What’s at stake for GM?
President Donald Trump and GM chief Mary Barra will likely spar over jobs, but it’s probable the company will shrink further, even after GM and the UAW negotiate plant closings
Lashing out at General Motors for proposing factory shutdowns got President Donald Trump pats on the back from UAW supporters and a good number of complaints from folks who think the president is out of line for assailing executives for doing what they judge is best for the company.
Trump can kick at General Motors all he wants, but it won’t change this: GM is a lean shadow of what it once was.
If this had been Dwight Eisenhower or even Bill Clinton berating General Motors, the stock market probably would have shuddered. Instead, GM shares ticked higher yesterday and even with the news of Trump’s irritation widespread on Wednesday, GM stock was down only 1.2 percent on Wednesday morning, while the Dow was up almost 1 point.
It’s not that GM isn’t important to the economy. It’s that it’s not as relevant at powering the American middle class.
Back when Trump was in his 30s the Detroit automaker was the largest industrial corporation in the world and employer of 600,000 workers paid top wages and salaries. Today, GM employs 180,000 worldwide. Small as it has become, GM still seems too large. Why?
Look at all the brands. Carmakers from around the world have set up plants in the United States and, in recent years, Mexico. Production volumes have steadily come down for the Detroit automakers — GM, Ford, Fiat Chrysler — from 72 percent of all vehicles assembled in North America four years ago to less than 62 percent currently. Production at GM alone this year will likely fall by more than 500,000 vehicles below the 2014 level.
Trump, of course, seems focused on job losses and the White House’s image, particularly after the recent NAFTA trade talks slated more automotive production for U.S. factories.
”Very disappointed with General Motors and their CEO, Mary Barra, for closing plants in Ohio, Michigan and Maryland,” Trump tweeted. ”Nothing being closed in Mexico & China.”
Just what will come out of Trump vs. Barra will probably be very little compared to GM vs. the United Auto Workers union.
GM will probably negotiate deals with the UAW that result in some of the four U.S. plants on the closing block staying in business. UAW officials sense they are about to be whipsawed into giving up jobs. GM can use the threat of relying on its Mexico plants to win concessions.
Lots of Americans believe the UAW is fat, spoiled and a large reason for GM’s woes. Says a reader in an email: “manufacturing in the USA is over. look around. if these unions want to stay relevant they are going to have to retrain their workers and send them to where they are needed.”
That’s the problem, though. America needs software coders, not factory hands. Go through an assembly plant today and it looks like almost everything that can be automated has been automated. Engineers designing components for efficient manufacturability also have taken a lot of labor out of factories, as has outsourcing of basic part production to non-union shops. There’s also been a lot of thought given to how to streamline assembly on the shop floor.
Among all the automakers, the most productive vehicle assembly line in North America these days is GM’s Oshawa No. 1, the Chevrolet Impala plant that GM announced on Monday would close next year. Oshawa takes less than 17 hours to assemble a car.
In the 1980s, GM averaged over 40 hours.
What is troubling is that despite the higher productivity levels in the auto industry, vehicle prices keep rising. It has been said for three decades that America needs good paying manufacturing jobs so people have the income to afford a decent living. But it’s uncertain manufacturing today can sustain a middle class. New cars are now out of reach for the average person.
In 1965, the average new car sold for about $2,500 and the average factory worker earned about $10,000 per year. This meant a car was priced at 25 percent of average household income. These days, new autos sell for $35,000 on average, and the typical household makes $59,000, which means cars are now priced at 59 percent of average household income.
If you go back to that average income in 1965, America’s average family could afford more than today’s typical family. Inflation has taken value out of the dollar. What $10,000 bought back then would cost about $70,000 today, an amount significantly higher than average family income these days.
Trump and Barra and GM and the UAW will likely spar over jobs, but it’s likely the company will shrink further. GM once employed 60,000 hourly workers at its manufacturing complex in Flint, Michigan, then the home of the Buick and Chevrolet divisions. Today, GM employs 52,000 autoworkers nationwide and is probably going to get smaller.
Economic analyst Alan Tonelson, formerly an associate of noted Reaganera fair trade hawk Clyde Prestowitz, reasons the issue for GM isn’t UAW wages or plant overcapacity. Rather it’s an issue endemic today to U.S. manufacturing.
“U.S. metals-using industries like automotive,” Tonelson writes in his Washington-basedblog, RealityChek, “have been using crutches like (foreign government-subsidized and therefore artificially) cheap raw materials, along with massive job and production offshoring, to juice their profits rather than efficiency-enhancing improvements resulting from creating new technologies, investing in new machinery, devising better management techniques, or some combination of these measures.”