[corp-focus] Nationalize GM -- Or At Least Think About It

[robert weissman]

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Nationalize GM -- Or At Least Think About It
By Robert Weissman
December 2, 2008

With the U.S. government offering trillions of dollars in supports for 
the financial sector, it is startling to witness the casual way in which 
many policy makers and opinion leaders suggest the U.S. auto companies 
should be allowed to go bankrupt.

In considerable part, this attitude reflects an anti-union and anti-blue 
collar animus. It also reflects the diminished economic power of what 
was formerly known as the Big Three (General Motors, Ford, Chrysler).

The stakes are too high for policy to be influenced by misinformation 
and ideological bias. The auto companies need to be saved, on terms that 
protect workers and communities, and advance public objectives. Congress 
and the country should be debating those terms, not dithering with 
unrealistic discussions of bankruptcy or demands to reduce already 
shrunken union wages and benefits.

How can we look at these issues sensibly?

First, one must note the awesome disparity in treatment for the auto 
industry and Wall Street. Government agencies have thrown literally 
trillions of dollars at the financial sector, with very light 
conditions, and virtually no discussion of industry salary structures 
(aside from limited restraints on top executive compensation). By 
contrast, there has been endless fulmination about supposedly 
excessively generous wages for unionized auto workers, and much more 
severe financial and oversight conditions proposed for an industry 
bailout.

Second, the costs of inaction to support the auto industry dwarf the 
cost of a bailout -- even if much more than the requested $25 billion is 
needed. The industrial Midwest has already been hollowed out by 
deindustrialization. Auto industry bankruptcy would be a crushing blow. 
A complete collapse of the U.S. auto companies would cost 3 million jobs 
-- about 240,000 employees of the companies, a million supplier jobs, 
and 1.7 million jobs lost from the overall economic effect -- according 
to the nonprofit Center for Automotive Research. In this scenario, the 
federal government would lose $60 billion in tax revenues and other 
costs in the first year alone. Even assuming something less than a 
complete collapse, costs would be devastating. And, as economist Thomas 
Palley has noted, industry bankruptcies would dramatically worsen the 
financial crisis.

Third, the idea that United Auto Worker members are receiving exorbitant 
wages putting the U.S. auto companies at competitive disadvantage is a lie.

In general, the Japanese plants in the United States ("transplants") pay 
wages comparable to those at unionized U.S. facilities. This has been 
central to their anti-union strategy. In some recent years, workers at 
the transplants have actually made more than their counterparts at the 
Big Three, thanks to profit-sharing deals.

The Big Three employers do have nontrivial healthcare and pension 
"legacy" costs for retirees, and this is the main employee-related 
difference in cost structure (the other is more generous healthcare for 
current Big Three workers).

It is true that, historically, auto industry jobs have paid well. Going 
forward, however, this will be less and less true. The concessionary UAW 
2007 contracts call for many new hires to start at $14 an hour, and the 
UAW is preparing to offer even further concessions.

Fourth, manufacturing wages and salaries don’t contribute much to the 
cost of a car. Total labor costs are less than 10 percent of list price. 
If UAW workers donated their time and all savings were passed on to 
consumers, it would only lower the cost of a car by $2,400.

Fifth, although the Big Three have done just about everything possible 
over the last decades to undermine their strength -- including making 
disastrous long-term product mix choices, and fighting against fuel 
efficiency standards -- but the proximate cause of their desperate 
status is the economic crisis. It is not true, as has been frequently 
suggested, that the Japanese companies are doing just fine. Overall auto 
sales in the United States have fallen by more than a third in just a 
year, and Toyota, Honda and Nissan have seen drops of 27 percent, 22 
percent and 35 percent. It is true that the Japanese companies have a 
stronger base and are better prepared to weather the storm. But the 
storm is pouring rain on everyone.

Sixth, bankruptcy is no answer for fixing what ails the industry. It is 
almost certainly true, as the industry argues, that consumers will 
refuse, or at least be very reluctant, to buy cars from a company in or 
recently emerged from bankruptcy. Would you?

But at least as important for those who want to see the industry 
aggressively adopt fuel efficient and zero carbon emission technologies 
is this: Bankruptcy would limit the automakers' flexibility, and make it 
much harder for them to make expensive, long-term investment decisions. 
This is particularly true while oil prices are depressed. Things were 
different six months ago (and likely will be again in the not-distant 
future), but right now the market signals are wrong for investments in 
energy efficiency.

Focusing on the imperative to rescue the industry, there are two 
rational policy responses.

One is to give the industry loans and other supports, with tight 
conditions. Under consideration now in Congress is an oversight 
structure that would give the government authority to veto any 
investment over $25 million. In contrast to the free hand given to Wall 
Street, this would help ensure government funds are not diverted into 
inappropriate purposes. The existing proposal would also require the 
government be paid back with interest, and/or the right to benefit from 
subsequent improvements in company share value.

But more should be done. There should be requirements that the bailout 
beneficiaries invest in energy efficiency and safety technologies, with 
demands that they do much more than required by existing law. To give 
them a level playing field, these improved standards should be adopted 
as law, and required of all auto companies. And protections should be 
built in to protect workers' interests -- a key objective should be to 
preserve good-paying jobs, not drive everyone to Wal-Mart wages

The second rational policy approach is simply to nationalize the 
companies. General Motors now has a market capitalization of $2.8 
billion. Ford's market value is $6.1 billion. These are relatively small 
amounts compared to the $25 billion the companies are requesting -- and 
they are likely to come back for more later.

The government has certain advantages over the companies. It can access 
capital more cheaply, for example.

The biggest advantage of buying the companies is that it would enable 
the public to exert control over the companies commensurate with its 
investment. There would be no need to negotiate with management, or 
carefully monitor managerial actions, to review 9-point plans for 
viability, or create incentives to have them invest in fuel-efficient 
technology. It would make it possible to undertake long-term, 
transformative investments in R&D and new transportation technologies, 
irrespective of today's oil price.

It is true that nationalizing the companies implies a commitment to 
support them despite unknown future challenges. But a commitment of $25 
billion itself implies a readiness to do more if necessary, as it likely 
will be.

On the other hand, nationalizing the companies would entail many 
complications and difficulties, including managing relations with 
workers and plants around the world, fair dealing with suppliers and 
workers at suppliers, and the inherent complexity of running 
multinational auto companies.

Is a true nationalization the best option? Maybe, maybe not.

But the public would be a lot better off if there could be a serious 
discussion of the reasonable policy choices, and a lot less breath 
wasted on overt and disguised attacks on unionized blue-collar workers.


Robert Weissman is editor of the Washington, D.C.-based Multinational 
Monitor, <http://www.multinationalmonitor.org> and director of Essential 
Action <http://www.essentialaction.org>.

(c) Robert Weissman

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