comments_image Comments

Bankruptcy Hurts Autoworkers and It'll Hurt Detroit's Workforce

Detroit's emergency manager will gut the city and destroy the hard-won gains of Detroit public workers and retirees.

Kevyn Orr wants to give Detroit a fresh start, and he seems like just the guy to do it. Orr took Chrysler through bankruptcy in 2009 and look how well the company is doing now. If Chrysler and General Motors can do it, Detroit can too, right? This is what the people in charge are telling us anyway. That’s why Gov. Rick Snyder appointed Orr as emergency manager—to work his magic on Detroit like he did on Chrysler. And he will work his magic. Orr and his team of lawyers will gut the city, destroying the hard-won gains of Detroit public workers and retirees, just like Obama’s “Team Auto” reversed decades of autoworker gains.

We tend to look past this part of the Treasury-led restructuring of GM and Chrysler because the auto industry is doing so well these days. Recent estimates put North American output at 16 million vehicles in 2013, with U.S. autoworkers producing the lion’s share. Ford, GM, and Chrysler plants are running year-round to meet demand; for the second summer in a row U.S. automakers are shortening, and in some cases foregoing, their annual summer shutdown so they can pump out more cars and trucks. Profits and share prices are up and executives are riding high.

Industry experts say the turnaround was possible because the crisis forced the auto companies to change, to make a fresh start. The Detroit 3 certainly have reduced their break-even point through plant closures and cost-cutting but they’re doing pretty much the same thing they were doing before the crisis. All three automakers remain completely dependent on large trucks and SUVs rather than smaller, more energy-efficient cars Ninety percent of Ford’s profits came from its F-series pickups in 2012, while GM drew two-thirds of its earnings from the Silverado and the Sierra.

But in terms of the automakers’ agreements with their workers, the restructuring was a bit like starting over. The crisis erased nearly all the gains made by hourly workers in the past four decades. New second-tier workers are paid half the wage of older workers and receive significantly reduced health and pension benefits. And Tier 2 autoworkers aren’t even at the bottom of the post-bankruptcy pay scale. The restructuring paved the way for the normalization and extension of temporary and contract jobs which pay significantly less than Tier 2 jobs and offer no health or pension benefits. As the Detroit 3 run their plants pedal to the metal, temporary and contract workers are the ones being hired.

Everyone agrees that the recovery of the auto industry is a good thing. But before we hold up the auto restructuring and bankruptcy as a model for Detroit to aspire to, we should be honest about what bankruptcy means for workers. Bankruptcy is not a neutral market mechanism. Bankruptcy is an integral component of the modern-day corporate arsenal that is routinely used to reduce or eliminate long-held worker and retiree gains. Detroit’s filing—the latest in a flurry of Chapter 9 municipal bankruptcies—shows that city leaders have begun adding it to their arsenal as well.

Until recently Chapter 9 bankruptcy was chiefly used by extremely small towns experiencing freak financial disasters, like Reed Springs, Missouri (pop. 510), which went broke in 2002 over a $160,000 personal injury lawsuit. City leaders tend to worry that the whiff of failure that emanates from bankruptcy will dissuade investors, drive away residents, frighten the bond markets, and increase the cost of credit.

Bankruptcy used to be a scarlet letter for companies, too. But since the 1990s, the stigma of Chapter 11 has declined dramatically. Today firms are regularly advised to "go through the rinse" to reduce costs and restructure operations. Now urban leaders are taking a second look at Chapter 9, especially as cities across the country struggle to cope with operating deficits brought on, or exacerbated by the Great Recession. Budget shortfalls have pushed one in seven U.S. towns to cut public safety services, and many scholars predict a significant increase in municipal bankruptcies.  

See more stories tagged with: