I wrote in the blog on two occasions recently that I felt that the outcome of the problems with the big three might have a significant impact on labor agreements across the United States. Recently I posted my thoughts on however the the problems with auto companies causing a correction in the markets,auto companies alone are not enough to make the markets test their previous lows.
I also suggested that the markets were not going to go straight up to 8,500 on the Dow Jones or 900 on the S&P 500. Regardless of the auto problems, we are in a strong rally in a bear market. If I’m right on the targets for the markets pressure from the rally of Tuesday the 31 of March and any additional follow through will start to make investors with a great deal of cash very nervous.
I find it fascinating that a Democratic controlled Congress is willing to give the unions more power to organize through the elimination of the secret ballot while at the same time a Democratic President is trying to take away some of the benefits gained by the unions in collective bargaining. The concessions made by the UAW will surely have to spillover into other union contracts.
Here is the big question. Will the UAW sacrifice the 775,000 GM retirees to protect the working members? For that matter will all of the unions give up the benefits for the retirees in favor of protecting the employed members? I think the answer is yes!! If the unions can avoid a bankruptcy at GM and Chrysler, then they can protect some of the retiree benefits. On the other hand should both firms file for bankruptcy then the retirement pensions will come under the Pension Benefit Guarantee Corporation, an agency of the Federal Government.
When other companies that have union defined benefit pension plans have gone into bankruptcy, the amount of the pensions has been reduced in some cases as much as 50%. If we look at the GM pension plan, my guess is that the portfolio value is down between 25% and 40%. This amount does not include the billions the plan may be under funded which will also effects the level of current and future pensions.
The President gave Chrysler 30 days and GM 60 days to come up with a viable plan to save themselves. Bankruptcy is the next option. We will find out shortly the will of the unions and the bondholders in GM. Will labor make the give back necessary or will they choose to let these companies disappear? Who do you think will blink first, the government or labor?