The Morning Dump: 16 Tons.
December 11, 2008
– Comments (4)
GM is blamed loudly and often for failing to be competitive. Despite being number one in car sales for this decade they are blamed specifically for not building good cars that "people want to buy". Which also conflicts with them being blamed for catering to North American consumers for building the big SUV's that people wanted and selling them for profit. They are also blamed for not shiftiing production to smaller high mpg cars despite having built over 20 models with better than 30 mpg, and that they will be at 30 over 30mpg in 2009. They are blamed for not building quality cars, despite JD Powers saying otherwise.
Is that a reason to lend them money? No, but it helps to jump off the populist BS bandwagon and have a look around.
They are also blamed for honoring contracts with the labor unions that have put them at a labor cost disadvantage. As though honoring a contract is a bad thing. In the decades after the great depression, labor unions grew stronger as people wanted protection from what they perceived as worker abuses by employers. Having organized they gained the ability to affect their employers income, just as their employer could affect theirs. Kind of a balance of power. Alot was gained by the workers. Just as their employer had a clean office, they could have safer work areas. Eventually labor unions grew to represent 20% of US workers by 1939, and peaked at 35% in 1945. For four decades from the 1940's through the 1970's unions represented around 30% of US workers. During that time the unions were infiltrated by Communists, which gained some influence but were eventually discredited and ousted. Because non-union employers had to compete with unionized worker opportunitys, even non-union workers saw pay increases, costing their employers about 20% less than union workers. Because the union jobs paid better they were more valued by workers and had better quality more reliable workers, which some argued gave the employer back 15% in value, keeping the cost gap very close. When you see a Cialis commercial on television, it is these now retired workers that can afford and enjoy a comfortable retirement funded by SSI and pensions. It was also their incomes that paid for travel agencys, tourism, new cars, pools, better schools, the Vietnam war etc. They were the fuel for the growth engine that was America. They were the customers. Today China is considered an "investment opportunity" because of the growth of the middle class. That growth engine in the US is badly broken.
Back to GM and the unions.Through the 60's and 70's GM grew into the worlds largets car manufacturer with union workers assembling every car. The contracts were not a disabling issue for GM even into the 80's. Toyota arrived in the 70's with a car thought worse of than a Yugo. They redisgned and went with a small car that was inexpensive and caught a break when the OPEC oil embargo caused a shortage of gasoline in the US and increased the value of low weight, high mpg cars. Able to gain a foothold, in 1986 they built their first US assembled car. The unions, which had proven so powerful in the 60's and 70's were unable to organize Toyota in the 80's. Toyota workers were well paid, they had to be to compete for the more reliable workers to come over and work for them. The percentage of unionized employees in the US had averaged close to 30% for 4 decades, but their numbers had dropped to 18.9% in 1985 and declined to 15% by the end of the 90's. There were two major events that caused the declined. The corruption of the Teamsters Union at the hands of Jimmy Hoffa painted all unions badly, just as Tom Delay painted all Republicans badly, and Blagojevich will paint all Democrats badly today. By 1975 unions represented 26% of workers, down from the 30% of the previous four decades. The more precipitous decline was caused by Government policy. In 1981 Ronald Reagan and the Free Marketeers broke the unions by withdrawing Government support and firing 10,000 striking air traffic controllers. Interestingly the Professional Air Traffic Controllers Organization had endorsed Ronald Reagans 1980 candidacy. The Republicans also supported policys that weakened organized labor to favor corporate interests. They did it intentionally and declared it loudly. Do not mistake the influence of business upon Gov't as an "invisible hand". There is no such thing.
Toyota's arrival in the USA in the 80's may have been opportunistic or just lucky. You would have to ask Mr. Toyoda to know. The labor advantage was real and as GM's retired employee costs grew, the younger Toyota's advantage increased. GM had entered into binding legal agreements, which it could not just discard. Eventually GM began to lose money and they were able to convince the unions to renegotiate for lower wages and benefits. All business's were able to take advantage. Just as the higher union wages had increased the value of workers, so did the breaking of unions lower their value and their relative income and benefits. GM has worked diligently for the last decade to default and get out of their union contracts for the last decade. They have slowly accomplished that goal and will be on a labor cost basis equal to Toyota in 2010.
There is an additional consequence of the decline of labor unions and the loss of the higher wages they brought to the USA. The redistribution of wealth out of the hands of the middle class has in only 15 years, caused incomes to have stagnated and then decline. In the late 90's Americans were sold on borrowing to replace missing income in the expectation that future higher wages would allow them to pay off the debt even as wages were in decline. Enough were foolish and bought this idea that higher costs came to us all. For the vast majority the higher wages have not materialized, in fact wages have declined and the debts cannot be paid. TARP is a tool to disguise and collect the lost interest as taxes. I will not call this consequence "unintended". I do not know the minds of Reagans, and Bushes, and Clintons advisors. But the consequence is real. Many of the customers are tapped out. The majority of your children will graduate college in debt and with fewer and lower paying jobs to look forward to. Almost half the employees that GM has are college graduates. Debt slavery has happened before, and is happening again right now. Will the wage decline be stopped? Yes. The question is where.
Should GM be bailed out with a bridge loan from the USA? I say yes. The first and lesser reason is because the changing labor policys of the federal gov't gave Toyota and Nissan and Honda their N American labor advantage. GM was in the wrong stage of growth at the wrong time.
The second reason is because of what likely happens if we do not. GM fails and its factorys are bought out of bankruptcy by the very same financial advisors whose advice is bankrupting you.
It is the interest we cannot afford, not the Gov't programs.
Some sources:
http://www.workinglife.org/wiki/index.php?page=Union+vs.+Nonunion%3A+Wages+(2004)
http://eh.net/encyclopedia/article/friedman.unions.us
http://encarta.msn.com/encyclopedia_761576185_3/Labor_Unions_in_the_United_States.html
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