Auto Bailout Or UAW Bailout? Taxpayer Losses Came From Subsidizing Union Compensation

Abstract: The U.S. government will lose about $23 billion on the 2008-2009 bailout of General Motors and Chrysler. President Obama emphatically defends his decision to subsidize the automakers, arguing it was necessary to prevent massive job losses. But, even accepting this premise, the government could have executed the bailout with no net cost to taxpayers. It could have—had the Administration required the United Auto Workers (UAW) to accept standard bankruptcy concessions instead of granting the union preferential treatment. The extra UAW subsidies cost $26.5 billion—more than the entire foreign aid budget in 2011. The Administration did not need to lose money to keep GM and Chrysler operating. The Detroit auto bailout was, in fact, a UAW bailout.

The government bailout of General Motors (GM) and Chrysler between 2008 and 2009 will cost taxpayers approximately $23 billion. President Barack Obama emphatically defends his decision to subsidize the automakers, arguing it was necessary to prevent massive job losses. Even if one accepts this premise, the government should—and could—have executed the bailout more efficiently, with no cost to taxpayers, had the Administration required the United Auto Workers (UAW) to accept standard bankruptcy concessions. Instead, the Obama Administration gave special treatment to the UAW above and beyond what other creditors and unions received:

Legally, the UAW’s claims had the same status as those of other unsecured creditors, but the UAW recovered a much greater proportion of the debts that General Motors and Chrysler owed the union.

Bankruptcy typically brings uncompetitive wages down to competitive levels. However, existing UAW members did not take pay cuts at General Motors.

The Administration could have kept the automakers running without subsidizing the UAW’s above-market pay and benefits.

Subsidizing UAW compensation cost $26.5 billion—more than the government spends each year on foreign aid.

The cost of subsidizing UAW pay and benefits accounts for the entire net taxpayer losses—$23 billion—in the bailout.

UAW members at General Motors and Chrysler are among the most highly paid workers in America. High salaries are good, but they must be earned. The taxpayer losses came from the special treatment that President Obama bestowed on the UAW. The auto bailout was actually a UAW bailout.

More