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Richard Wolff, Economist and Professor at the New School in New York City speaks to Paul Jay about the troubled auto industry in the United States. He says the important question right now is whether the bondholders will be willing to give up their share for foreign shareholders and make the sacrifices necessary to make American auto companies survive. If they refuse, as many of them claim they will, then the only option will be bankruptcy. He also says that both GM and Chrysler are going to give their largely worthless shares to the fund for health-care programs insuring their workers. This means workers’ health care will be gambled in the stock market.

Story Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network, coming from our sort-of-studio in New York City—days away. President Obama has asked the auto industry to come up with a plan to restructure, and rumors are flying what it will be. Bits of the plan have been released, much of which includes the UAW, the auto workers union, taking a significant ownership place in both General Motors and Chrysler. To help us understand what’s happening, we’re joined by Richard Wolff. He teaches economics at the New School in New York City. Thanks for joining us.

RICHARD WOLFF, ECONOMIST, THE NEW SCHOOL: Thank you for inviting me.

JAY: So give us an update. What seems to be the plan?

WOLFF: Well, the plan is for the various stakeholders all to make a contribution, sacrifice, if you will. The foreign owners of Chrysler, for example, the Mercedes Benz folks, would be willing to give up their share, which they have done. The Fiat Corporation of Italy has to be willing to merge with what’s left of Chrysler, which they’ve agreed to do. The unions have to give all kinds of concessions (that’s probably the biggest thing), which the unions have now agreed to do. And really the only sticking point left, if all of this goes through, is that the bondholders, the people that have lent money to General Motors and Chrysler, will they be willing to do their share in the sacrifices to make this work? And that’s not yet clear. If they refuse, as many of them claim they will, then the only option will be a formal bankruptcy.

JAY: Now, who are the bondholders?

WOLFF: Well, there are both large bondholders, some of the biggest banks in the United States, Citibank—.

JAY: So, same people who’ve been getting all this bailout money.

WOLFF: Absolutely. And they’ve, by the way, agreed, they’ve made their deals, but many of the smaller banks that also lend money over the years, they are in more difficulty. They haven’t gotten the big bailouts from Washington. And they are very hesitant to make a deal, because they stand to lose a great deal if they don’t get the kind of payoff for these bonds that they are expecting. They have the right, as things now stand, to refuse, and then the deal can go through if they refuse—at least that’s the way it plays out now.

JAY: And then, in theory, that’d push both companies, Chrysler and GM, into bankruptcy, and then a bankruptcy judge could put everything on the table, including more concessions from the workers.

WOLFF: Right. Basically, the workers, the vast majority of people who have an immediate stake in the outcome, are the ones who have been told, basically, take this deal, with all of the costs to you and all the danger to you, because if you don’t, there’ll be bankruptcy and it’ll probably go worse for you. So even though this is, as I can explain, a very bad thing for the workers, the alternative, they’ve been persuaded, is even worse.

JAY: So why is this a bad thing for the workers?

WOLFF: Well, I’ll give you some examples. For both GM and Chrysler, a huge portion of the monies that both companies were bound to contribute to maintain the health care of both current and retired workers, a huge portion—roughly half in both cases—is now not going to be contributed. Instead, the two companies are going to give their largely worthless shares to the health fund, which means that the ability of the health fund to take care of people for the rest of their lives, in terms of their medical needs, are now going to be a question of gambling in the stock market. It’s almost as if Medicare and Medicaid, instead of being guaranteed by the government, were invested in stocks, and your ability to get paid off if you have a bad operation will now depend on the stock market’s up and down. It’s an extraordinary gamble on the health of an enormous number—hundreds of thousands—of American workers.

JAY: Now, if I understand it correctly, what’s been coming out in the press, the UAW’s actually going to wind up owning something like 55 percent of Chrysler and 37 percent of General Motors with the government.

WOLFF: That’s right. In the case of Chrysler, the United States government will have a piece, the Fiat Corporation will have a piece, and the union’s health fund will have a piece or the union directly will have a piece. The numbers are a little different for General Motors, but it’s the same basic idea, except in General Motors’ case the workers will not have a majority of the shares; they’ll have a minority of the shares, so they’ll have less power. But, yes, the workers get a chance, therefore, to name somebody on the board of directors, maybe more than one person, and they’ll have some control like that. But it’s a little strange to get the control of a company that is one millimeter from disintegration. It’s not that clear what they’re going to be able to do. They will continue to be dependent on the federal government and on creditors in a way that will give whoever is on the board of directors very little wiggle room.

JAY: And, as you said, it’s gambling the health-care plan on the idea that these companies are going to start to sell cars. But if the issue of purchasing power, not only of the workers working at the plants but of everybody else, if nothing changes in the economy and people still can’t afford cars, then this has all become a kind of smoke and mirrors, then.

WOLFF: Oh, it’s worse than that. Let me give you an example, because this business of not paying money into the health fund that you are contractually obliged to give, and substituting shares of the company, that’s not the only concession that the unions made. They made many more. In the case of Chrysler, they’re going to do away with overtime pay under many circumstances. They’re going to take away the dental and vision care that used to be provided to retirees. But perhaps most important—and there are other such things. Vacation pay is being cut back. But the biggest one is an increase in the number of workers that can be newly hired at much lower wages.

JAY: These are the $14-an-hour guys.

WOLFF: The statistic that everybody uses is that the average pay for a reasonably-some-longevity worker at an auto plant is about $28 an hour. The agreement for new hires is to pay them $14—50 percent less. And the unions have agreed not only to do that—that’s already been going on for two or three years—but they have now agreed in this new arrangement to allow a larger percentage of people to be at this low rate, new workers. What this has meant—and this has been going on for years—is that GM and Chrysler have created many programs basically pushing older workers out. And the reason they pushed the older workers out is they can replace them now with much cheaper—50 percent cheaper—new workers who are earning $14 an hour. For your listeners and your viewers, it might be interesting for you to know that if you work 40 hours a week and you get in the neighborhood of 14 hours, you’re earning about $30,000 a year. You can’t send your kids to college on $30,000 and you can’t buy an expensive car. And that’s where your point comes in. This ratcheting down of the wage level of the American worker means that the company that needs to sell more cars is taking the lead in reducing wages in America, ’cause many other companies will follow suit. That precisely prevents Americans from buying the cars. So there is an internal contradiction that this Obama program does not address and in fact will make it unlikely to succeed.

JAY: In the next segment of our interview, let’s talk about what might succeed. Please join us for the next segment of our interview with Richard Wolff.


Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.

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Richard D. Wolff is a Professor of Economics Emeritus at the University of Massachusetts, Amherst, and currently a Visiting Professor of the Graduate Program in International Affairs at the New School University in New York. He is the author of many books, including Democracy at Work: A Cure or Capitalism, and Imagine: Living in a Socialist USA.