What's Good for GM?

In the 1950s then GM President Charlie Wilson was reported to have said, “What’s good for GM is good for America.” What he actually said is “…what was good for America was good for GM and vice-versa.” That was when GM had over a 50% US market share. That was then: this is now. Today GM has a 20% market share and is close to bankruptcy.

Which is where it should go. But it won’t. The government bailout of the banking system, as bad as it was, was probably necessary to prevent a financial calamity on a par with the Great Depression. No capitalist economy can survive without a functioning banking system. But it can survive without a domestically owned auto manufacturing industry.

I say “domestically owned” because the US actually has a thriving auto manufacturing industry, but it is not in Michigan, Ohio and Indiana, it is not American owned and it is not saddled with staggering pension and healthcare obligations resulting from years of unholy collusion between auto executives and the United Auto Workers.

In the booming post-WWII years, when cars were selling faster than they could be made, the auto industry agreed to practically every union demand just to keep the factories humming and the money rolling in. Then came the oil shocks of the 1970s and cheap, fuel-efficient Japanese imports. American cars, meanwhile, became unreliable gas-hogs.

Rather than compete by improving quality and fuel efficiency, the American producers prevailed upon their friends in Congress to pass steep import duties on foreign imports. That led the Japanese, and later the Germans, to set up plants in the US, in the South, far from Detroit and from the UAW.

That brings us to the present sad state of affairs. The US companies can no longer compete because the money they should have been spending on new-product development has been going to pensions and healthcare instead. GM is second only to the US government in healthcare spending. GM says bankruptcy is out of the question because nobody will buy a car from a company in bankruptcy.

There are two reasons why the American auto industry will get a government bailout. First, the Democrats will do anything to avoid letting several hundred thousand union jobs disappear. Second, Congress long ago committed the American taxpayer to something called the Pension Benefit Guaranty Corporation. There is no way the pols are going to tell the American taxpayers that they are now on the hook for all these union benefits.

The rational option is to let them go bankrupt so they can renegotiate these onerous labor contracts and emerge as viable, competitive entities. Don’t hold your breath.