Why doesn’t the UAW buy Ford?
It appears that media magnate Rupert Murdoch will gain control of the Wall Street Journal. The Journal is a publicly traded company, but Murdoch hasn’t made an offer for all of the Journal stock. He intends to buy only the stock owned by one family, the Bancroft family.
You see, that’s all he needs to control the entire newspaper because only the Bancrofts’ stock can vote.
Family owned corporations often create two classes of stock when they “go public.” One is sold on the open market and one is kept by the family itself. The family retains control of the company because only the class of stock which the family keeps has any voting power. It is only the family’s stock that can elect the board of directors and control the company. This differential has long been considered entirely proper and legal, because the fact that other classes of stock do not have voting power is disclosed to the purchasers in the prospectus when the shares are first issued and sold.
So, why do we care about the Wall Street Journal and Mr. Murdoch?
Because Ford is set up the same way.
Ford has Class A and Class B stock. Class B is traded on the New York Stock Exchange. Class A stock is not traded. Class A stock is entirely owned by the Ford family.
But only Class A votes, even though it represents ownership of only about 28% of the company.
So, whoever owns Class A controls Ford.
The power of the Class A stockholders at Ford is immense. In the late 1940’s, when a senile Henry Ford was running the company into the ground, he ultimately agreed to let his grandson, Henry Ford II, take over because Henry Ford’s wife threatened to sell all of her Class A stock to the public if he didn’t. She was the second largest Class A shareholder at the time.
No Ford family member has ever sold Class A stock to anyone outside of the family.
But it is now time for the family to sell all of its Class A stock.
To the United Auto Workers.
The deal would make perfect sense for both the family and the union.
In fact, it might be the only way either can survive.
The UAW’s obligation is to its current members and to those who were its members and have now retired. However, fulfilling that obligation – the obligation to maintain their income, benefits, and life styles - depends on the success of the Ford Motor Company.
Over that, the UAW currently has no real control.
Ford management will be making all of the decisions which will ultimately save or scuttle the company. Even were the union to concede everything that management requests in the master contract negotiations beginning next month, the union members could still end up with nothing if management makes the wrong decisions in the immediate future.
The situation for both the company and the union is dire. Which means it is dire for the family, as well.
Recently, the man who is the UAW’s chief negotiator with Ford told the union’s board that Ford could not survive a strike and that Ford would be in Chapter 11 bankruptcy in less than two years if the company didn’t stop the current sales slide.
Chapter 11 would be a death sentence for both the union and the family.
In Chapter 11 bankruptcy, a company continues to operate while the bankruptcy court protects it from creditors. A reorganization plan is eventually approved, and the company is allowed to do the things that are necessary to make it profitable.
That includes voiding union contracts.
The union retains, of course, the right to strike. That right, however, is a hollow one. If the union prevents the company from operating, the result is a full bankruptcy in which the company is liquidated and goes out of business.
Defunct companies do not have employees.
But in Chapter 11 the stockholders also get wiped out.
Under the bankruptcy code, stockholders get the lowest priority. Secured creditors get first dibs. Because a company cannot go into bankruptcy unless presently payable liabilities exceeded it current assets, when the secured creditors have taken what little the company has left, there is never anything left for the stockholders.
So, for Ford, Chapter 11 means the union’s contract is wiped out and it also means that the Ford family’s wealth is wiped out.
This situation creates a unique opportunity for the United Auto Workers, if only the union has the imagination and courage required to grasp it.
The United Auto Workers should buy the Ford family’s Class A stock.
For an investment far below the market capitalization of the company (i.e., the total of what the outstanding stock is worth), the UAW could gain complete control of Ford.
At least for the Ford members of the union, the UAW would also gain control of its own destiny.
Antagonism and distrust between union members and Detroit auto makers was born at Ford. It was the bloody strike at Ford in 1941 which cemented Walter Reuther’s power at the UAW and forced Henry Ford to recognize the UAW. Of all the Detroit automakers, none has a history of labor relations worse than that of Ford.
But the UAW is far from blameless.
The union has blackmailed all three of the former “big three” with the threat of a strike to the ultimate detriment of both the manufacturers and the union’s members.
The last big UAW strike was against GM in 1968. Effectively, it wiped out GM’s 1969 model year. Since then, Ford, GM, and Chrysler have all acceded to the union’s demands rather than lose the market share which would result from a strike. The competition from Europe and Japan meant that market share – once lost – is unlikely ever to be regained.
The UAW forced domestic automakers to accept deals that were to the companies’ long term detriment in order to prevent short-term disasters. In so doing, it addicted its members to unrealistic expectations and created the predicament in which it now finds itself.
But that’s history.
It was Henry Ford who said that “history is bunk.”
In this case, he might just be right.
Historically, unions have fought management. Unions have never been management.
The ‘twain never met.
But times change, and those that survive adapt to those changed times.
In the last analysis, it is the Ford members of the UAW and the heirs of Henry Ford who have the most to lose if the Ford Motor Company fails. Should it do so, it will not be first industrial icon to disappear. Nor will it be missed. There are a lot of companies willing to sell you a car.
“Godfather” Don Corleone faced a similar problem.
He made “an offer which they cannot refuse.”
Time for the UAW to do the same.