The administration’s special treatment of UAW cost taxpayers $26.5 billion

On Wednesday morning, The Heritage Foundation released a paper by Center for Data Analysis Senior Fellow James Sherk on the cost of the 2009 auto bailout. The Treasury Department estimates that the auto bailout will end up costing taxpayers $23 billion and, according to Sherk, all of those losses are the result of the Obama administration’s special treatment of the United Auto Workers (UAW) union. In the paper, Sherk pegs the eventual cost of that special treatment at $26.5 billion — $3.5 billion more than the auto bailout’s estimated net cost.

I sat down with Sherk last week for a phone interview to discuss the report. [Full disclosure: I was a contract employee for the Center for Data Analysis in 2010, and I did some work with Sherk during that time.]

Dustin Siggins: The entire taxpayer investment in GM and Chrysler was about $80 billion, and obviously included a variety of aspects to it. Were there other components of the bailout that could have been done better to save the same amount of money?

James Sherk: It’s harder to quantify if [the administration] could have been cost-conscious elsewhere in the bankruptcy process. It’s obvious where they spent too much on the UAW because of the treatment they received in opposition to traditional bankruptcy law. For example, other unsecured creditors were not treated as well at the UAW Voluntary Employee Beneficiary Association, despite having equally strong claims as the UAW legally. They may well have been able to do other aspects better, or perhaps not, but that is not as obvious.

DS: Some will say this paper is meant to be anti-union. Is that the case?

JS: This is an issue of special treatment for one union in particular, over and above members of other unions as well as non-union employees. In Delphi, for example, the International Union of Electrical Workers did not get their pensions topped up the way the UAW did. An Ohio plant with the IUE workers had GM transfer their work to other plants … and in the bankruptcy these union members were forbidden to transfer to plants run by the UAW. So while GM is hiring again, members of the smaller unions are frozen out of the recovery. The well-connected UAW exerted its influence for its members at the expense of investors and non-UAW employees alike.

DS: In the paper you say UAW employees at the domestic auto companies were “highly paid” workers. You also say those paychecks must be earned. What do you mean by “must be earned”? And does “highly paid” include benefits?

JS: To answer in reverse order: Yes, “highly paid” does include benefits. Before the bankruptcy, the labor of UAW employees cost the Big Three between $70 and $75 per hour. About $40 of that was for cash wages, the rest in benefits. Even after the bankruptcy, the non-entry-level UAW members at GM are still making about $60 an hour in wages and benefits. This is twice the compensation of the average American worker.

Regarding the other point, we should want everyone to make $60 per hour if their productivity sustains that pay. If an employee can earn $60 an hour because they create that much value for their company, that is fantastic. More power to them. I wish everyone could make that much. However, if their productivity cannot support their high compensation and that is one of the reasons their company goes bankrupt, they shouldn’t be able to tax other Americans, to take from another American’s paycheck, to pay for their high-end pay and benefits. This is especially true when most Americans make half of what the UAW members do.