Leakage In the Automaker Bailout

by: David Sirota

Mon May 18, 2009 at 07:33

Back in December, I flagged a Businessweek story about the potential for "leakage" in government stimulus spending - that is, the potential for government stimulus spending to actually fuel job outsourcing if that spending is not limited by Buy America restrictions. Now, the New York Times reports that the same can be said for subsidies to the automakers:

G.M. Seeks More Imports From Low-Wage Countries

Published: May 18, 2009

With a green light from the Obama administration, General Motors is moving toward a reorganization that will increase vehicle imports from its plants in Mexico and Asia while closing factories and cutting the work force in the United States.

That approach drew a sharp rebuke from the United Automobile Workers union on Friday. In a letter to each member of Congress, the U.A.W., which represents G.M. factory workers, argued that to qualify for more government assistance, the auto giant should be required "to maintain the maximum number of jobs in the United States."

The administration, however, appears to accept the proposition that to return to profitability as quickly as possible, G.M. must import a significant percentage of cars from its plants in low-wage countries, like Mexico and China, or low-cost countries, like Japan.

It's one thing for private corporations to create a business model based on a race to the bottom of wages, environmental laws, etc. It's a gross business model, but it is their right to create that business model (though it is also the government's fault for creating trade policies that actually encourage that kind of business).

But it's an entirely different thing for the government itself to help create that business model with taxpayer subsidies. That's our money being used to restructure the automakers - and it shouldn't be used to effectively destroy our tax base, our manufacturing industries and our jobs.

David Sirota :: Leakage In the Automaker Bailout

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Sad (0.00 / 0)
One of the saddest disappointments of the Obama administration (to date, certainly, but probably historically as well) is that -- for all the massive effort and funds supplied to elect Obama, ultimately he may prove to be the president who did the most harm to labor in America.

I understand that GM must be a smaller company to (4.00 / 3)
survive but becoming a smaller company and having a smaller footprint in the US are very different.  Assuming GM survives, once this precedence is set there is nothing stopping GM from continuing to increase imports from Mexico and Asia.  Nothing.

We are in desperate need of a manufacturing strategy in this country.  

RebelCapitalist - Financial Information for the Rest of Us.

So much for an American company (4.00 / 1)
I flat out refuse to ever by another GM after this bullshit.

tells you something (0.00 / 0)
when the only way GM could make money is by making cars overseas and importing them.  

Gary Peters is right (4.00 / 1)
Michigan Democratic congressman Gary Peters has it right.  The purpose of the auto bailout is to save jobs, not to save General Motors.  Having a corporate raider as the absolute czar of the auto industry puts the focus on the wrong things.  Rattner never should never have been appointed and he should have had his sorry a** handed to him months ago.

Let's look at what has happened.  GM, infamous for its overstaffed, inefficient management for decades is cutting the number of auto dealers by 42%, cutting the number of salaried union auto workers by 34% and cutting the number of management employees by 14%.  There is neither justice nor logic in this.

Obama's single largest source of money by a huge margin was the SEIU.  SEIU contributed more than all other unions combined with over $29 million in independent contributions ($26,009,685.53 for Obama; $3,163,276.29 against McCain).  Otoh, newspaper accounts and internet stories make it plain theat lack of funding from the UAW doomed Detroit.  Again, the bankers and brokers gave less than SEIU by a huge amount but they rule the roost.

IMO, to date Obama is the worst Democratic President vis-a-vis organized labor since at least Woodrow Wilson and probably since Grover Cleveland.  Cleveland sent in federal troops to put down a strike so it is hard to get worse than Grover Cleveland (the worst Democratic President ever when it comes to unions).

I might add, GM is also planning to begin importing Chinese made autos into the United States.  GM retirees have lost much of the pensions that GM was contractually obligated to fund but did not (instead buying European auto companies at inflated prices).

Increased imports are predictable but dead wrong but what can one expect with Rattner running the show.  In retrospect, Robert Reich would have been the correct guy to oversee the rebuilding of the auto industry.

I believe that GM is selling its future off to survive.  When the auto industry sells 15 or 16 million vehicles again instead of 10 or 12 million. GM won't be able to increase production by 40% or 50%.  Only the foreign owned companies will be able to do that.  We will have spent the money and gotten hoodwinked.  The plants should be mothballed, not closed.

One more thing.  GM's problems are mostly due to the economy and to Chrsler's running of GMAC (no credit, no sales).  The Chrysler Canadians own 51% of GMAC and ran it into the ground in a remarkably short time, ruining much of the value of GM in a short time as well.

The fantasy of Tesla also hurt badly.  If mileage requirements had steadily risen, GM would be producing mostly hybrid cars and the economy would be stronger.  Something like electric cars or even a more exotic fuel source was unlikely.  A 30 or 40% increase in fuel efficiency though was quite possible.

Yes, this is my biggest disappointment with Obama so far but I expected labor would get the short end of the stick.
My biggest fear remains that Obama and the Blue Dogs will wreck Social Security.

Amazingly, I am less angry with Obama than I was during the campaign.  He's still better than George W. Bush.

The answer lies in going to the left not in going to the center.  I knew that a long time ago.  

Short-sighted (4.00 / 1)
It probably does help GM short term, but long-term it's a big mistake.

GM still needs the U.S. market, and if it outsources more of its production there will be less and less feeling that it is an American company and therefore worth supporting. I don't see GM becoming as powerful in China as it is in Michigan.

Forgotten Countries - a foreign policy-focused blog

Very disappointing. (4.00 / 1)
Saving GM on the backs of labor defeats the very purpose of saving it.  At least Toyotas are built in the uS, albeit with non-union labor.

They are built in the US only so long as there are auto tarriffs (0.00 / 0)
Those factories exist so that the cars can nominally say that they are American.  There is no other reason to build those cars here.  

If the American carmakers go down, I doubt that the Japanese factories in the US stay open very long.

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