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What’s to be done about the Auto Industry?


The U.S. Congress will vote this week on what to do about the America’s Big Three automakers — Chrysler, Ford and GM. GM teeters on the brink of bankruptcy and is screaming for help. The Bush administration does not want to give more than the $25 billion it has already promised to develop more fuel-efficient cars. Democrats want to take another $25 billion from the $700 billion financial bailout program and use that as a bridge loan to the auto industry. That would be a $50 billion dollar bailout for auto. The Big Three and the United Auto Workers (UAW) are lobbying together for the bailout and Congress is to vote on this next week.

This will be a decision about the government’s commitment to working class communities, its concern about the future of transportation in America, and its awareness of the ecological disaster that confronts us. We should ask how our tax money might be best used in this situation to help working class communities, to rebuild our national infrastructure and to improve the environment? What if we taxpayers said: It’s our money being used for this bailout, so we want a voice and a vote in running these companies, not only to save workers’ jobs and communities, but also to rebuild the country and to protect the world’s environment? What might that look like?

The Nature of the Crisis in Auto

The impact on autoworkers and on the communities in which they live could be devastating. The Big Three employ 240,000 workers, while parts suppliers employ about 2.2 million or almost 2 percent of the U.S. workforce. When we include the workers families — spouses, children, and aging parents — we are talking about something like ten million people who will be affected. Some 138,000 autoworkers are represented by the United Auto Workers (UAW), a union whose membership has declined dramatically in the last twenty years. If the car companies shut down, millions of workers and their families would suffer and the union would virtually disappear.

The auto situation is far from simple.

  • The U.S. auto companies, in an attempt to remain competitive, have driven down U.S. auto workers’ wages and benefits. Auto workers were once paid about $76 an hour in wages and benefits. They are now down to about $26 in wages, and with benefits a total of about $50 per hour. New hires, however, are now earning about $14, and they will not necessarily have health and retirement benefits. The UAW has never organized a foreign-owned plant. Toyota, with no union contracts, can drive its wages even lower to beat the competition from U.S.-owned companies.

  • Still, the auto industry is highly competitive and U.S. car companies have for decades been losing out to foreign-owned producers. Cars are produced in this country by both the American companies and by ten foreign-owned auto companies such as Honda and Toyota. Parts suppliers produce for both U.S. and foreign-owned companies.

  • While GM has been losing ground in the United States it has been one of the leading producers in China where it is quite profitable. Some speculate that its success in China could see it through its current problems.[1]

  • If GM and other U.S. automakers fail, its Voluntary Employees Beneficiary Association (VEBA), the UAW-administered trust for retiree health benefits, would likely fail as well. "To put it succinctly, the VEBA structure can be said to balance like a house of cards completely subject to the ups and downs of GM’s financial future.  If GM collapses into bankruptcy it is very likely that the VEBA will also collapse," wrote Santa Clara Law Professor Stephen Diamond recently.[2]

  • Worldwide the auto industry suffers from over-production, that is, it produces more cars than it can profitably sell. Industry analysts argue that some companies — i.e. Chrysler — will probably have to go. If GM gets a multi-billion dollar bailout from the U.S. government, it is conceivable that it might use that money to buy Chrysler and close it down. This is the opposite of what many people mean when they say save the auto industry.

 

The financial crisis led the government to nationalize several mortgage banks and insurance companies. The complicated crisis of the U.S. auto companies has led the U.S. government to contemplate a bailout. Perhaps all of this should lead us to consider what sort of economy and society we want to live in.

How did we get here?

How did the auto go off the road and into the ditch? What caused the crash? What happened to GM, once the world’s largest and most powerful corporation?

Founded in 1908, by the 1920s General Motors had plants not only in the United States but also in Canada, England, and Australia and had surpassed Ford Motor Company as the leading producer. Challenged by auto workers’ union organizing in the 1930s, after the Flint Sitdown Strike was settled in February of 1937, GM and the new United Auto Workers union reached a modus vivendi, During World War II what had been a conflictive relationship between company and union evolved into close collaboration.[3]

GM Chairman Alfred P. Sloan made General Motors into the foremost American corporation through centralized management with decentralized operations, a vast empire of relatively autonomous divisions, and each one on its own profit-making basis.[4] Sloan wrote in his autobiography that by the mid-1950s General Motors and the UAW had reached a formula based on sharing the benefits of increased productivity that brought "peace and stability to our labor relations."[5]

The company and the union became partners, signing long term contracts with "escalator clauses" providing for cost-of-living increases. Auto workers benefits increased with health insurance and pension plans. The company, the union, and the workers all seemed secure. Sloan’s successor as head of GM, Charles E. Wilson, would be quoted in the mid-1950s as saying, "What’s good for GM is good for the United States." By 1963 there were 635,000 auto workers, 350,000 of them union members.

What Happened?

The Big Three automakers had by the 1950s become an oligopoly that dominated the American car market. American consumers paid for the powerful engines, the heavy steel bodies with their chrome trim, the fins and the multiple head- and tail-lights, and drove the big machines into the dawn of smog. High prices, high profits and high wages characterized the industry until the end of the 1960s and the beginning of the 1970s when foreign competition began to challenge the U.S. automakers.

Smaller, cheaper, more fuel efficient imported German Volkswagens and Japanese Datsuns and Toyotas began to appear on the market. The environmental movement was born around the same time, and Americans, clearing their throats, began to ask questions about the autos’ impact on the earth. Already in 1965 Ralph Nader had written Unsafe At Any Speed, raising questions about the auto industry’s commitment to consumer safety. Still, the U.S. autogopoly went on as before, producing its big, heavy, gas-guzzling highway death traps, ignoring issues of fuel-efficiency, the environment and consumer safety, while taking us into the twilight of fresh air.

The UAW in Decline

Like the companies, UAW too had become immune to criticism, even from its own members. Walter Reuther’s socialist caucus had become a self-perpetuating union leadership that failed to challenge institutional racism in the plant or union, and that, with the most fastidious attention to the forms of union democracy, co-opted or crushed opposition in the union.[6] Reuther, once a social democratic visionary, gradually transformed himself into the advocate of the narrow interests of auto workers rather than the broad interests of the working class. The fight for social security for all through a national health care system gradually gave way to higher wages and better benefits for auto workers.

Already by the 1950s the UAW leadership was trading off wage and benefit gains for workers in exchange for allowing management to introduce automation and take greater control of workers on the shop floor. The line sped up, but the workers had little recourse. Rebellions by black workers in Detroit and Appalachian workers in Lordstown and Cincinnati in the 1960s could not break the union’s partnership with management. General Motors and the UAW had become partners, while the UAW and its members were partners no longer. As William Serrin wrote in The Company and the Union back in 1973, "The UAW became a right-of-center union with a left-of-center reputation."[7]

The UAW — once the leftwing flagship of the CIO — became just another tramp steamer. Serrin in 1973 again: "Today, the UAW does little to attack the many problems workers face in American society: racism, the tax system, sex discrimination, highway safety, factory safety, housing, environmental pollution. It was the sons of the working class that were being claimed by the war in Vietnam, but the UAW did not attack the war until attacking the war was acceptable, even popular." Since the UAW didn’t care about the rest of the working class, the rest of the working class came to resent what it saw as the privileges of UAW members.

The Chrysler Bailout

The auto industry, like most of American corporations, declined during the recessions of 1974-75 and 1979-1981. Chrysler, ambitiously producing big new cars, was the biggest victim of those economic crises. As Kim Moody writes, "…the Chrysler bailout opened the gates for a flood of demands for concessions…" It also "put the UAW in a new posture — that of a partner in corporate triage and salvation."[8] The Democratic administration of President Jimmy Carter and the U.S. Congress, working with GM and the UAW, negotiated the shrinking of the company from almost 100,000 to just 57,000 jobs. Many of the jobs lost had belonged to black workers. At the same time the agreement broke the Big Three pattern agreement, leaving Chrysler workers $3.00 an hour behind workers at the other two.

Then the foreign auto companies decided to begin building plants in the United States. Volkswagen in Pennsylvania in 1978. Honda in Ohio in 1982. Nissan a Smyrna, Tennessee plant in 1983.

"Toyota got involved in both a joint venture with General Motors in California and an operation of its own in Kentucky. Mazda announced plans in 1984 to build an assembly plant in Michigan, and Mitsubishi said it would produce cars in Illinois in a joint venture with Chrysler called Diamond-Star.

"By the time of the Mitsubishi project, governments were lavishing large sums on the facilities, known as transplants. Illinois, hoping that the Diamond-Star plant would create a slew of additional jobs as nearby supplier companies sprang up, provided a package worth $249 million, the biggest in Illinois history and then the biggest package ever given an auto assembly plant in the U.S."[9]

 

By then the US auto companies were losing big to the competition and the UAW could no longer win workers to the union, certainly not in its southern transplants. The Big Three, with the help of the UAW, were selling concessions, presiding over plant closings and layoffs, and resigning themselves to permanent reductions in the workforce. By the 1990s there were regular cuts in wages and benefits, and then VEBA. And here we are today.

The auto workers and their union did not cause the crisis of the auto industry — after all, they had no control over the corporations’ policies. True, the union in its heyday fought for and won higher wages and benefits, gains which between the 1940s and the 1970s spread throughout the economy to other unions and workers, raising living standards for us all. But workers and the UAW did not "price themselves out of the market" or "kill the goose that laid the golden egg" — no, they challenged employers for a greater share of the profits and won. We all owe auto workers of that era for the living standards that workers achieved in this country.

What the union failed to do, however, was develop a broader vision of workers’ power. When confronted with other corporations competing in the market by using more modern plants and lower wages, the union had no plan. The UAW, like other unions, failed to build a genuine international labor movement to raise auto workers’ wages in other countries. Nor did the union build a political movement in the United States to challenge the power of capital and to restrain competition. Nor did the UAW join with other unions to organize the great majority of unorganized U.S. workers.

The union relegated itself to the role of the Big Three’s junior partner, then sidekick, and finally hanger on. Fearing to mobilize the members and summon them to struggle, the UAW turned to the Democratic Party to solve its problems. Now we will see what the Democrats do. It will likely be the Chrysler Bailout of 1979 all over again, only writ larger: that is, save what can be saved of the auto companies, let workers go, shred the contract and lower wages.

What should be done?

First, we have to save auto workers’ jobs and working class communities that would be impacted by the failure of the auto industry. Second, the U.S. government should step in and do something to resolve this crisis. How can we let the government bail out bankers and ignore workers? But the way to do it is not to save the Big Three by bailing them out. This is our money, so let’s think about what we want to do with it.

The Big Three boards and CEOs have shown us over the last 30 years, since the Chrysler bailout of 1979, that they are only capable of running these companies into the ground. They failed to respond to the challenge of producing fuel efficient vehicles. They failed to respond to the environmental crisis that has now become global warming. They failed to produce a humane work environment for their employees. And when the industry went into crisis they began to take away workers’ health and pension benefits, to attack union contracts, and generally to take out their problems on the workers.

Nationalize the Auto Companies

The best solution to the crisis of the auto industry — for the workers, for our citizens, and for the future of the world environment — would be for the U.S. government to take over the auto companies. Let Congress nationalize these companies but also socialize them by creating a board of union members, environmentalists, and consumers to run them. Let us own and run the auto companies.

To most Americans government ownership of industry sounds like a foreign concept and conjures up images of Soviet industry and its colossal failure. Certainly after seeing the Bush administration manage the Afghanistan and Iraq Wars, the Katrina disaster, and the Veterans Hospitals, we must all have some qualms about what government management would mean. We should not forget, however, that many countries throughout the world have nationalized industries and run them better than GM has run its auto company. In England, France, Germany and Italy governments owned and managed mines, steel mills, manufacturing plants, and service industries. Today many developing countries manage nationalized oil and chemical industries.

Even the United States has nationalized industry when the government believed it was in its interest. During World War I the U.S. government nationalized the railroads and, working closely with the railroad unions, ran them more efficiently than their private owners. During World War II, the U.S. oversaw the conversion of auto plants into aircraft plants. For many decades U.S. states, counties and cities ran water companies, electric power generation plants, streetcar and subways systems, public hospitals and clinics. There is no reason that government cannot be an efficient manager if there is democratic control by the society, workers and consumers.

But do we want to take over the auto industry? Not to keep it as it is. Congress should transform the nationalized auto industry to become the U.S. Auto, Mass Transport, and Energy Industry, to rebuild our infrastructure and begin to solve our environmental crisis. Just as the U.S. government oversaw the transformation of auto plants into aircraft plants during World War II, the U.S. government might transform the privately owned auto industry into the socially owned Auto, Mass Transport and Energy industry to produce buses, light rail, high speed trains, and wind turbines.

What Would "We the People" Do with Our Company?

With the U.S. government owning the Auto, Mass-Transit and Energy corporation, government could regulate the industry as it once regulated private utilities, communications, trucking and the airlines to prevent the cut-throat competition that brought us to the point we are at today where huge corporations can fail leaving millions without jobs. The government could control new entrants into the industry, limit CEO salaries, and regulate prices and profits.

With government regulation and social ownership of industry, there would be the power to dominate the vast auto parts industry and to bring to it a rational economic order and to raise its standards. Wouldn’t we the people as managers want to see all workers given the right to unionize as provided for by the National Labor Relations Act? Wouldn’t we want to see union organization extended to the transplants, that is, to the foreign-owned companies as well? Wouldn’t we the people want to see workers with living wages, health benefits, and pensions? Wouldn’t we the people eliminate from our plants the practice of out-sourcing?

We cannot assume responsibility for the billions of dollars of auto workers health benefits covered by their VEBA if our society does not also begin to assume responsibility for the health care of all. Wouldn’t it make sense while nationalizing and socializing the auto industry to begin to create a national health care plan — a government-backed system with no insurance companies? Let’s make saving the auto workers the beginning of providing all Americans with health care.

With the U.S. government dominating the domestic auto industry and mass transport, the United Auto Workers union — presumably under a new leadership that knew something about struggle rather than sellouts — would extend its power to the other auto makers in the United States, most of which are foreign owned. The UAW could once again dominate the auto industry both domestic and foreign, both Big Three and parts, and begin to recreate the industry-wide contracts that once protected hundreds of thousands of workers. Of course transforming the UAW into such a fighting union again would require a membership that roused itself to challenge both the companies and its union leaders.

We could by socializing the auto industry begin to rebuild the power of unions, to reestablish the stability of working class communities, to improve life for all Americans and to improve the environment for the planet. We could only do this sort of thing, of course, if we had a political party which represented working people, and without it, it’s even hard to imagine. We can only do this if labor unions are willing to mobilize and workers are willing to fight. And even then it wouldn’t be easy.

If we were able to do all of this, there is the danger that it would be a kind of "lemon socialism," taking over the squeezed out rinds of failed companies and trying to re-hydrate them with workers’ sweat. Wouldn’t be better if it were the oil companies we took over with all of their wealth and profits? But precisely because they are wealthy and profitable we could never get near them without a much bigger fight. Still, even taking the lemons, we could with the power and creativity of working people, make lemonade.

So let’s at least imagine what we could do with a democratically owned, worker-consumer managed, environmentally friendly, socially responsible Auto, Transport, and Energy Corporation. A revitalized autoworkers union based in an economically secure national company would have the power to reach out to and help other American workers in related industries unionize. The reformed UAW of the U.S. Auto and Mass Transport Industry could then begin to consider how to make an alliance with workers in Mexico, Central America, and in countries in Asia, to raise their wages and improve their benefits.

Why give more money to the men — and they are virtually all men — who ran the companies into the ground, drove the union down, and threatened the health of the planet? Let’s use our billions to save jobs, to save communities, to rebuild our infrastructure and protect our environment, and ultimately thereby to save the planet. Let the government buy it, let the public own it, let the workers run it with the help of consumers and environmentalists. Or let’s at least imagine that we could as a way of preparing the future. Imagination, envisioning, is the first step…

Notes

1. Jonathon Ramsey, "GM may use profits from China to float North American operations," Oct. 24, 2008.

2. Stephen Diamond, "GM-UAW Deal Described As House of Cards," memorandum to Jerry Tucker, Paul Schrade and Warren Davis.

3. Nelson Lichtenstein, Labors War at Home (Cambridge: Cambridge University Press, 1982). Lichtensteins thesis is that the war brought government, companies and union together, containing rank-and-file activism.

4. William Serrin, The Company and the Union (New York: Alfred A. Knopf, 1973), p. 96.

5. Alfred P. Sloan, My Years with General Motors (New York: Macfadden-Bartell Corporation, 1965), p. 403.

6. Jack Stieber, Governing the UAW (New York: John Wiley and Sons, Incorporated, 1962), passim; Herbert Hill, "Lichtenstein’s Fictions: Meany, Reuther and The 1964 Civil Rights Act," New Politics, Vol. 7, no. 1 (New Series), Whole no. 25, Summer 1998. The article criticizes Nelson Lichtenstein’s The Most Dangerous Man in Detroit: Walter Reuther and the Fate of American Labor (New York: Basic Books, 1995).

7. Serrin, The Company and the Union, p. 148.

8. Kim Moody, An Injury to All: The Decline of American Unionism (New York: Verso, 1988), p. 155.

9. Good Jobs First, "Case Study of Auto Assembly Plants."


Dan La Botz is a Cincinnati-based teacher, writer and activist. He is a member of the editorial board of New Politics. He can be reached at: [email protected].

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