Auto Unions and Power

The message the original buyout of GM sends has been vigorously debated by many sources. The story today that is not adequately being told is who is receiving the majority of the benefits from the GM stock sales. In the 2009 bankruptcy settlement the United Auto Workers Union secured a substantial portion of stock in the new General Motors.

The U.S. Treasury and the Union have both begun to sell of the shares they obtained, effectively privatizing part of the company. Both groups have sold off a third of their shares thus far. The United Auto Workers will break even when they sell the remaining two-thirds of their shares. The taxpayers of the United States, however, will need shares to rise in value from their current 33 dollars to an amount between 52 dollars and 103 dollars to breakeven, according to The Washington Times. The investors in the original General Motors, unlike the union, will receive nothing due to the declaration of bankruptcy. How is it that through the changes in General Motors due to bankruptcy the United Auto Workers have come out ahead of common investors and taxpayers?

The Union was somehow able to grab benefits that investors missed out on. Patrice Hill says that GM went through the “courts in a way that consistently put the interests of the union ahead of many suppliers, dealers, and investors- stakeholders that ordinarily would have fared as well or better under bankruptcy laws.” The power of the United Auto Workers to organize and use force to grab a collective benefit, stocks to pay off their health care and pension plans, faster than taxpayers is supported by the conclusions of Mancur Olson. The union was already organized and already had power at hand. Taxpayers, on the other hand, would have had to dedicate time that could receive better returns if spent elsewhere to follow the court. Most taxpayers made a rational decision to remain ignorant about what specifically occurred in the GM bankruptcy. Taxpayers that did not remain ignorant, such as concerned investors, had an additional motive to pay attention, but they did not have the time to organize or any type of force to compel people to organize.

With these hindrances to keep other groups from organizing, the union was free to use its power to grab a bigger share of the pie for its members. As Olson predicts, the United Auto Workers, with their narrow interest, chose to grab more of the available wealth rather than making the country as a whole more productive.

References

Hill, Patrice. “GM’s Union Recovering After Stock Sale.” The Washington Times. November 25, 2010. Web.

Olson, Mancur. Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships. USA: Basic Books, 2000. Print.