On Monday, General Motors became the second of the Big Three automakers to file for bankruptcy. The now-broke automaker is often dubbed “the once-great symbol of American capitalism.” But the company’s failure, and that of competitor Chrysler, might say less about the company itself than it does about the American capitalism it symbolizes.
We now live in a world of the too-big-to-fail super-corporations that completely dominate market share and account for millions of jobs in many parts of America. These huge private enterprises were once the driving force of American capitalism, but now suffer a kind of systemic insolvency, and are mostly owned by the government. Years of neo-liberal dominance in politics has ironically led us closer to socializing the means of production than ever before, simply in an effort to save what’s left of capitalism. The government will now take over a 60-percent ownership share in GM, giving it control of the longtime private company.
For GM, this story was written a long time ago. The company has consistently failed to compete with Japanese automakers virtually since its inception. In the few cases and market niches where it has been competitive, its profitability has proven unsustainable. Its product was often of questionable quality and less innovative, and its decisions were often made with minimal regard for workers.
Furthermore, GM was known for laying off and downsizing its American workforce, even when times were good, in pursuit of profit. Even though it’s an American company, it found itself importing cars from production facilities in Mexico and China. Its competitors Toyota and Honda, by contrast, opened more plants near their consumers in Indiana and Tennessee. Even in these poor economic times, Toyota has worked aggressively to avoid layoffs, paying its workers normal wages to re-train for new profit opportunities instead of producing products no longer in demand.
Then, of course, there are the Prius and the Accord. While GM and other American automakers often produced what consumers wanted at the exact moment they wanted it, its competitors were able to identify trends in future consumer demands – rising fuel prices, global warming and a reputation of reliability – and invest in innovation that would profit from more sustainable consumer preferences. GM invested instead in what proved to be largely a passing fad, in terms of the larger world issues that drive the market. One might argue this was the appropriate role of a business, but the results speak for themselves.
GM’s equity is now worth less than that of California automaker Tesla Motors, which is far from being “too big to fail.” Tesla only has two developed products, both of which are all-electric vehicles. And while more venture capitalists still pour money into Tesla – Google’s co-founders both have staked a share and Daimler invested millions just this month – the unions, bondholders and two governments that own shares of GM seem mostly interested in getting out as soon as they can. In short, investors are buying a growing Tesla with the hope their investment will profit while people are buying a dying GM just to keep it alive.
Then there are the unions. The blame game often targets them for forcing GM to pay massive overhead on retiree pensions and employee health care. Quite accurately, you could say GM is a health care provider that finances its operations by selling cars, especially now as it covers more retirees than it does active workers. This union puts GM at a huge competitive disadvantage, not because of the union specifically, but because its major competitors don’t have to worry about these exorbitant health care costs, as both Japanese and German automakers benefit from their nations’ socialized health systems. Health care is cheaper in both Germany and Japan, where it represents a share of GDP spending that is just half of what Americans pay.
So what now for a future GM? It’s hard to say, especially as some younger buyers have lived their whole lives thinking GM and other American brands are not the best options for passenger cars. This has largely been the result of Americans’ poor reliability and failure to innovate. Can billions in government dollars convince youngsters that the Chevy Volt will be cooler and more reliable than the Prius? Scoff if you will, but it’s them the automakers are going to have to sell, like it or not.
[email protected]