The 17% solution: GM merges with the UAW - part two
(This is the second of a two-part post. Please don’t yell at me unlessl you’ve also read Part I)
If a person or company were to buy a 20% interest in most companies, it would be regarded as either having a controlling interest or close to it. You cannot ignore someone who has 17% of your stock. That person or entity is entitled to sit on the Board of Directors. Add a few institutional investors to the 17% and there’s no doubt of control. You’ve got it.
That’s the UAW/GM deal.
They sold the company to the UAW.
The union members get to ratify the deal.
Shareholders already voted when they elected the current management. They may have been hosed, but they should have ssen it coming. There are some large shareholders: institutional investors own almost 50% of the outstanding stock. They’re not stupid.
Truth is, the currently controlling GM shareholders don’t care about the long-term. They care about the stock price. Lately, it’s been up. Watch the trading volume in GM shares over the next few weeks, though. As the press hypes GM’s future, see whether the volume increases significantly. If it does, it means the institutional investors are bleeding their shares into the market. That means they’ve figured it out.
The UAW controls GM now, the same way that a person holding a .357 magnum to your head controls you. Neither has to pull the trigger to get their point across.
Of course, you can look at it another and more positive way:
GM and the UAW have now merged.
Mergers happen when two companies see a mutual interest best pursued in common.
That is an apt description of where the interests of GM and the UAW lie, as neither gets anything if they don’t act together to sell cars.
There is a lot to be said for merging GM and the UAW. In reality, no one has as lasting a stake in a company as those who work for it and truly do depend on it for their futures. Stockholders can sell with a keystroke. But the guys and gals on the assembly line have a life-style at stake. Giving them a stake in the company’s future really only recognizes the reality of their true motivation.
Giving them a stake in the company – and a big one, at that – also legitimizes the financial status of a company that has been largely owned by the UAW for at least two decades.
Though a company is nominally owned by its stockholders, if it owes a lot of money to others, it is really owned by those to whom it owes that money. GM owes its retired workers, over time, $50 billion. That obligation comes off the top, if the company goes bust. The stockholders get the scraps, if there are any. So, the real owners at GM for over 20 years have been the union’s current and past members.
But those members have had a free ride. Most owners have to accept some responsibility. Investment counselors commonly talk about “risk.” “Risk” is for those who hitch their wagons to someone else’s star. “Responsibility” is what it is called when you have only yourself to blame if it doesn’t work.
To this point, GM’s UAW members have had no responsibility, even though they have borne the majority of the risk. If the company tanked, they lost the source of their income. There’s not much more that you can risk. But they had no say over the decisions that decided the company’s future, so they had no responsibility.
In any normal investment decision, responsibility is the inverse of risk. The more responsibility you have, the less risk – at least if you don’t screw up. But if you do screw up, you pay the price, not someone else.
For the UAW, it hasn’t worked that way – until now.
No longer does the UAW have to take what GM gives it, no longer does the UAW have to let someone dictate the fate of its members.
With a pen stroke, it now can make those decisions.
It is likely that this deal was worked out some time ago between Rick Wagoner and Ron Gettelfinger, to their mutual satisfaction. What we’ve seen for the last three months has merely been selling their positions to their respective constituencies.
They say that the best deal is one in which two parties who have different interests both find a way to improve their interests at no expense to the other.
That is this deal.
I know I said that this was Part II of a two part series, but – I forgot Ford and Chrysler. For them, this deal stinks. So, I’m going to do a Part III.