Auto Recovery

Auto Recovery

GM’s struggle underscores the need to create a better social contract between workers and industry, and to invest in a world beyond the internal combustion engine.


When General Motors offered to buy out tens of thousands of older, high-earning factory workers in late March, the news was received with a combination of raw frustration and weary resignation. Labor’s response was lukewarm: The offer was not generous enough ($35,000 to $140,000 per worker, based on seniority and age) to insure that the majority of employees would take it, though a sizable number are expected to. And the unions are braced for further cuts in wages and benefits of the remaining workers. Still, it is clear that without a union–and the threat of a strike–thousands of employees would have been permanently laid off with nothing to show for their loyal work.

The future of the entire domestic industry, however, remains in serious doubt. Its travails are commonly blamed not just on the labor-induced legacy costs of pensions and healthcare for retirees but also on a weak auto market. That part of the explanation invites skepticism. The sector barely felt the 2001 recession; sales haven’t seen a sustained decline since the early 1990s. But domestic market share has taken a huge hit: 90 percent in the 1960s, and 70 percent as recently as 1986, it stands at 56 percent today. The unhappy fact is that American companies design fairly mediocre cars, and Japanese companies have no problem making good cars profitably here.

It’s true that GM has to pay about $1,500 a vehicle in healthcare costs, more than seven times as much as its fast-gaining rival, Toyota. GM is carrying 460,000 retirees in the United States, almost thirty times as many as Toyota. Clearly, a little social democracy would do GM a world of good: A national health insurance plan and the socialization of pensions would lighten the company’s financial burdens enormously (see Jamie Lincoln Kitman on page 4). The company would also be in better shape if the laws made it easier for workers to organize at rival nonunion plants and if local governments did not hand out giant subsidies for new auto plants with no accountability. These measures would help level GM’s playing field with the factories of foreign automakers.

Would that be enough, though? Many of the foreign auto companies’ advantages are in the very sphere that America is supposed to be so brilliant at: design and management. Maybe GM’s struggle is one of many symptoms of American decadence: We’ve lost much of our ability to make things.

To get it back, nothing less than a program of national renovation organized around the renovation of the auto sector is called for. As Joseph Stiglitz notes in our forum “Taming Global Capitalism Anew,” which begins on page 18, investing in research should be an integral part of a strategy for fostering economic growth and strengthening our competitive advantages. We need desperately to move to a world beyond the internal combustion engine. The industry is too broke to finance such research, and Wall Street would dismiss it as too risky and fanciful, so it’s going to take big public R&D subsidies to get there.

GM’s plight also reveals how the welfare of US workers depends on their job. What in other systems is part of the general social contract, or what Europeans like to call the “social wage”–retirement, health and job insurance, training assistance, vacation time and family supports–is in America largely provided through employers. Clearly, our system is on its last legs. We must craft a plausible alternative to the grand Republican program to free business from any significant social constraints. This means working toward a different sort of economy both at home and internationally–a high-road economy of high wages, low waste and democratic accountability–and investing in the productive infrastructure needed to support it.

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