Nationalizing Auto giant

Auto giant General Motors filed for Chapter 11 yesterday in one of the largest bankruptcy cases in US history. Shortly after the filing, GM said it would close fourteen more plants, including seven in Michigan, and cut up to 21,000 more jobs. More than 2,000 car dealerships will be shut down, as well. After the factory closings, GM will have fewer than 40,000 workers buildings cars in the United States, one-tenth of a workforce that numbered nearly 400,000 in the 1970s.

Monday’s bankruptcy filing caps a remarkable fall for the century-old company which was once the world’s largest car manufacturer. After the filing, GM was removed from the group of thirty blue chip companies that comprise the Dow Jones Industrial Average, where it had been listed for the past eighty-three years.

Under the proposed restructuring plan, the US government will invest another $30 billion in GM and take ownership of 60 percent of the company. The Canadian government, a union health trust and current bondholders would own the rest.

Meanwhile, Chrysler, which entered bankruptcy April 30th, could now emerge as a new corporate entity owned by a UAW healthcare trust, the Italian automaker Fiat and the American and Canadian governments.

The real key issue here is not simply saving GM. That’s a necessary but not a sufficient condition for a broader set of issues, which is a viable manufacturing base and viability in health for the communities and the tens of thousands of families who are directly caught in this crossfire.

We have to recognize the total autocratic, secretive way this bankruptcy was initiated. Congress, which in 1979 had thorough public hearings on the Chrysler bailout and a few years later on the structuring of the Conrail system, completely abdicated its role to the White House, that then allocated the role to a secret task force run by Wall Streeters and overseen by Timothy Geithner, Secretary of Treasury, and Larry Summers. And this is the predictable result of an autocratic, secretive process.

The common shareholders who own GM have been wiped out. They had no voice in Congress to discuss it. The auto suppliers, the auto dealers, consumer groups had no voice to discuss it in Congress. Workers had no actual voice in Congress, other than to tell Congress to lay low while the UAW was negotiating this deal, again, in private. So, we have a process which is very similar to the Chrysler process, which is a White House fiat to a bankruptcy court fiat to Fiat in Italy, if I may have a little play on words. But the bankruptcy process itself is extremely autocratic. Under Chapter 11, the judge keeps pounding the gavel and denying the claimants interventions and appeals on behalf of the combined force of the Obama task force and top brass in GM.

Now, why is this going to turn out bad? Because Obama has made the American taxpayer responsible for saving GM, to a level which will eventually reach $70 billion, but then he makes his government irresponsible by saying he doesn’t want to run GM. Well, what if GM management continues to ship its production to China, which is the grand China strategy of GM from several years back, and unemployed workers and closed factories and, by consequence, closed dealers? Is Obama going to step aside?

Are the China assets and unrepatriated profits of GM going to be included in the bankruptcy procedure, or are they going to be excluded? What about the act of closing dealers? Dealers don’t cost manufacturers anything. The franchise agreement makes certain of that. So why are we further inconveniencing motorists, rupturing their relationship over the years with dealers that are closer to home and making them travel more and more? The answer is, the fewer dealers, the more likely the price of cars go up. So there are all kinds of reasons why this should go back to Congress for thorough House and Senate hearings, if Congress wanted to adhere to its constitutional duties.

This was a long time coming, but it still hit with a huge thud. GM, over decades, began eroding market shares and increasingly, in the last decade, became very out of tune with consumers. It was building a lot of SUVs, a lot of fuel-guzzling vehicles, that became unpopular in the marketplace when gas prices skyrocketed. So the net result was, GM was weakened by a series of managerial and strategic miscalculations. But what got us where we are today is the collapse of the financial system and the downward slide of the US economy. It’s very likely, absent that, GM would be in some tough situations right now, but hardly bankrupt and in the situation of terrific cutting and implosion that we’re looking at.

the EV1 was a great hope and a very visionary thing that GM did in the early 1990s. And the EV1 was a very impressive vehicle, and key to it, ultimately, was a new battery, which at the time was highly experimental, but very, very good in terms of its technical specifications, the nickel-metal hydride battery.

GM concluded, after several years of this and a palace coup that got rid of the existing leadership of GM, including those that were championing the electric car, and basically said, “OK, we can’t manufacture this profitably, so we’re going to shut it down.” And then, inexplicably, GM walked away from what might have been a very promising alternative: a hybrid vehicle. Toyota and Honda didn’t. The rest is history. GM pioneered this, shut it down, and later in the decade bought Hummer. And that is almost symbolic of the kind of strategic miscalculation and short-term vision that caused the enormous weakening of the company.

The fact that so much of this was done off the public stage, without congressional involvement, lends itself to the government acting as a private equity fund, versus admitting what we are doing in a moment of crisis. We are, in fact, nationalizing a major firm, not on a long-term basis, but certainly to get it through this critical moment, and doing that without the public participation, where we have a model with the loans to the Chrysler Corporation, although on a much smaller scale, that took place in the early 1980s that lends itself to this sort of hedge fund mentality, where the issue is getting in, making money for the government as quickly as possible, and getting out.

The problem with that is twofold. First, it doesn’t lend itself to the sort of long-term planning which is precisely what the industry lacked in the first place and is necessary for a viable future. And second, the taxpayer is not simply a client for a private equity fund. The taxpayer winds up picking up the social cost. For those who are impacted in terms of the unemployment, the communities that crash, the cost is incalculable. But even for the taxpayer, this is not cheap, in terms of unemployment benefits, in terms of the social cost of this kind of a contraction.

you can’t have a situation where the government is the majority owner and then say they’re not going to have influence on GM and they don’t want a full representation on the board of directors. What happens, if that occurs, and that’s what Obama clearly implied in his statement yesterday, what happens is we end up with the situation of bailing out the auto companies and then facilitating moving production overseas. We end up not leveraging the public’s or the taxpayers’ investment to protect jobs and manufacturing capacity in this country, as well as furthering statutory goals and safety and environmentally proper technologies.

A good example of that is the Kenosha plant in Wisconsin. After Chrysler was pushed into bankruptcy by the US government, the Kenosha plant was under the impression that they were going to survive. Then they were called by Mr. Nardelli, who heads Chrysler, and he said, “Sorry, it’s going to have to close.” Well, the Kenosha plant is an up-to-date engine manufacturing plant that has won several awards. It has 800 workers. And the bulk of that production is going to Mexico.

Why are we using tax dollars to facilitate the export of whole plants and jobs to communist dictatorships in China and to oligarchic, authoritarian regimes in Mexico who have turned workers into serfs and denied them independent unions and other rights that workers should have in any countries that we have trade dealings with?

We have raised these questions in letters to Mr. Obama and Chairman Henderson of GM now twice. They don’t reply to letters. They don’t reply to the press’s inquiries. This is an authoritarian corporate-state operation, Amy. And those who are interested in the letters, they’re on my website,

letting the bankruptcy court allow Obama to put tens of billions of dollars into Chrysler and be irresponsible for it has to be closely examined. The bankruptcy judge is basically a tool of this corporate-state policy, and under very rigid bankruptcy proceedings under Chapter 11. That’s a story all by itself. And he is basically putting his gavel down again and again, as he did in the Chrysler bankruptcy, getting rid of all the claimants and creditors and the rights of people who are going to suffer when this sub-economy called General Motors and Chrysler is further collapsing, in terms of closing dealers and closing factories and laying off workers and moving to other regimes abroad.

labor costs are a critical factor for any company, and they become particularly critical when you have a downturn. But the labor costs were not what led us into the current mess with General Motors. How do we know that? Because GM had the same labor structures, significantly higher than today, in the 1990s and earned billions when it was in tune with the market and its vehicles were selling. So it’s not labor costs that got us here. But they’ve become a very convenient culprit.

it is true that there are really extraordinary pressures downward on labor costs. The UAW recognized those political realities and made major concessions in a recent contract to preserve the jobs at GM.

But cutting labor costs won’t get us out of this.

And we forget that the flipside of the labor cost is purchasing power. In the 1950s and ’60s, GM and the US auto industry paid the highest industrial wage in the world and made billions for their shareholders, and that translated into a very vibrant growing economy, because workers spent that money, and that created even more jobs. So, to the extent that you hammer labor costs down and you use that as your exclusive focus, essentially what you’re saying right now is, “Well, what we need in this economy is less purchasing power.” That’s hardly a route for economic recovery and completely misstates how we got into the current situation. And unless we understand that clearly, it’s going to be far more difficult to get out of it.

in 2007, the union and General Motors and the other Detroit automakers set up for each of the companies an independent healthcare trust fund. That was only funded to 60 percent of its total liability in 2007. But by the end of 2009, it takes healthcare for retirees off the companies’ books, and it becomes a responsibility of the union and this independent healthcare trust fund. So that clears the books and makes this not an issue going forward, but it does create a high risk for the retirees, and it creates some real issues for the UAW, who is going to be responsible for this going forward.

the cost of healthcare is an issue, but the solution to that issue, in my view, is not getting rid of healthcare for retirees, particularly after decades of promise, but rather, addressing this in a responsible way in Washington, for autoworkers, to be sure, but for all Americans.

The United States is the only major auto-producing country in the world without national health insurance.

In terms of healthcare, again, single-payer healthcare will relieve these burdens on these manufacturers, level the playing field in terms of competition with other companies in the auto industry. And once again, it’s not going to be the hoaked-up proposals for healthcare that you see floating around Capitol Hill and in the White House. It’s got to be full Medicare for all with quality and cost control. And the key website for that is It’s Single Payer Action.

The example of the recklessness of Timothy Geithner and Barack Obama and Larry Summers in appointing a task force that has no experience in manufacturing, that basically looks at this issue as a financial issue. That is, GM is going to be restructured to make money, no matter where it makes it, in communist China or by staying here in the US.

So we’re dealing here with a corporate state, the kind of corporate state that Franklin Delano Roosevelt called fascism in a statement to Congress in 1938. That is, when government is controlled by private economic power, that’s fascism.

2004 presidential race

in a telephone conversation in June 2004, he said, “If you stay out of my nineteen states”—“my nineteen states” meaning states that are close between Kerry and Bush—and just campaign in the thirty-one other states, that he, Terry McAuliffe, will support me and provide resources. He said that more than once: “Stay out of my nineteen states.” That was clearly an attempted bribe. And that is all detailed in Theresa Amato’s new book that’s coming out in three or four days called Grand Illusion: The Myth of Voter Choice in a Two-Party Tyranny by New Press.

And the reason why it’s important is that Terry McAuliffe is now going to retrace Clinton’s path to the White House. He wants to be elected governor of Virginia, which he’s running for now, and the primary is coming up in a week. And then he has a springboard to the White House. And somebody who is engaged in the kind of political sleaze and the kind of attempted bribery, not to mention his other dealings with fat cats and backdoor maneuverings, I don’t think can embody the trust that’s necessary to become governor of Virginia.

Theresa Amato has put this in a book with great documentation, that we do not have the semblance of a competitive electoral system in this country. We either give the voters one choice, namely the incumbent, in gerrymandered congressional districts, or two choices, which are increasingly becoming similar on so many issues, like the military budget and foreign policy and dialing for the same corporate powers. So it’s part of a major reform book, this book Grand Illusion by Theresa Amato, and this episode is outlined in the book as being illustrative of the pressures against third party and independent candidates who want to give voters more choice, new and fresh agendas, and redirections for the country.

Discussion: Harley Shaiken, Ralph Nader

Harley Shaiken, professor at UC Berkeley who specializes in labor and the global economy. His latest article is in the current issue of Dissent Magazine, called “Motown Blues: What Next for Detroit?”

Ralph Nader, longtime consumer advocate and former presidential candidate. His first book, Unsafe at Any Speed: The Designed-In Dangers of the American Automobile, published in 1965, took on General Motors and its Chevrolet Corvair model.

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