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Why GM Must Not Fail November 17, 2008

Posted by Kate Ryan in Economy, National Politics.
Tags: , ,

I watch “Morning Joe” on MSNBC before I leave for work in the morning.  It’s not that I’m anywhere close to the righter-wing views expressed on the show, I just like to see what the other side is thinking sometimes.  Imagine my surprise this morning – and it happened once last week – that I found myself actually agreeing with host Joe Scarborough and guest pundit Pat Buchanan.  I had to check and see if my brain had exploded.  The issue causing my distress?  The potential bail-out of the big three automakers. 

There has been a lot of editorializing in the major newspapers in the past week supporting the idea that the government should allow the automakers to go bankrupt.  Today’s discussion centered around the Wall Street Journal opinion piece by Michael Levine supporting a GM bankruptcy.

I have an MBA and I know all the right, business-related reasons why it seems like the automakers should go under.  Conventional wisdom has it that the reason US automakers are failing is because they did not change with the times and produce fuel-efficient vehicles that people want to buy.  That they are failing because of huge legacy costs, unreasonable labor contracts, and stifling health care and pension burdens.  That they have an organizational structure that rewards senior management mediocrity with large bonuses.  There is anecdotal evidence that when other businesses face similar circumstances, bankruptcy reorganization can result in a leaner, more efficient business model.  There is plenty of evidence, however, that allowing our auto industry to go under would not fetch the same results.  One only has to look at the US steel-making industry for clues.

When I was growing up here in Western New York, Bethlehem Steel was king.  Everybody’s father worked “at the plant”.  It was the lifeblood of the economy – the men that worked there bought homes and cars and appliances.  They sent their children to college, donated to local charities, and supported thousands of smaller businesses.  These jobs enabled thousands to realize the American dream.  I can recall the old timers telling stories of being fired at gate 3 of the plant, and being rehired at gate 6, all in the space of an hour.  These were tough, dirty jobs – but they were great jobs for those with limited educations or skills. 

All that began to change in the late 1970’s.  Foreign competitors began making huge inroads into once-sacrosant steel products businesses such as wire, rods, and light structural steel.  Steadily increasing steel prices led to innovations in building materials, autos, and other products once requiring steel.  Bethlehem was particularly vulnerable for two more reasons. It had resisted diversifying during the high-profit years, insisting that it stick to doing what it knew best–making steel.  It also was over-staffed with white collar workers, many of them hired on the basis of wildly overoptimistic projections and many retained beyond their usefulness out of old loyalties that blinded practical decisions.  Analysts with leading investment firms commonly gave Bethlehem the dubious honor of having the most management employees per ton of steel produced.  It all came to a crashing halt on December 27, 1982, when Bethlehem announced that it was closing the Lackawanna factory and threw 7,300 steelworkers onto the street.  The USW begged the government for help, but it refused.  Bethlem eventually filed for bankruptcy in 2001; as an entity it ceased to exist by 2003.  Steel will never be made in America again.

The Buffalo-area economy has still not recovered from the devastating effects of Bethlehem going under.  The only other steady employer paying good wages (besides government) is the auto industry which has been going through similar assaults as had Bethlehem in its last five years. 

The proponents of bankruptcy say that if the big three fail it does not mean that we won’t make cars in the US ever again.  I disagree.  Oh, Toyota and Honda may have a factory or two.  Chinese automakers may come over.  Some boutique manufacturers of high-end vehicles may set up shop (ie – Tesla Motors).  Chances are, however, that we will buy imported cars manufactured in Asia.  And there will never again be millions of Americans making American cars in American factories owned by American companies.  The American middle class will continue its downward spiral into stagnation, or worse, poverty.    

Pat Buchanan and Joe Scarborough said it is time for economic patriotism.  This country needs to choose sides and come down on the side of American manufacturing.  We have an opportunity to save this industry and make it a leader in greener transportation at lower cost.  It is time for the country to invest in its own people rather than the global marketplace.



1. Melissa - November 17, 2008

I don’t want to support the auto industry, but I do understand why we have to do this in tough economic times. I DO hope that we put some restrictions on this so that we are more competitive in the future. This can’t happen again. I know that things will get better but the economy is stressing me out. I have watched my mother’s retirement dwindle away and yet the automakers have lifelong full pensions and insurance. This bailout needs to be full of restrictions because I can’t watch anymore people around me lose their jobs and money. I am an avid watcher of Morning Joe because they often think the opposite of me, and I like that! I would write more, but this is one discouraged writer today.
I really like your blog! Thanks!

2. lizzygram - November 17, 2008

Let GM … file for chapter 11….no bailout. This is another scare tactic that our government is using to put money into the UAW’s Union.
Without the large contributions that our government and their officials get from the UAW….they don’t like the strong arm that the Union has on them right now so….they are using it to give the UAW what it wants…..a piece of the pie.
Let them go and file and go under if that is what needs to be done…let the chips fall where they may.

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