Hostess Goes Under
You may have heard that twinkies last forever, but it turns out, you heard wrong: Hostess filed for liquidation today, after a crippling strike by the baker's union.
The company has been in and out of financial trouble for the best part of a decade, thanks to a deadly combination of generous union contracts, changing consumer tastes, and stupid financing decisions. Naturally, today has brought a lot of finger-pointing, with lefties blaming management and righties blaming the intransigent union. As far as root causes go, all of this somewhat misses the point; both the labor costs and the debt were manageable in an earlier era, when consumer demand was higher. When tastes changed, both became problematic; both were very hard to adjust.
That said, it's hard to see what the bakers were thinking. Hostess said it would have to file for liquidation if the bakers went on strike. The bakers went on strike, and they filed for liquidation, killing not only 5,000 jobs for their own workers, but another 13,000 jobs for members of other unions. Why? What concession was worse than throwing 5,000 union members out of work, in a labor market where they will struggle to find another job? Even the Teamsters--no shrinking violets about tough contract negotiations--thought the company was telling the truth about its parlous financial condition:
"I think it's obvious there was no bluff," said Hall. "Our financial advisers had looked at their books, they had total access. We pushed them in negotiations to where we thought it was the absolute limit, that we would get the most for our members and [still] have a pathway back to prosperity for the company. The bakers' union disagreed with that."
Unions are usually pretty circumspect about criticizing the strike decisions of other locals, but Teamster Joe Ortuso made it plain where he thinks the fault lies:
"They're losing [5,000] jobs," Ortuso said of the bakers' union, "but they're costing 18,900 people their jobs."
There are two explanations that come to mind. The bakers may think this is necessary to forestall demands for concessions at other employers; in many industries, when one company gets concessions from its unions in bankruptcy, they get a cost advantage which enables them to undercut competitors, who eventually extract concessions from their own union workers.
Alternatively, the relationship with management was just too poisonous, and they simply refused to believe what management was saying.
Either way, it was the death knell for the company; with the workers on strike, and the company already teetering, vendors apparently started tightening up on their terms. Since the firm has no cash cusion, or access to alternative forms of capital, that was it. There may still be a last minute deal, and perhaps some of the brands will be sold off to other firms. But it looks likely that this is the end of Hostess as a company.