Bush has inadvertently(?) given the auto unions a powerful weapon in the Detroit bailout plan.

Treasury's bailout of GM and Chrysler will not be funded unless union workers agree to reduced compensation and other conditions to make them "competitive" with the US workforces of Nissan, Honda, and Toyota. But there is no requirement that executive pay, or compensation of thousands of non-union employees, be reduced to these "competitive" levels.

Clearly, this was a union-busting move by the Bush Administration, Congressional Republicans, and the Detroit auto companies, but it could backfire. The unions might condition their acceptance of these give-backs on the Companies' agreements (i) to reduce compensation by at least the same percentage for every non-union employee and (ii) not to use buyouts or post-termination benefit extensions to reduce the non-union workforce. The unions might also demand veto power over executive compensation in excess of a certain amount. How could the union-busters argue effectively that taxpayer money should be used to save Companies whose executives and non-union employees are unwilling to compete?

Of course it's possible the Bush Administration understands this full well and has deliberately planted this time bomb to go off in the first two months of the Obama Administration.

Key provisions of the GM and Chrysler Term Sheets (which are identical except for the Appendices) are summarized below.

Terms applicable to union employees

The Company and its subsidiaries must modify by December 31, 2009 the "total amount of compensation, including wages and benefits" paid (per-hour and per-person as certified by the Secretary of Labor) and "work rules" to be "competitive" with the US workforces of Nissan, Honda, and Toyota. In addition, at least half of future contributions to existing union-managed benefit plans must be in the form of Company stock instead of cash, and the Company may not use buyouts or post-severance benefit continuations to reduce head count.

Despite the fact that these changes are described as restructuring "targets" and the fact that the Company's obligation to achieve them is qualified by "best efforts," if term sheets agreeing to these modifications have not been signed by leaders of all the major unions and benefit plan representatives by February 17, 2009, that would be an "Event of Default." Also, failure to have these changes approved by union members, and regulatory applications for approval of the benefit plan changes pending by March 31, 2009, would be Events of Default. If there is an Event of Default, Treasury may declare the entire loan due and immediately payable. (Some of these provisions could apply to non-union employees also, but not doing so would not be an Event of Default.)

The "Restructuring Plan" that must be submitted by February 17, 2009 must include "specific actions" to result in "rationalization of costs, capitalization, and capacity with respect to the 'manufacturing workforce'," but there is no requirement for the elimination of any other jobs.

Terms applicable to non-union employees

The Company is not required to make any changes in the compensation, benefits, tenure, or working conditions of any employees who are not union members or among the 25 most highly compensated employees in the Company ("Senior Employees"), except for two provisions.

The Company and its top 3 executives will be subject to the same limits Section 111(b) of the Emergency Economic Stabilization Act of 2008 imposes on compensation of the top 3 executives of financial companies receiving money from the "TARP." According to this Treasury Notice, the main effect is to prohibit payment of golden parachutes. Any bonuses or incentive compensation for Senior Employees is subject to the approval of the Car Czar. It is a Condition of Closing (on December 29, 2008) that the Company and Senior Employees present written waivers of all claims against each other and Treasury arising out of any modifications required to implement these requirements.