This move will likely do one of two things, secure a quick concession from a company that can't afford a strike, or push General Motors into bankruptcy. Ford, GM and Chrysler have all been on a death watch among automobile industry analysts for some time. GM wanted to be the lead negotiator with the UAW in order to control the union negotiation part of its fate.
GM monthly sales have been down more than 20% from a year ago, for a few months. It lost $12 billion in the time period from 2005-2006; its North American operations are still unprofitable. It has serious branding issues, and has spun off half of GMAC, one if its few profitable ventures, Delphi(its parts division, that is also in dismal economic straights) and Suzuki. Even its marquee military vehicle, the Humvee, has fallen out of favor with the military.
The union has suffered as a result. As I noted eleven months ago:
Twenty years ago, General Motors employed 876,000 people. Now, it has 335,000 and is laying people off (at least 30,000 hourly and thousands of salaried workers). Part of this is due to the 1999 spin off of now bankrupt Delphi, which currently has about 185,000 employees and is also laying people off (more than 30,000 are planned by 2008, including about half of its 50,000 U.S. workers). Ford and Chrysler (since merged into Dailmer Chrysler) have faced lay offs as well and continue to do so. Ford is laying off 30,000 people.
Chrysler was purchased by a private equity firm, so it is widely believed to have considerable staying power and is also shedding sales less quickly than its American competitors (by about 8%).
Ford is out of the immediate path of the UAW's wrath by virtue of having taken a back seat in labor negotiations. Thus, GM has managed to to put itself in the most likely to die position, despite the fact that GM has the largest market share of the big three. Ford has almost as many employees as GM now, which isn't necessarily a good thing, given that it has a smaller market share. Ford is losing even more money than GM, is shedding divisions, and is losing market share at a similar rate, so it is otherwise neck and neck with GM on the path to self-destruction.
Suppose GM does go bankrupt. What happens then? A bankruptcy would mean that GM could force an unfavorable contract down the UAW's neck, although at the cost of sustained labor unrest that is not necessarily legally authorized. This means that GM could abandon its defined benefit pension obligations and retiree health benefits, legacy costs which are at the crux of the current strike. GM would likely use the opportunity to shut down old plants with looming environmental liabilities which it could also escape. GM would also likely use the opportunity to thin a bloated dealership network, leaving smaller dealers in the lurch. I am inclined to doubt that GM would vanish entirely from the automobile industry and liquidate. But, it would probably have to sell off the rest of GMAC to pay creditors.
Footnote: The recent collapse of the American dollar should be a huge boost to American automakers over importers. A weaker dollar makes imports more expensive and exports cheaper. Certainly, this is mitigated to some extent by the fact that Toyota and Honda, for example, build many of their cars in North American now. It also isn't clear to me how many cars North American plants build for foreign markets. But, foreign name plates still import more than American ones on average in the American market. It is a mystery to me that foreign car prices haven't surged recently. Perhaps American companies still import too much from Canada and Mexico for a dollar collapse to help anymore.
UPDATE from a Denver Post Editorial, the day following the start of the strike:
Monday's strike against General Motors by the United Auto Workers marks another ominous turn in what may ultimately be the death spiral of the American automobile industry.
If the strike lasts just a few weeks, it may actually help GM — which lost $12 billion over the last two years — reduce its 67-day backlog of unsold models to a more managable level. . .
[GM] accounted for 60 percent of the U.S. auto market in its heyday and enjoyed a 46 percent market share as recently as 1980. GM's share dropped to 24.7 percent last year . . . .
For GM — as well as for the anxious onlookers, Chrysler and Ford — this struggle isn't about wages so much as health care costs, especially for retirees. Falling market shares and automation mean GM now employs just 20 percent as many workers as it did in 1990. GM workers may retire after just 30 years of service, many years before they're eligible for Medicare. Thus, GM's generous health benefits for retirees now add as much as $2,000 to the cost of each car it builds.
Toyota has surpassed General Motors as the #1 automaker globally.
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