Auto Bailouts, Starting at the Wrong End

Nov 17, 2008

The CEOs of GM, Ford and Chrysler say that they will have to go into bankruptcy if they don’t get government bailouts. They use their weight in the economy as a threat. Give us the money, they say, or we will throw the economy into a total collapse.

Definitely, the auto industry keeps the U.S. economy humming. Enormous numbers of jobs, millions and millions, are necessary to produce and distribute and maintain 16 million vehicles per year. The jobs begin in coal mines or iron ore mines or chemical plants, grow through steel mills and catalytic converter factories and electronics factories, grow through tens of thousands of large and small supplier factories, to engine, transmission and final assembly plants, to dealerships.

Workers on these millions of jobs use their paychecks for housing, food, clothes, cars, entertainment and consumer goods. Because of this network, economists say that one of every ten jobs in the entire U.S. depends on the auto industry.

Yes, the economy depends on autos. But the CEOs don’t want bailouts to save the economy–they want bailouts so they can go on doing business as usual. Yet, it’s “business as usual” that brought us to the economic emergency we face today!

In the past 25 years the auto companies racked up enormous profits, tens upon tens of billions. Companies concentrated on pumping out the highest priced, very most profitable vehicles, paying no heed to the future of the economy. Whether making the famous “gas guzzlers” or cars for the luxury set, the companies abandoned the less profitable cars that ordinary workers could afford–without a five-year car note!

Decade after decade, companies demanded round after round of concessions from their own workers. Speed-up, outsourcing, lower wages, and job cuts continued year after year. Companies artificially declared parts of their system to be “independent” units and spun them off, “spinning” large groups of workers into second- and third-tier wages. In the early 1970s, the major companies produced about 75% of their own parts. The companies used the recession of the early eighties to reduce this to 60%, and today after Delphi and Visteon, only about 30% of parts production remains in-house. That is, only about 30% of the workers who produce cars and trucks are now paid at a level that allows them to finance a new one!

While workers’ buying power declined, corporate profits soared. Were these profits re-invested in production that would have enlarged the real economy? Were productivity gains put to work in creating more cars that more people could afford?

No! Those profits were drained out of production. Large dividends flew into the hands of big investors, who gambled with leverage, hedge funds, credit default swaps, and the other stock market schemes. Not to be left out, the companies drained profits into their own financial subsidiaries. And they wheeled and dealed in the same speculations–making money while keeping the money “off the books” of the parent corporations.

Today their gambles, collapsing like dominoes, have evaporated hundreds of billions of dollars.

Every big company, auto included, ran their businesses like that. They fed the casino economy. Now they have crashed the real economy. The banks, left holding bags of bad debt, have frozen the credit needed to grease the economy’s gears. Since no one can get credit, goods aren’t bought, inventories stack up, and factories stop producing. In the face of that, the biggest companies–AIG, the banks, the auto companies want bailouts so they can do the same thing, all over again!

The demands raised against workers are proof that the companies will not change their ways, nor do the politicians expect them to. Just the opposite! “Industry analysts,” congressmen and even president-elect Obama’s spokespersons suggest that more worker concessions should be part of the bailouts.

The corporate attack on workers–wage cuts, job eliminations, slashing pensions and benefits–has already sucked buying power out of the economy and contributed to the crisis today. Continuing the attacks on workers will do nothing but prolong today’s crisis.

Priming the economy for recovery means putting more people to work, first and foremost. Goods must be produced, useful goods, and there must be workers with paychecks big enough to afford those goods. If the factories don’t run, if the workforce is not at work, if paychecks are too small to support the economy, then wave after wave of layoffs will continue to spread further and further. No community will remain untouched.

The bosses who have run the factories and the economy into the ground cannot be allowed to direct this economy, repeating their same old cycle over and over again.