Tuesday, July 06, 2010

Unions Turn Up Pressure On Weakened YRCW

I've written recently about my disgust for organized labor in the United States.  I briefly thought that union truck drivers were capable of doing the right thing when they agreed to wage givebacks at YRCW.  I had set my hopes too high.  The Teamsters can't wait to get their greedy paws on YRCW's cash and are willing to place that company's cash flow at risk:

The Teamsters union is aiming to get YRC Worldwide to resume some pension contributions starting in January 2011, union officials said Tuesday.

The $5.3 billion trucking operator won an 18-month suspension of pension contributions from the Teamsters last August, along with a 15 percent wage cut.

I don't care whether they're only looking for a partial resumption of payments.  Once that camel's nose gets under the tent, they won't hesitate to bite the whole burrito and demand full resumption even if it destroys the company.  Someone should tell the Teamsters that YRCW isn't remotely close to being out of the woods yet.  The sale of YRCW's logistics unit won't raise nearly as much cash as expected due to termination costs.  Good luck trying to tell uneducated union schmucks to look at numbers.  We can look at YRCW's own short-term estimates for confirmation that their situation is still tenuous:

YRC Worldwide still believes it will "generate positive adjusted EBITDA" in the second quarter, the company said June 29, as it concluded its annual stockholder meeting.

At its annual stockholder meeting June 29, the company replaced outgoing director Carl W. Vogt with Teresa Ghilarducci, the Teamster pick for YRC's board of directors.

Using EBITDA is a bit of an optimistic stretch, as many analysts learned to their chagrin during the dot-com era.  More bad news may be on the way for truckers if they have to compete against rapidly-strengthening railroads.  Railroads kept up their capital spending while truckers like YRCW were forced to sell assets.  Wanna bet who's going to win that race in the short term?  That's especially noteworthy if the short term is all YRCW has to make itself profitable but union workers just can't think that far ahead. 

Hey, what's this about unions getting a say in picking a board member?  If YRCW's shareholders are dumb enough to let unions get a say in board leadership then maybe they deserve to see their share price drop to zero.  Union pick Dr. Ghilarducci (who taught at my undergrad alma mater, Notre Dame) is an advocate for replacing self-directed retirement accounts with government-guaranteed annuities.  I have no problem with government-mandated savings programs (like Australia's superannuation accounts or Uncle Sam's Thrift Savings Plan) so long as they truly operate as investment management programs.  The problem with Dr. Ghilarducci's reform program - and others that rely on government-directed investments - is that they can too easily become permanent deficit funding mechanisms.  Try living on that guaranteed "3% above inflation" when the government controls the measurement of inflation and the schedule for indexing your inflation-tracking portfolios.  I'll bet union workers think that's just great. 

Trying to explain any of this to a typical union member is probably a waste of intellectual energy.  Thankfully, ports in SoCal remain open despite greedy striking secretarial pools, so we should be grateful that unions don't always get to bully the rest of us around.  The day of the union is long past.  Executives in unionized firms need to get tough and push these dinosaurs out to pasture. 

I avoid investing in unionized companies because they have a hard time doing what they need to do - cut costs, discipline unproductive employees, shut down unprofitable business units - thanks to union interference.  It's time to break up unions before they break the United States economy with their greed and stupidity.