General Motors filed for bankruptcy yesterday, closing the book on the greatest American manufacturing company in history, as we knew it. A new GM will emerge, but it will be only a shadow of the company that once was.
The day was filled with a lot of cheerleading for GM, led by our president, now heavily invested in its success along with his taxpayers, to the tune of $50 billion. And there were brave faces on display among GM executives in front of the camera, vowing reform and begging consumers not to abandon them. All spoke of a fresh start and a vision of a new power-house U.S. auto manufacturer, one that will out-compete the foreign competition and win back market share.
Lost in all the hubbub was the real significance of this event: that it’s just one more landmark – and a huge one – in the steady deindustrialization of America and the downward spiral of its economy. GM is just the latest victim of a policy that grants free access to the American market while asking and getting nothing in return – no access to equivalent markets.
Nothing has changed. The new G.M. will re-emerge into the same environment. Mounting job losses (to which G.M. has been a big contributor) will continue to be a heavy drag on auto sales. The market will still be saturated with dozens of foreign brands, free to “dump” cars at below cost with impunity while American brands face a stacked deck in foreign markets that have been emaciated by overpopulation.
The new G.M. re-emerges with a lower labor cost structure and has been freed of its crushing debt burden. But it won’t make a bit of difference, except to force the foreign brands to cut their costs as well in order to maintain market share. The U.S. auto market will simply become even more of a dog-eat-dog world, especially as Chinese brands make their entry.
Reminiscent of the movie Groundhog Day, in a scene that has played out over and over and over for decades, if not in China then in Japan or Germany, Treasury Secretary Tim Geithner is in Beijing on a jawboning mission, trying to talk his way out of a trade deficit and into a healthy economy. The effort is laughable and the results predictable. Geithner will be patted on the head and sent on his way, leaving the Chinese negotiators rolling their eyes and shaking their heads in disbelief at the naivete they had just witnessed.
Without meaningful action instead of talk by the U.S. to force a balance of trade, GM will be re-emerge as a little fish into a pond full of very hungry predators. It’s been said that the U.S. doesn’t need and can’t support three separate auto manufacturers any more. Yet, no one says the same thing about France, a nation one fifth the size of the U.S., with its Renault and Peugeot brands. No one complains that Germany, a nation one fourth the size of the U.S., has four manufacturers – VW (the company founded by Hitler), Porsche, Mercedes and BMW. No one complains that Japan, a nation less than half the size of the U.S., has six manufacturers – Toyota, Honda, Nissan, Mitsubishi, Subaru and Mazda. How many of these companies would thrive without access to the American market, or if Americans’ per capita consumption of vehicles was cut in half, as it is in the emaciated markets of these overpopulated nations?
No one can say that President Obama hasn’t been aggressive and decisive in tackling our economic implosion but, in the area that matters most – restoring a balance of trade, he’s talked a good game. He’s chided the rest of the world to rely less on exports and to do more to boost their own economies. But, though talk and diplomacy may be effective in dealing with other foreign relations issues, it can’t alter basic economic realities like the role of population density in driving global trade imbalances. Without meaningful action by the U.S. to address the root cause of our economic melt-down, GM’s bankruptcy is just one more waypoint in our downward spiral, soon to be followed by more – the bankruptcy of Ford, a collapse of domestic auto manufacturing, defaults by states like California, hyperinflation and eventual insolvency of the U.S. as a whole.
We need action, not talk, and only time will tell if Obama has the courage to act when all of the talk has failed.