Slouching Towards Bankruptcy

Slouching Towards Bankruptcy

GM is banking on a merger that may threaten the company and its workers’ survival.


Ongoing merger talks between two of the Big Three American automakers over the past month have underscored the dire straits facing General Motors. Besieged for years by rising oil prices, declining sales compounded by the global credit crunch and mounting losses, GM now faces a liquidity crisis. The merger is GM’s latest attempt to save itself from insolvency, but it would be a foolhardy final move for the company that has long been an icon of American industry and the source of well-paid blue-collar jobs for millions of working Americans.

The past year has been a bleak one for GM. The company recorded an overall loss of $15.5 billion in the second quarter alone and has been burning through its remaining cash reserves at an alarming rate. This week Moody Investor’s Service downgraded GM’s credit rating deeper into junk status, and earlier this month the company’s stock fell to under $5 per share, its lowest mark since 1950, fueling talk of impending bankruptcy. GM’s potential merger partner, Chrysler, has hardly fared better. It has endured a 25 percent slump in sales in the past year and has a product line heavily weighted toward increasingly unpopular SUVs, minivans and pickup trucks.

In September, Congress committed $25 billion in loan guarantees to the auto industry, and there has been much talk recently of additional government help as the Big Three continue to flounder. Securing more federal funds is one likely rationale for merging GM and Chrysler, which together would control about 33 percent of US market share, but many industry experts and labor analysts agree the merger would be a terrible idea. Similar product lines and redundant workforces would make more plant closures and job cuts likely, while increasing pressure for further concessions during the next round of bargaining with the United Auto Workers. And it is doubtful that combining the two ailing giants, both of which have been slow to transition away from a business model dominated by large, fuel-inefficient vehicles, would yield a net financial gain. Gary Chaison, professor of industrial relations at Clark University, thinks the merger is another example of misplaced priorities. For years, he says, GM has “approached its marketing problem as an industrial relations problem” by pleading poverty due to unmanageable labor costs and locking the UAW into a cycle of concessionary bargaining. “Now this merger talk is approaching it as a financial problem.”

If the merger is a bad idea, further government intervention presents a more viable solution. GM is badly in need of a federal bailout, but if the government extends a lifeline it should not be because the automaker, like some bloated Wall Street bank, has become “too big to fail.” Instead, it should be because GM and what remains of the domestic auto industry is too important–to the ailing factory towns of Michigan and the Rust Belt and to the future of American industry in the age of globalization.

Nelson Lichtenstein, a labor historian at the University of California, Santa Barbara, says that if the government decides to bail out GM and the rest of the domestic auto industry, it should do so under the premise of a “social compact” that would offer government loans on the condition that American automakers commit to “systematic reform.” Historically, the auto industry has provided good middle-class jobs that came with high wages, impressive healthcare and pension benefit packages, disability and overtime pay–the kinds of jobs that are in too-short supply in today’s economy. But in recent decades, much of GM’s manufacturing has been moved to nonunion parts plants in the South, which has allowed the company to drive down labor costs by avoiding UAW strongholds in the industrial Midwest. If the government decides to aid American automakers, Lichtenstein argues, parts workers should benefit from wage increases and benefits commensurate to the kind that workers in Michigan get. If the government decides to invest in GM, it should do so under the provision that GM change its labor policies and redraw its business plan. GM should commit to protecting jobs in the United States and to giving fair wages and benefits to parts workers. The auto giant should also be obligated to renegotiate the more controversial components of its 2007 contract with the UAW, which included concessions on benefits and the imposition of two-tiered wage scale for future hires.

A social compact should also encompass a transition away from the Big Three’s oil-dependent business model and toward the development and marketing of cars that can compete in a gas-starved age. According to Jay Baron, director of the Manufacturing, Engineering and Technology group at the Center for Automotive Research, engineers at GM are working overtime to achieve this goal. Automakers are designing lighter-weight vehicles by experimenting with “exotic materials normally associated with aerospace,” like extremely thin steel, aluminum and reinforced composites. Automakers are also working to improve fuel efficiency by retooling engines–in September, GM announced it would open a new plant in Flint, Michigan, to manufacture gas-sipping four-cylinder engines, as opposed to thirstier six-cylinder models.

And then there is what the company calls its game-changer, the vaunted Chevy Volt, a plug-in hybrid electric car that will be able to go forty miles on one charge and recharge on the road. The Volt is the hard-up company’s double-down bet, a sexy, eco-friendly machine with extraordinary marketability. Or at least that is the company line. Company execs hope the Volt will be to GM what the iPod was to Apple–but it will take a quantum leap in innovation to pull this off. The Volt’s lithium-ion battery is currently priced at $10,000-$30,000, far too costly for the car to be marketed to a broad consumer base.

A bailout could provide the funds necessary to complete research and development of the lithium-ion battery and other potentially profitable green technologies. It will take time for the battery to become a viable technology, as issues with cooling, size and cost continue to challenge engineers. Government support could help expedite the developmental process, however, while paving the way for the creation of new jobs in related industry. Brett Smith, also of the Center for Automotive Research, thinks the lithium-ion battery could present a real opportunity, not only to reduce carbon emissions but also to create the kind of green-collar jobs that could reinvigorate the slumping manufacturing sector. “In trying to reduce our reliance on foreign oil,” Smith argues, “we should not replace it with a reliance on imported batteries.”

By conceiving an industry bailout as a social compact, the government could require automakers to protect American jobs and wage-and-benefit standards, eliminate unprofitable and unsustainable product lines and transform their outdated business models. Unlike the $700 billion thrown at overleveraged financial institutions, a bailout along these lines would yield productive results for the real economy and could initiate a broader federal commitment to reindustrializing the country through a much-needed green-collar jobs program. If GM can once again make a product people want to buy, if it can once again generate well-paying jobs for American workers while moving domestic industry away from its reliance on fossil fuels, then that would be a government bailout worth considering.

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