How to Save Motor City

By Marissa Colon-Margolies, The Nation. Posted December 1, 2008.

A lame-duck Congress balked on November 20 over a bailout for the auto industry, saying no action could be taken until the Big Three produced a viable plan for their own salvation. This was a victory for those who have been waging all-out war against a proposed government rescue package. Republican Senator Richard Shelby of Alabama has called the auto industry a "dinosaur" that should go extinct if it can't compete in the free market, while many of his colleagues blame everything from the Big Three's uninspired business model to unionized

It is true that General Motors, Chrysler and Ford are culpable in great part for the crisis they face. They have long suffered from institutional torpor, from an inability to consolidate redundant brands and make relevant, fuel-efficient cars Americans want to buy. Nonetheless, allowing GM or any of the Big Three to fail would be catastrophic. The auto industry represents almost 4 percent of gross domestic product and 10 percent of industrial output by value. A study recently published by the Center for Automotive Research estimates that a collapse of the Big Three would eliminate nearly 3 million jobs in just the first year, as well as $21.1 billion in Social Security receipts and $24.7 billion in federal income tax payments. Bloomberg has reported that a collapse of GM alone could cost between $100 billion and $200 billion in government-funded benefits. This figure greatly exceeds proposed bailout numbers.

A prepackaged Chapter 11 bankruptcy for GM is an option that has been floated consistently in op-ed pages, but it would be a risky move for the faltering auto giant. A prepackaged Chapter 11 filing in a different era would have allowed GM to restructure, protect itself from creditors and emerge leaner and more financially sound. But as The New Republic's Jonathan Cohn recently wrote, in order to become productive while in bankruptcy protection, GM would need to be able to buy materials and parts from suppliers on credit through Debtor-in-Possession loans. The current credit climate makes it unlikely that GM would find creditors willing to lend the funds necessary to continue operations. In this case, GM would be forced into a Chapter 7 situation -- total liquidation.

A government bailout of GM is the most viable solution to the crisis, but if Congress extends a lifeline it must be predicated on the condition that GM and others commit to systematic reform. Nelson Lichtenstein, a labor historian at the University of California, Santa Barbara, says the most pragmatic and progressive arrangement would be for a bailout of this sort to occur under the premise of "socially democratic planning" that would offer government loans to automakers as part of a larger economic recovery plan. Such a plan would include a jobs program like the New Deal-era Works Progress Administration, infrastructure projects and universal healthcare, which would alleviate many headaches for private enterprise. In return for government funds, the public sector should get equity in GM, a seat on its board, management oversight, a moratorium on golden parachutes for executives and ironclad agreements on fuel-efficiency standards. There should also be careful oversight of the administration of funds so that a bailout does not go toward propping up stockholders or allowing bond brokers to cash in on government investment.

Such an arrangement is vital to the real economy and is especially important to the industrial base and what remains of well-compensated blue-collar work in America. Gary Chaison, a professor of industrial relations at Clark University, notes that one of the ugliest aspects of the continued debate over the Big Three has been a virulent, thinly cloaked antiworker narrative. Washington Post columnist Robert Samuelson recently wrote that a GM bankruptcy could serve as a reminder to all of the "social costs of...overpriced unionized labor." He and other finger-wagging pundits, politicians and free-market adherents have blamed unionized workers (with their solid wages and benefits) for their complicity in the crisis GM is facing.

These arguments falsely vilify working people and stem from a superficial understanding of the modern automotive industry. Historically, the auto industry has provided good middle-class jobs that have come with high wages, impressive healthcare and pension benefits packages, disability and overtime pay -- the kinds of jobs that are in too short supply in today's economy. But in recent decades, much of GM's manufacturing has been moved to nonunion parts plants in the South, allowing the company to drive down labor costs by avoiding United Auto Workers strongholds in the industrial Midwest. This, coupled with last year's agreement by the UAW to swallow concessions on a two-tiered pay scale, has dramatically lowered labor costs for GM. The UAW has also agreed to take over retiree health costs in 2010. These concessions -- opposed by many union members for creating a divided workforce -- have allowed GM to close the labor cost gap significantly with foreign manufacturers like Toyota. Analysts estimate that the 2007 agreement has saved GM $500 million in labor costs since its signing, and the company is set to save $4 billion annually starting in 2010.

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Marissa Colón-Margolies, a freelance writer living in Brooklyn, is a fall 2008 Nation intern.

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