This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Auto Bailout Aimed at Unions, Not Companies

Stocks in this article: GM F TM

The billions in aid Congress is considering throwing at Detroit is less of a lifeline to the U.S. automobile industry than it is a bailout of the powerful union representing hundreds of thousands of workers.

The Big Three automakers on Wednesday pressed Congress for $25 billion in loans from the federal government. They stressed that the government will get paid back before shareholders receive a penny in dividends or bondholders get any of their money. What is the one entity that stands in line before the government? You guessed it. The UAW.

The bill circulating in the House of Representatives would allow the automakers to continue making payments to the trust fund established to fund obligations for retiree health benefits.

The automakers established the Voluntary Employee Beneficiary Association in 2007 to get the health plan funding off their books. VEBAs, a popular tool for distressed companies, also help protect retirees' benefits in case the companies go bankrupt, according to Voluntary.com. Obviously both the automakers and the union saw the writing on the wall last year and began making strategic moves to prepare for it.

The only problem is that the automakers ran out of cash to keep feeding the beast. Starting in July, the companies began requesting payment deferrals. The UAW granted the request, but the union is getting antsy for its money.

According to the Detroit News and the UAW Web site, General Motors (GM) owes the fund $1.7 billion, plus 9% interest on top of the $5.3 billion payment scheduled for 2010. All said, GM owes $34 billion in cash and stock to the trust fund. Even if it gets a loan, the first payment will be to the trust fund. The government is only charging 5% interest to the automakers. Too bad the government didn't have the union negotiate its terms.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,765.10 -13.05 -0.07%
S&P 500 2,064.25 +3.02 0.15%
NASDAQ 4,756.8210 +8.4250 0.18%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs