Tuesday, November 18, 2008

The Consequences of Letting Them Die: What Will Happen if We Lose the Automobile Industry

I have been longtime critic of the Big Three automobile companies in this country. This is in no small part because I have driven their cars my entire driving life (and watched as their products have dipped in quality). Moreover, I come from a family of workers who (until recently) had jobs in that industry, working for GM and Ford. The three generations of workers in that industry are now gone (or soon will be when my uncle accepts his upcoming buyout). It is a loss of culture, predating World War Two, heritage, and a loss of this country's history (and a history that made us into what we are as a wealthy power). Of course, there are those who see nothing wrong with the US becoming a post-industrial service sector economy. Naturally, these people are almost always wealthy white Republicans who make their money from other industries, and who would not know manual labor if it hit them over the head.

For the rest, this column describes in perfect detail what will happen if we lose our industrial champions.

Why Detroit is Different
Bailing Out the Automakers
by David Macaray

Let’s put two things on the table immediately, two things which, while not exactly logical, are nonetheless meaningful. If you’re looking for steel-trap logic or cold, bottom-line infallibility, you won’t find them here. But if you’re willing to consider a few realistic, peripheral considerations, some of this should make sense.

First, even though we’re being bombarded on all sides with news of economic doom, let’s not delude ourselves. The Big Three automakers aren’t just another industry, so let’s not pretend they are. Let’s not pretend they’re a chain of coffee joints or convenience stores, or even a big-time outfit like American Express, who, reportedly, is already sniffing around for some of that government money.

Detroit is different. Automakers are not only the largest manufacturing industry in the United States, they are, undeniably, the most glamorous, prestigious, loyal and uniquely American corporate enterprise in our history. They’re Industrial America’s version of the Liberty Bell, the Alamo and the Lincoln Memorial, all rolled into one. Smirk if you like, but it’s true.

Americans shouldn’t have to be reminded of our 100-year romance with cars, or the fact that it was we, the United States, who first mass-produced automobiles and introduced them to the rest of the world. And the world fell in love with American cars as a consequence. Pancho Villa drove a Ford Model-T. The Maharaja of Kapurtala (Punjab, India) drove a ’59 Chevy Impala.

I bring this up only to establish the fact that when we talk about the auto industry, we’re talking about a legacy enterprise, a cultural icon. And I’m saying that people who cavalierly assert that allowing one or more of the Big Three to go bankrupt don’t have the first clue as to the enormity of what they’re suggesting.

Besides the 240,000 people who work directly for Chrysler, General Motors and Ford, there are an estimated 2.7 million more who work in related industries, who supply parts, raw materials, sales and technical services. It’s been predicted that a collapse of the auto industry could affect as many as 3 million people, a full 5% of manufacturing jobs in the U.S.

Second, if history doesn’t matter, if this conversation isn’t about what was, but about was is—if it’s about money, and not cultural icons and such—then let’s talk money. Indeed, if it’s their hard-earned money that American taxpayers are concerned about, then fine, let’s talk about that. Let’s talk about how we spend it.

We’ve already blown close to a trillion dollars on an unwinnable war (not to mention the loss of life and destruction of a country), and continue to pour an additional $14 billion a month down that same bottomless rathole. On a dollar for dollar basis, this has been a monumental debacle, arguably, the greatest foreign policy blunder in our history.

Still, from what we’re hearing, American taxpayers and their representatives are having a problem with giving $25 billion worth of economic relief to the struggling Big Three. They are objecting to this relief on the grounds that [drum roll] “it doesn’t make good business sense.” Please.

Not only have we had, literally, billions of dollars stolen from us by corrupt Iraqi officials and their political stooges, we’ve paid billions of dollars to Halliburton, Blackwater and scores of lesser known but equally greedy private contractors, all in the name of “patriotism.”

Yet, given this record of pissing away money like drunken sailors, American taxpayers are now suggesting that it’s time to get all stingy and wise and fiscally conservative, drawing the line at bailing out America’s most hallowed industry—all in the name of “tightening their belt.” If that’s what’s happening here, give me a goddamn break, people.

On the other hand, if this is about assurances or guarantees, that’s a whole other deal. That’s an eminently reasonable request, one we should pursue. Instead of giving away billions of dollars with no strings attached (as we’re doing in Iraq), let’s attach some economic and environmental requirements. Insisting that Detroit develop a car that gets 85 mph, with drastically reduced carbon emissions, would be a good start.

Let take this opportunity to reinvent the car business, but this time in the image we want. For crying out loud, we’re the country that put a man on the moon and invented the reusable condom. Surely, we have the technical expertise and creativity to make a radically fuel-efficient automobile.

But it’s also time we finally acknowledged the elephant in the room. That elephant is health care. The U.S. auto industry, which spends upwards of 30% of its payroll on employee health insurance (including premiums and administrative costs), competes with companies whose governments underwrite employee health care.

Even though labor costs account for, roughly, 8%-10% of the price of a new car, health insurance is killing the industry. Right out of the chute, before anything’s been bought or sold, the Big Three is already thirty cents on the dollar in the hole. Given that crippling discrepancy, it’s fairly amazing that Detroit has managed as well as it has.

Of course, the Republicans in congress—the same faux-patriots who prevented us from joining the rest of the industrialized world in obtaining national health care by waving the hysterical banner of “socialized medicine”—don’t want to blame health insurance for contributing to the problem. Instead, they want to blame labor unions.

Instead of blaming Big Pharma and Big Insurance, they’re blaming the UAW; they blaming working people—people who are making $48,000 a year, hanging on to their middle-class identity by their fingernails, trying to make a living.

By bailing out the automakers (albeit with stringent conditions) we’ll be saving one of America’s truly valuable institutions. We’ll be giving it a second chance. Twenty-five billion dollars is less than we spend in two months on this war. Doesn’t Detroit deserve a small fraction of the generosity we’re showing the Iraqis?

David Macaray, a Los Angeles playwright and writer, was a former labor union rep. He can be reached at dmacaray@earthlink.net


For those members of the Congressional Republican caucus, especially the characters who voted to subsidize their bankers to the tune of $700 billion, who declare that these car companies should go into bankruptcy and "reorganize," they are living an alternative reality. At least one, if not two, of these companies have debts that outweigh their sales and/or assets. GM has $181 billion of debt. Ford, at least $10 billion (depending on whose numbers you look at). And Chrysler, well, no one knows, because they went off the books after severing ties from Daimler, but by most estimates they are more heavily in debt than Ford. Of the Big Three, only Ford would likely survive a non-bailout. GM will run out of money this calendar year and Chrysler not long afterward. When companies have this much debt, it is not going to be a reorganization. It is going to be an implosion. Texas Instruments reorganized in the '80s and '90s. They rebounded and used Chapter 11 to protect themselves from creditors while they were restructuring themselves (a common practice for corporations, who can more easily exploit bankruptcy than common citizens [thanks in no small part to the banking industry and these same Republican members of Congress who passed laws to make it more difficult for individual bankruptcy filings]). GM and Chrysler cannot make it out of consolidation because there is too much debt to even begin renegotiating (and their credit ratings too low to find anyone who would care to want to invest in the companies). They will end up like LTV Steel, which is to say they will die and with it the pensions, health care, jobs, and the lives of hundreds of thousands of workers.

When GM and Chrysler dies, and they will without some kind of assistance, they will take with them half of their suppliers. Delphi, a major supplier of parts for GM, which is already in bankruptcy, would not survive. Dana Corporation, another major supplier for the Big Three, another bankruptcy reorganizer, would not survive. Microheat, another GM supplier, will almost certainly not survive. That is more than a hundred thousand jobs lost just with those three companies, and that is what will happen since their debts are too high to make it out of consolidation without any support from the nearly bankrupt companies they contract with.

This is not to say that I am the biggest fan of bailing out these companies. I am not. Indeed, any bailout should be conditioned with executives like Wagoner receiving no compensation (since he is one of the highest paid CEOs on Wall Street and helped drive GM into bankruptcy with his ineptitude). Nevertheless, the loss of a million-plus jobs and the destruction of our way of life for people who do not have multiple college degrees is a tremendous inhibitor. Think about it. China will have an automobile industry and we will not, in spite of the fact that almost 30% of global new cars sales are in North America. Without an automobile industry, the greatest sign of wealth and prestige of our country will be wholly foreign-owned. Let the flag wavers and phony patriots who support free trade think of that the next time they tell you we do not need this industry or its workers, as if they would just as soon see every last one of them drop off the face of the earth (the same workers our free marketers love bashing while defending the pay of CEOs as a product of the capitalist system).

1 comment:

JollyRoger said...

Exactly. We The People can reinvent the auto industry and make into an economical, ecological powerhouse. We can force Detroit to come up with a product that protects American energy security, and we can avoid gutting the commons even further.