prev next

Jerry Shenk


GM: Manufacturing Success Story?

by Jerry Shenk
 

In February, 2011, the Detroit News reported, "General Motors Co.'s hourly workers can expect…the largest profit-sharing checks ever, when the automaker pays bonuses for the money earned in 2010, a top union official said Monday."

The announcement was appropriately made by an official of the United Automobile Workers Union because the union owned part of the company, ownership awarded when taxpayers were forced to bail out GM rather than permitting the company to undergo normal bankruptcy proceedings.

Under legal, orderly bankruptcy restructuring, General Motors would have continued to operate under the ownership of new, willing investors, and labor contracts invalidated and renegotiated. Instead, the administration and congressional Democrats awarded partial ownership to the union whose demands helped bankrupt the company and to the government.

Under the government-enforced settlement, senior creditors received only 10 percent of the new company's stock in exchange for $27 billion in outstanding bonds. The union did far better. The UAW's retiree benefit trust fund received $10 billion in cash, $6.5 billion in preferred stock paying a 9 percent dividend -- 17.5 percent of the new company. In return, the union assumed a tiny fraction of GM's debt, conceded unspecified "flexibility" in work rules, and UAW retirees gave up prescription-drug coverage for Viagra and Cialis. The government assumed 60 percent of GM's residual equity along with the significant majority of the company's debt.

Following relisting and the eventual sale of equity, U.S. taxpayers lost $11.2 billion. Canada, a bailout "partner," lost $3 billion.
In 2015's fourth quarter, GM reported record profits. General Motors must be an American manufacturing success story, right?

Not so fast.

GM's Buick Division manufactures four of seven models sold in the U.S. overseas: one each in China, Poland, Canada and in South Korea. China, Poland and South Korea didn't help bailout GM, but their economies are beneficiaries of the "new" General Motors. Skilled workers at GM's plant in Poland are paid an average equivalent to $7.80 an hour, or about $15,000 per year. American unions bleat incessantly about "livable" minimum wages and "fair, not free trade," but are mute on GM's "exploitation" of Polish workers.

Granted, GM makes automobiles abroad for the same reason Toyota, Hyundai, VW, BMW and Mercedes Benz build autos in America -- to service local markets. The foreign auto companies ship some models built here back home and elsewhere, too, but none of them survived and eventually thrived on the backs of German, Japanese or South Korean taxpayers.

GM's bailout is a prime example of crony capitalism, in this case favoring a special interest in labor. But the American economy takes a second hit when GM builds cars abroad. Company profits made overseas cannot be repatriated without being taxed a second time at high US corporate tax rates. What are idle assets to the American economy benefit foreign economies instead.

General Motors illustrates and underscores government's incoherent bankruptcy, labor and tax policies, and GM's practices show ingratitude and indifference to the taxpayers who rescued the company.


Share   Share

Featured Columnists
Featured Audio Links