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Behind GM’s flagging fortunes

Published Apr 6, 2005 3:26 PM

Charlie “Engine” Wilson, as he was called by his corporate friends, told the Senate Armed Services Committee in 1952: “What’s good for the country is good for General Motors and what’s good for Gen eral Motors is good for the country.” Wilson, the head of General Motors, had been nominated to become secretary of defense by President Dwight D. Eisenhower.

The country had been good to GM. It was awarded the contracts to be the largest single maker of armaments in World War II, making it the largest industrial corporation in the world.

The du Pont family, for years the major owners of GM, did well on war, too. They began their fortune selling gunpowder in 1802. By World War I, the DuPont company supplied 40 percent of all explosives used by the Allies. The price of its stock increased by 5,000 percent during the war period. (“Merchants of Death,” H.C. Engelbrecht) Its contracts included selling poison gas long before the U.S. entered that terrible war, in which 10 million died and more than 20 million were injured.

GM had been created in 1910 by Wil liam Durant. He had bought out a number of smaller auto companies, including Chevrolet, founded by the French car racer Louis Chevrolet. Durant’s master plan was to create semi-autonomous divisions rang ing from the low-priced Chevrolet to the Cadillac for the wealthy. DuPont centralized the divisions and combined forces with banker J.P. Morgan. Together these “robber barons” drove out Durant.

Today, 53 years after Wilson’s boast to Congress, Wall Street pundits are questioning whether this global industrial monster can weather a financial crisis and escape a fundamental downsizing of the empire. Or, in the words of Barron’s, “Could the worldlargest auto maker go bust?”

The magnitude of the fallout would be incalculable, especially for corporations that are an integral part of the auto industry: steel, glass, paint, rubber and aluminum. The auto industry has become glutted from overproduction, huge inventories and sluggish sales, in spite of attractive incentives for buyers. GM is a debt-ridden corporation. While attempting to maintain its global empire, it was losing its share of the world market. The General Motors Acceptance Corp., GM’s financial arm, is its only money maker.

GM stock has tanked

March 16 was its worst day since the great 1987 stock market crash. GM’s stock tanked when it announced that, instead of a hoped-for cash flow of $2 billion to be distributed to its top-shelf investors, it had a $2-billion deficit. Its stock plunged over 17 percent, deducting a huge $2.7 billion from its market value. Top bond agencies like Standard and Poor’s cut its credit rating to a notch above junk status, sending GM’s future borrowing costs through the roof. At the same time, Ford and Daimler-Chrysler stock also took big hits.

GM became the world’s largest auto maker by strong-arming smaller companies into buyouts or mergers: Fiat, Alfa Romeo, Lancia, Subaru (with Fuji), Holden, Isuzu, Suzuki, Maruti, Daewoo, Opel (Vauxhall in the United Kingdom), Holden (Australia/New Zealand) and Saab. It restructured its divisions, setting up GMC truck and Saturn under a new production structure. Each worker in the team had to be proficient in every skill required by the production unit, making speedup more intense than before.

To service this mammoth operation, over 11,800 outlets were set up abroad, comprising dealers and authorized sales, service and parts divisions to compete with other transnational corporations, such as Ford and Daimler-Chrysler, for global markets. In the U.S., GM has 7,600 dealer outlets, made up of Cadillac, Hummer, Buick, Pontiac, GMC truck, Chevrolet, Saturn and Saab. Then there are suppliers like Delphi, spun off from GM a number of years ago, and Delphi’s subcontractors.

Clearly, GM is on a collision course to extract concessions from its dealers, suppliers, investors, the United Auto Workers, current UAW production workers and retirees.

Will its subsidiaries and outlets be ask ed to surrender a share of their profits and reduce prices, when many of them are already financially strapped and on the ropes?

Will the UAW bend to the pressure to reopen the contract, even before the 2007 expiration date? There are indications that this has already happened.

GM’s immediate plan is to slash the health benefits of 422,000 retirees and their 260,000 dependents. It also wants to modify the section of the contract saying that, including unemployment benefits, laid-off workers are to receive 95 percent of their current wages for five years. It’s a sure sign that more layoffs are coming.

The UAW workers won these benefits through bitter strikes and sacrifices, spending years working under hazardous conditions and speedups that produced cars at an unprecedented rate at a time of bitter competition from Japanese transplants Toyota and Honda as well as from Ford and Chrysler.

U.S. monopoly capitalism’s triple crisis

The industrial base of U.S. monopoly capitalism has been shrinking. It is due not only to the capitalist cycles of boom and bust but also to a structural crisis that has the captains of industry and finance shuddering as their imperialist dreams of military domination of the globe continue unabated. The fundamental core industries of the U.S.—steel, auto, textile, shoes, apparel and others—have deteriorated. It should be remembered that the industrial might of these industries was the very foundation of U.S. capitalism.

An article in the New York Times of April 2 partly confirmed this prognosis: “Factory employment, where most of the recent job losses have occurred, remains stagnant. Manufacturers have restored only a small fraction of the jobs they shed from 2001 through 2003 and manufacturing employment edged down by 8,000 jobs in March. ... The reluctance to hire has been particularly high at manufacturing companies, which shed about 2.7 million jobs during and after the recession of 2001.”

The capitalist cyclical crisis caused by overproduction has become intertwined with the structural crisis based on the shrinking of the industrial base. Added to the woes of the ruling class is the geopolitical quagmire. This development grows out of the very nature of the military-industrial complex, which is impelled toward imperialist wars in Iraq and Afghanistan to maintain the hegemony of U.S. monopoly capitalism.

Perhaps GM’s management was counting on the success of U.S. aggression in the Middle East when it opted to manufacture gas-guzzling SUVs and the Hummer a few years ago. But the quagmire in Iraq and higher oil prices last year turned consumers toward lighter imported vehicles, compounding GM’s problems.

The U.S. ruling class has also been hoping that the lighter, more sophisticated high-tech industries—electronics, the satellite sciences, computerization, data processing—and service-oriented industries would strengthen its position in relation to its imperialist rivals. Not likely. The dotcom, highly leveraged companies were a major factor in the 2001 recession.

Stephen Roach, chief economist for Morgan Stanley, an investment bank also in deep crisis, recognizes the symptoms—if not the fundamental danger to capitalism. Known as a Wall Street pessimist, Roach fingered March 16 “as a possible tipping point for America ... the confluence of a record current-account deficit, a disaster from General Motors, and yet another new high for oil prices all speak of an increasingly precarious role for the global hegemon.” (Barron’s Online, March 21)

Roach was referring to the $667-billion current deficit in the balance of trade, oil prices hovering over $57 a barrel, and a budget deficit of around $400 billion. Goldman Sachs, a premier Wall Street financial institution, is predicting that oil could reach an unprecedented $100 a barrel. It doesn’t take an astrophysicist to know that there is more than a whiff of crisis in the air. There is bad news for GM and Corporate America, as well as the entire Fortune 500.

Labor at the crossroads

The danger to the labor movement is growing under the whip of the triple capitalist crisis and intense competition at home and abroad. It is whipsawing jobs and benefits and Wal-martizing the workers. Right now it is the airlines that are using the crisis to downsize the unions. Other industries are poised to follow.

The coming period will raise the stakes, not only for the UAW workers, but for the entire labor movement. Wall Street and Corporate America view the unions as a hindrance to their system of exploitation. The bosses want a free hand on the vital issues of investing capital, expanding technology to increase production, and laying off workers here to exploit workers abroad.

The AFL-CIO, led by President John Sweeney, can’t keep the debate on these critical issues within the federation. A bold plan of action is needed to build solidarity among the affiliated unions, the rank and file, the organized and the unorganized.

May Day is coming. Celebrated by the international working class in the struggle for the eight-hour day, it was broadened by communists and socialists, especially, into a show of strength by workers everywhere. This year the Million Worker Movement coalition in the U.S. has called for a day of solidarity on May Day to energize the poor and working people. This call could not come at a more opportune time.