Below the Fold: Collapsing General Motors and the Dying American Dream, or Washington Fizzles while Detroit Burns

The Leviathan of American capitalism is dying. And what is bad for General Motors is bad for America. But few, aside from Wall Street arbitrageurs casting lots over the firm’s remains, seem to care.

General Motors from almost every vantage point was the instrument of the post-World War II American Dream. Peter Drucker’s rigorous analysis of Alfred P. Sloan’s GM empire fueled the development of modern business management theory. Walter Reuther and the United Auto Workers played the part of the exemplary progressive union, driving General Motors into becoming the national sponsor of a business-based welfare capitalism for workers. Guaranteed annual incomes, annual productivity raises, cost of living allowances, health insurance, and corporate-guaranteed pensions, in addition to good wages, were the fruits of forty years of conflict and cooperation between union and the great Goliath. Each side, it can be said in retrospect, exceeded expectations in moving forward the frontiers of collective bargaining to include an American dream for all. Reuther even dared try to negotiate car prices to make cheap transport available to American workers. Charles Wilson, the GM head famous for the "what’s good for General Motors" phrase took progressive business unionism to its heights, sponsoring the first cost of living wage increase clause in the belief that workers needed protection against the wage erosions of inflation.

Good wages, welfare state, and a Chevy under the carport were all made possible for millions of American workers by the unlikely alliance of General Motors and the United Auto Workers. In 1948, only half of all American households owned a car; by 1968, 80% did. Several million other American workers got roughly the same deal pioneered in Detroit.

And there were piles of profits. According to the labor historian John Barnard, Detroit automakers between 1947 and 1967 were getting a 17% annual return on their capital, twice as great as that of any other manufacturing sector. Between 1947 and 1969, automakers earned $35 billion in profits, an astonishing sum in yesterday’s dollars. From the end of the war to the end of American industry’s "golden age" in 1972, the Big Three made over 200 million cars and trucks.

And then the wheels began to come off. Oil crises, recessions, inflation, and the corporate inability to copy Japanese innovations in total quality control started the downward spiral in which General Motors, and to a lesser extent, Ford, find themselves caught up today. Toyota will surpass GM as the world’s largest car producer this year, while Toyota and Honda combined now out-produce GM in America. General Motors now loses $2300 per vehicle; Toyota makes $1500 per vehicle. Each GM vehicle carries $1500 in health care costs, $1300 more per vehicle than a US-made Toyota.

GM lost over $10 billion last year, and has offered to buy out 30,000 of its 113,000 blue-collar workers in the coming year. Thousands of white-collar workers are being severed without any generous terms attached. The firm is selling off a majority interest in its lucrative finance arm, General Motors Acceptance Corporation, as well as much of its holdings in several Japanese vehicle manufacturers.

There are two basic causes for decline. First, GM runs less efficient production lines, taking 34 hours to make a vehicle to Toyota’s 28. Instead of closing the gap, GM is falling further behind, as Toyota is making faster efficiency gains than GM. GM operates at 85% capacity, while Toyota is running at 107% capacity. Coupled with this management failing, secondly, is that while US Toyota’s hourly wages are only 13% lower than GM’s, Toyota’s labor force is smaller, younger, and healthier. Toyota, having only begun producing vehicles in the United States in 1986, also has but a handful of retirees – 1600 to be precise. In contrast, GM has 460,000 retirees whose needs along with those of their families raise the total hourly labor cost for a GM worker to $73, an amount 52% more than an hourly worker cost US Toyota.

The road to car hell for GM is no doubt paved with bad decisions like buying SAAB which continues to go its own way (down); investing in FIAT, and then having to bribe FIAT to avoid having to buy the all-but bankrupt firm; pushing gas guzzling SUVs right into the face of a predictable oil price rise; and missing the hybrid mini-boom. These are just the highlights. It is also hard to understand how management plans to shrink its American operations will enable it to raise more needed capital for investment and to support the pension and retiree health care costs that figure importantly in its unprofitability. One wonders whether the newly announced downsizing is the first step in a business plan that includes eventual bankruptcy, whose proceedings might offer the company the opportunity to shed retirees and their costs, and perhaps much of their employee liabilities altogether.

GM, or for that matter Ford or the UAW, cannot be held responsible for the national indifference to their fate. In 1979, the federal government bailed out Chrysler, floating bonds that allowed the firm to invest in new products, plants, and technology. No hint of a repeat thus far. Nothing more at this point than a letter from two members of Congress to Delphi, parts manufacturer, former GM subsidiary, and key contributor to the GM fiscal mess, urging the firm to engage in good faith bargaining with its unions. Another two members of Congress have filed a bill to prevent a firm like Delphi from dumping labor agreements in bankruptcy court while providing bonuses for bosses and shifting corporate money into offshore accounts.

Why no more than a muffle from Congress? Why silence from the Executive? In part, because saving General Motors and securing its workers would run against the prevailing economic orthodoxy of our time. If General Motors cannot be competitive, whisper the market-mentalists, then to the others should go the spoils of the American auto economy. If Toyota workers in Tennessee are more productive than General Motors workers in Detroit, then, according to dogma, our economy will function more efficiently with more Toyota workers and fewer General Motors workers. We, that elusive we, will be better off, market enthusiasts would tell us, however painful handling these externalities, those expensive retirees, their medical costs, and the medical costs of current workers turns out to be.

Why is bankruptcy the only tool in the kit today, and particularly a bankruptcy process increasingly adept at dispossessing workers and retirees of anything more than lower wages, benefits, and pensions? One reason among the many that is relevant here is that our ruling elite, blindly committed to a concept of free trade that is injurious to the workers in rich and poor countries alike, has kicked away the only real escape ladder for a massive economic and social problem of the sort faced by GM. Under the rules of the World Trade Organization (WTO), a bail-out of the firm would be considered an illegal subsidy violating the terms of the agreement. If the American political elite is going to fight to advance Boeing’s interests against the European Airbus by arguing that the Europeans are subsidizing Airbus, it would indelicate, indeed embarrassing and compromising to be subsidizing American car firms in their battles with Japanese, European, and Korean competitors at home.

Ah, and then another reason is adduced for Washington’s silence in the face of Detroit’s agony. Our elite has moved on: cars are so last century. The capacity of American firms to produce them is seen as of marginal significance in the desire to achieve economic mastery of the world. Information, banking, finance, drugs, and biotechnology are tomorrow’s American advantage, and the WTO rules were fixed so that these industries could expand relatively easily world-wide. Aside from succumbing to quadrennial blackmail by farm bill and held hostage by agro-industrial interests, the only manufacturing industry the US elite aids is the military/defense sector that the government now supports to the tune of half a trillion dollars a year. In addition, the US government provides the military industry with a staff of uniformed sales representatives from the Pentagon and an overseas finance bank that supports its sales. As C. Wright Mills observed fifty years ago, the unholy mixture of the military, politicians, and corporations producing the weapons of war is the basis for the modern American power elite’s political regimes.

Perhaps the Big Three should have stayed in tanks and planes after World War II. Think of the profit margins and political protection they would be enjoying now. Think how an Abrams tank production line would have clarified the elite mind on the matter of saving General Motors.

Also exposed by Washington’s silence is that the elite wants to avoid picking up the tab for the corporate welfare state that General Motors, the United Auto Workers, Ford and Chryslers have built. General Motors has a single-payer health care system: why not simply federalize it? And those of the others? Why not assume the pension systems of the Big Three, ensuring that workers would be paid dollar for dollar what they expected, while using the government’s bonding authority to stretch out the companies’ liabilities?

Of course, our gang’s problem is how the government could help GM, the Auto Workers, Ford, and Chrysler without extending protections to the rest of us. They could be caught in a tricky game because equity issues could trigger an avalanche of resentment on the part of the rest of us, just as easily as it could salve the wounds of a sick corporation and its workers, past and present.

Readers, please take notice. First, this is no plea for economic nationalism. If Toyota USA faced the same problems, the same remedies would apply. It is about workers and maintaining a decent way of life. Second, this is no plea for trade protection. No barriers to trade are recommended. However, a state that ignores the nation’s economy, fails to regulate firms of whatever national origin in the interests of working people, and refuses to pick up the tab for the basic needs of its citizens contemplates both misery and revolt.