparation has various endings, depending on the retelling.

In an animated short film from Walt Disney in 1934, at the depths of the Great Depression, the Queen of the Ants allows the hungry grasshopper to stay in the ant colony if he plays his fiddle for room and board. In other versions, the grasshopper is rebuked by the ants and starves.

It is hard to see that fate befalling the most indestructible of grasshoppers — those that earn multimillion-dollar salaries, then get golden parachutes after driving massive corporations into the ground.

Nor could Aesop ever imagine that the grasshoppers’ mistakes would blow the roof off a lot of lower-income plans and aspirations, with a litany of layoffs, benefit cuts and credit freezes. Years of accumulated earnings from college savings funds and 401(k)s have been erased by falling stock values as the markets wither against worries of debt and credit.

“If they fall flat on their collective faces, we take it in the shorts right along with them,” said Brian Pierce, who teaches computer skills to grade-schoolers in Waukee, Iowa.

A recent USA Today/Gallup survey of 1,019 people found that 63 percent of respondents said they thought that setting limits on top-brass compensation at companies that participate in the bailout was very important.

But even with executive-pay limits imposed by the federal rescue, the rich will get richer: A Wall Street Journal analysis found that “financial giants getting injections of federal cash owed their executives more than $40 billion for past years’ pay and pensions as of the end of 2007,” cash not covered by the federal caps.

A study by the Washington-based Institute for Policy Studies found that the managers of the top 50 hedge funds and private equity funds averaged $588 million each in 2007 salary, benefits and bonuses.

“They thought they were smarter than they actually were,” University of Colorado finance professor Bsaid Sanjai Bhagat told TheDenver Post about CEOs and their compensation packages. “But they were given a lot of stock, and they sold shares right away. They made millions, and now the investing public is basically in the tank.”

Said Miller of St. Joseph’s University in Philadelphia: “I don’t think it’s a question of whether the government should be priming the pump” to juice up the economy.

“It’s a question of whom to help and how. … And there lies a cultural divide.”

_{"Go confidently in the direction of your dreams! Live the life you've imagined." -Henry David Thoreau}

Tina November 24, 2008 - 8:41am

It will just be a world of fun for families with

young children when their elderly parents lose their pensions. Who knows, being obliged to take in the grandparents might even limit the amount they can spend on education or healthcare for their own children. There are so many wonderful consequences for young families it is hard to even imagine them all. Good thing none of them are already struggling to survive financially.

It is also a great way to punish gays and single women for not having children. Feel the love.

someofparts November 24, 2008 - 9:07am

Even worse

are the younger families already living with their elderly parents because they have already been hit hard. I feel bad for the pensioners who were actively encouraged by the companies to invest in the 401ks, trust seems an expensive commodity these days.

_{"Go confidently in the direction of your dreams! Live the life you've imagined." -Henry David Thoreau}

Tina November 24, 2008 - 9:14am

The shift to 401k/403b

as the de facto pension system is basically a scam organized by Wall Street to ensure massive amounts of money would keep flowing into the stock market.

creativelcro November 25, 2008 - 10:31am

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If Detroit Fails, What about the pensions?

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