Most don't expect the first opinion -- improving the incentives -- to happen, but I don't understand the complaint. Paul Ingrassia, for instance, writes in the Wall Street Journal:
It's hard to imagine the mind-set that produced this sort of thing will change just because the workers will become the owners, albeit indirectly. [...] There's an inherent conflict between the cost discipline required of owners and the understandable desire of employees to make more money for less work (hey, why not?). Keeping those two powerful forces in balance is critical to the success of any profit-making -- or profit-aspiring -- private enterprise. Even a clean and well-run union such as the UAW will have trouble squaring this circle in the long run.
That seems like a fine description of problems with the current management structure, but Ingrassia is actually using it as a reason why we should be reluctant to hand the company to the union. I think that more or less completely misunderstands principal-agent problems.
Agency dilemmas only occur when self-interested owners hire self-interested employees. The owner wants what's best for the company, and the managers and employees want what best for themselves. These problems can be bad when the shareholders and their representatives are negotiating with the unionized employees. But the notion that making the UAW the owner will somehow exacerbate the "inherent conflict" is pretty bizarre. It can only reduce it.
As a side note, union ownership stakes aren't that uncommon. Germany -- I know, I know, Europe -- has had them for a while and they haven't ushered in the apocalypse quite yet. (The structures are called, ineffably, Mitbestimmungsgesetz.) There is sometimes a tendency to think that corporate governance structures are Platonic Ideals, but my sense is that they vary tremendously.
A more interesting question is what happens when the UAW has to negotiate a contract with Ford, now a competitor to UAW subsidiaries GM and Chrysler.
I don't know of many critics who complain about the UAW getting a gift of Chrysler (or GM). They mind that the other bondholders are getting screwed. Certainly in a bankruptcy, creditors aren't paid back, but the senior creditors should be paid before the "stakeholding" employees and managers.
--Colin Fraizer
What's left to destroy? The company is already a zombie living on government handouts. Fiat needed the company to shed debt and dealerships, asbestos claims and union work rules, then be paid a share of the company as well, just to bother with it.
The taxpayer handed over a fortune to Fiat and the UAW just to preserve the appearance of a sort-of-American car company, and avoid a lot of layoffs in Detroit. A classic case of the government picking winners and losers.
There is no way to destroy the company now other than to stop funneling taxpayer funds into it, and that is not going to happen before 2013, and, given long enough to establish itself as a government program, even the opposition won't be able bring themselves to stop the explicit subsidies.
Here is what I would do if I were the UAW, and is what is going to happen: the union will vote itself ever increasing benefits which the government will cover to make up the losses. This isn't a real company anymore in which profit/loss is meaningful.
Conor,
I don't think that there will be a long term union ownership of Chrysler. Auto companies need cash flow to stay above water, Chrysler doesn't have cash, Fiat isn't putting any money into the deal - the only thing left is more taxpayer money, or selling off equity in one form or another.
Your Thoughts?
Agonzalez06 makes a great point, which I hadn't considered.
My biggest concern is the same as Yancey's - I don't see how a union owned car company results in anything other than a publicly financed and subsidized car company, making cruddy cars at a financial loss, which is covered by a combination of taxpayer subsidies and regulatory obstacles to any competitor who tries to make a better, less expensive car.
Think awhile. The trustees duty is to do their best for the beneficiaries of their trust. They will sell as soon as it looks to be a good idea (providing Chrysler lasts that long); if they don't, their beneficiaries will sue. Fiat plans to buy.
handing a majority stake to the union can only have one of two consequences: It will change the incentives of the union -- such that they realize their demands were bad for the company -- or it will run the company (further) into the ground and leave the union to pick up the pieces. More accountable union no matter how you slice it.
Or #3 - It will run the company further in to the ground, but the union will have enough political influence to keep money flowing from DC.
Clusterstock's Joe Wiesenthal is reporting that the US government is not expecting $8 billion in financing to be paid back. That includes the $4 billion in federal loans at the end of December and the ongoing DIP financing now.
We are being lead by an economic fascist.
I think this comic says it all. http://www.flickr.com/photos/pointshoot/3519361103/