Is The American Automobile Industry Worth Saving?

“The U.S. saved General Motors, and this is the THANKS we get!” President Donald Trump tweeted Tuesday following news that the automaker plans to shut down several factories and lay off thousands of workers, but experts say the 2009 federal bailout has little relevance to the company’s current business decisions.

As part of what it dubbed a “transformation for the future,” General Motors announced a realignment and a reduction of staff that it estimated would save $6 billion over the next two years. In addition to turning away from traditional sedans and smaller vehicles and toward trucks, SUVs, crossovers, and electric cars, five plants in North America will be “unallocated” in 2019.

“The actions we are taking today continue our transformation to be highly agile, resilient and profitable, while giving us the flexibility to invest in the future,” GM Chairman and CEO Mary Barra said when announcing the changes Monday. “We recognize the need to stay in front of changing market conditions and customer preferences to position our company for long-term success.”

The five plants affected are located in Maryland, Ohio, Michigan, and Ontario, and they currently employ about 6,700 people. GM will need to negotiate the timeline and terms of the closures with autoworker unions, but it plans to halt production of the Chevrolet Volt, Cruze, and Impala, the Cadillac XTS, and the Buick LaCrosse in March 2019.

GM’s announcement triggered an immediate political backlash. In an interview with The Wall Street Journal, President Trump called GM’s move a “big mistake” and said he told Barra “you’ve got a problem” if the plants are not reopened.

“We will all together get the point across to General Motors,” Trump said. “And they better damn well open up a new plant there very quickly. You know, they haven’t closed – they’re reallocating it, it’s called. And I said, because their Cruze car isn’t selling, OK? They make a car called Chevy Cruze. And it’s not selling well. So, I said: Then put a car that is selling well in there but get it open fast.”

However, economists say GM has several compelling reasons to close plants and retire some of its smaller models. Although the company is currently prosperous, making changes now positions it to survive an inevitable recession.

“I think what was driving this is GM sees there is an economic downturn coming at some point,” said Philip Levy, a senior fellow at the Chicago Council on Global Affairs and a White House economist under President George W. Bush.

GM’s shift toward SUVs and automation is also consistent with moves many competitors have made as sedan sales lag and technology advances rapidly.

“[Barra] is trying to right-size her company relative to current and expected future market conditions,” said George Hoffer, an adjunct economics professor at the University of Richmond who has studied the auto industry for decades and used to give lectures at General Motors plants.

GM has not directly pointed the finger at President Trump’s trade policies, but the company has previously estimated tariffs on steel and aluminum saddled it with $1 billion in extra costs.

“Trade wars and market uncertainty tend to make automakers nervous and try to horde cash for future,” said Arthur Wheaton, director of western New York labor and environmental programs at the Worker Institute at Cornell University.

Many critics of GM’s decision, including Trump, have portrayed the job cuts as a betrayal of the American taxpayers who saved the company from collapse ten years ago.

The federal government invested about $50 billion to pull GM out of bankruptcy in 2009, and it made back about $39 billion of that through stock sales. Trump retweeted a supporter's demand Wednesday that the company pay back the remaining $11.2 billion.

“President Trump is simply keeping his promise to the people who put him in office,” former White House Communications Director Anthony Scaramucci said an op-ed for The Hill Thursday. “He won’t let GM get away with moving jobs to China and Mexico after everything this country has done to keep the company in business, and he won’t tolerate asking American taxpayers or workers to pay for the mistakes made by the calcified corporate leadership at GM.”

The fury directed at GM has been unusually bipartisan.

“We fought together to keep GM afloat and the American taxpayers bailed them out when they were on the verge of bankruptcy,” said Rep. Tim Ryan, D-Ohio, who represents Lordstown, where one of the affected plants is located. “Thousands of families have sacrificed to build GM into what it is today. And in return, GM has turned its back on us when we need them the most.”

Ryan spoke with Barra Thursday before appearing at a press conference with other lawmakers from Ohio and Michigan whose constituents would be impacted by the closures. He said he is committed to convincing GM to bring a different product to the Lordstown assembly plant.

Others stress GM was under no obligation to preserve American jobs or factories in exchange for the federal bailout, and expecting the company to act counter to its economic interests could just lead it back into financial danger.

“The bailout did not restrict GM’s ability to shut plants due to market conditions,” Wheaton said.

Levy said it is unfair to continue holding the bailout over the company a decade later as the auto industry evolves.

“There were serious questions about whether one should have done a bailout that way,” he said. “But if one’s going to do it, it’s in order to have a viable major American auto company.”

Steven Rattner, who oversaw GM’s bankruptcy as head of the Obama administration’s White House Auto Task Force, argued this was a rational business decision by executives trying not to repeat the mistakes of the past. In a New York Times op-ed, Rattner stressed how much the industry has changed since 2009 and suggested GM is attempting to remain competitive.

“When Mr. Obama decided to save the auto companies in 2009, electric cars were just beginning to be produced, ride sharing was in its infancy, and I can’t remember a single expert telling us that self-driving vehicles would arrive in my lifetime,” he wrote.

All this drama, some say, is why the government should not be in the business of keeping American companies afloat in the first place.

“If you’ve got to subsidize a business, you know the business is in trouble, generally,” said Sen. Richard Shelby, R-Ala., “and GM has been in trouble and they ought to stand on their own feet and not look to the taxpayer to bail them out.”

General Motors has pushed back against accusations that the planned closures represent an abdication of its commitment to American manufacturing.

“Yesterday’s announcements support our ability to invest for future growth and position the company for long-term success and maintain and grow American jobs,” the company said in a statement Tuesday, pointing to $22 billion in investments in U.S. operations since 2009. “We appreciate the actions this administration has taken on behalf of industry to improve the overall competitiveness of U.S. manufacturing.”

GM also emphasized that many workers whose plants could be shut down will have the opportunity to transfer to other factories supporting production of trucks and SUVs. The company also aims to create new technical and engineering jobs as it develops its electric and autonomous vehicle slate.

It is impossible to know what would have happened had GM and Chrysler been allowed to sink into bankruptcy without federal protection a decade ago. Some believe their more profitable divisions would have survived, while others argue the entire American auto industry could have come crashing down, taking many other businesses down with it.

“It was very much worth saving GM during the bankruptcy,” Wheaton said. “The estimate was 1 million lost jobs from related companies, suppliers and communities if GM was liquidated. Saving GM saved many cities tax revenue as well.”

While Hoffer recognized GM is mirroring many of its competitors by ceding the traditional automotive market to Asian and European manufacturers, he warned the embrace of automated and electric cars may prove shortsighted.

“Everybody here thinks they have got to be an early player in developing autonomous vehicles and have got to be an early player in the electric field,” he said. “I think that’s a mistake In the short run, the market has not accepted electric vehicles. In the short run, legal constraints and technological constraints are really going to limit any use of these autonomous vehicles.”

In tweets earlier this week, President Trump suggested taking away subsidies for electric cars, and he revived his frequent threat to impose a 25 percent tariff on imported vehicles. Electric vehicle tax credits for consumers are currently set to begin phasing out when a manufacturer has sold 200,000 qualifying cars, and GM is expected to cross that threshold before the end of the year.

“These threats that Trump is making to retaliate against GM, I think that’s just hogwash. That’s blowing smoke,” Hoffer said.

Despite the hate-tweets from the president and public and private pressure from others in Washington, experts see little chance Barra will reverse this decision.

“I highly doubt this is the sort of thing GM would do lightly. I’m pretty sure they decided this was necessary before doing this,” Levy said.

Still, unions in the U.S. and Canada are mobilizing to prevent factory closures and save jobs, and the United Auto Workers union has vowed to use “every legal, contractual and collective bargaining avenue open to our membership” to fight the plan.

“It may be possible to change some of the plant closings, but it would require massive funding and the unions will negotiate and try to win new products to build,” Wheaton said.

According to The Wall Street Journal, GM may attempt to use the prospect of reopening some of the factories as leverage in contract negotiations next year to walk back benefits workers were given in a 2015 agreement.

“Our intent is to work with the UAW constructively to address our business challenges in a way that keeps the company competitive in these changing market conditions,” GM said in a statement to the newspaper.

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