Corker: Auto unions need to drop some benefits

Corker said labor costs of U.S. automakers are far more than those of foreign "transplant" companies like Nissan that have manufacturing facilities in the U.S. All-inclusive costs for some U.S. companies can be as high as $70 per worker, compared to $40 per worker for the transplants. In many cases, the difference isn't the regular hourly wage but other forms of benefits, including programs which can pay some auto workers for years after they have been laid off.

Corker said he doesn't support "one penny of government money" for the U.S. auto industry unless those costs can be brought in line and the U.S. automobile industry can be made competitive.

"These are the things that are best for these companies," said Corker.

Corker spoke to reporters on Thursday following hearings with auto industry CEOs before the Senate Banking, Housing and Urban Affairs Committee, of which Corker is a member.

Trouble in Motor City

Corker said the problems with the automakers go beyond the current economic crisis and that General Motors would still be in crisis due to its debt even if the economy was good. The total number of cars being bought is declining, and the U.S. automakers are losing their market share of that shrinking pie, a double hit.

Corker said he and his Senate colleagues wanted the automakers to seek bankruptcy reorganization rather than government assistance, but executives claim that this would be devastating to their suppliers.

"Many analysts have a contrary view of that," said Corker.

Instead, what Corker and some of his colleagues now want to do is to legislate some bankruptcy-like conditions on the automakers, with the stipulation that if they aren't met by March 31 the automakers would have to declare bankruptcy in earnest.

Currently, the automobile industry's debt is selling for 19 to 21 cents on the dollar, reflecting low confidence that it will be repaid. If the government were to step in, the value of that debt would rise -- but the conditions proposed by Corker would force the automakers to buy back that debt at 30 cents on the dollar. They would also have to change their labor agreements to bring costs into line with their transplant competitors.

GM owes its Voluntary Employee Benefit Account, or VEBA, a total of $21 million. Corker said his proposal is that the UAW accept half that amount in the form of equity in the company rather than as cash, and the head of the UAW has indicated a willingness to consider it.

"Getting them in line is a huge step," said Corker.

But he said management takes much of the blame for the crisis as well.

"Management has taken on huge amounts of debt," said Corker.

"We're putting pressure on all involved," he said.

If the company could relieve 70 percent of its unsecured debt it could become competitive again.

But Corker said his colleagues "on the other side of the aisle" -- meaning the Democratic majority in the Senate -- may object to giving organized labor such a hit.

Only room for two?

Corker said there is probably not room for three independent U.S. automakers, hinting that there may need to be a merger -- or that one of the three may need to be purchased by a foreign automaker.

Corker said that the health of the auto industry benefits both the U.S. companies and the transplants, because of the overlap in suppliers.

"I don't think any of the transplants are pulling for those three automakers to go bankrupt," said Corker. The death of one of the 'Big Three' would probably affect some of the suppliers on which the transplants rely as well, he said.

Corker said the CEOs have talked about the increasing gas mileage of their new vehicles and said that the quality of U.S.-made cars has improved, even though many buyers still have a bad image of U.S.-made cars.

"The perception has lagged reality," said Corker.

Corker said he's heard from car dealers in Tennessee who have said that while the U.S. auto industry must be saved, at the same time the manufacturers must not be "let ... off the hook" for its past mistakes.

Corker drew a distinction between the relatively rapid approval of bailouts in the financial industry and the scrutiny being applied to the auto industry's requests for help.

"The financial system has to be there for every business," said Corker. He admitted that there is a "slippery slope" aspect to bailing out a troubled industry and setting a precedent for future bailouts.

Corker said he won't support bailouts without the conditions he discussed.

"If they won't agree to the stipulations," he said, "I would not support funding them."