Changing the Auto Industry from the Wheels Up

The problems of the U.S. auto industry call for radical solutions.

By Alejandro Reuss

This is a web-only article from the website of Dollars & Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org/archives/2009/0509reussautofull.html


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Intro | Pt. I | Pt. II | Pt. III | Pt. IV | Pt. V| Pt. VI | Full article

auto worker

Photo by Jim West

Introduction

The “Big Three” U.S. auto companies are not facing a crisis—they are facing multiple interrelated crises at once. Chrysler, General Motors, and Ford have posted tens of billions in losses over the last few years. They suffer from chronic overcapacity, producing more cars than they can sell, and have ended up selling cars at a loss. [Note 1] Their cars are widely viewed as lagging behind those of international competitors in quality, styling, and reliability. They have focused on fighting fuel-efficiency standards rather than developing new, fuel-efficient vehicles. [Note 2] They have bet heavily on large, gas-guzzling models and are playing catch-up Toyota and Honda in the development of hybrid cars. [Note 3] They face significant cost disadvantages compared to their main competitors, mainly due to retiree health and pension “legacy costs.” [Note 4] And, on top of all this, a deep recession has hammered car sales. [Note 5]

Already operating in the red before last year, the Big Three have been burning through billions in cash reserves during the current recession. General Motors, having posted losses every year since 2005, lost over $30 billion in 2008. [Note 6] It has reported that, in the first quarter of 2009, it lost another $6 billion (and depleted its cash reserves by over $10 billion). [Note 7] Ford has posted losses since 2006, including about $15 billion in 2008. [Note 8] Chrysler lost $8 billion last year. [Note 9] With their companies teetering on the edge of bankruptcy, GM and Chrysler executives appeared before Congress last November asking for a government bailout. In December, the Bush administration announced $13.4 billion in loans for GM and $4 billion for Chrysler. [Note 10](Since then, both companies have asked for billions more.) In April, the Obama administration offered additional loans of one-half billion to Chrysler and up to $5 billion to GM. [Note 11]Lacking private sources of financing, the two companies have managed to stay in business this long thanks only to the government loans.

The government has required both companies to submit restructuring plans, including concessions from workers and creditors, as a condition of the bailouts. [Note 12]At the end of March, the Obama administration rejected the submitted plans as inadequate. It gave Chrysler 30 days more to conclude a takeover deal with Italian auto giant Fiat, while GM got 60 days to submit a new restructuring plan. [Note 13]In late April, Chrysler appeared to have a deal with Fiat, with the Italian automaker set to take over operations and receive 20% of the company’s stock (with a possible future increase to 35%). A United Auto Workers (UAW) retiree health-care trust would own 55% of the stock. [Note 14]The UAW accepted new concessions on wages and benefits, while the company’s major creditors agreed to cancel billions in debt for about a third of its face value (plus less than 10% of the company’s stock). [Note 15]When some creditors balked at the plan, however, the company filed for bankruptcy. [Note 16]Meanwhile, GM proposed a restructuring plan in which the federal government would own 50% of the stock (in exchange for the cancellation of about $10 billion in company debt), and the UAW retiree health-care trust nearly 40%, leaving the company’s unsecured bondholders with just 10%. [Note 17]The plan included the shutdown of the company’s Pontiac division and over 20,000 layoffs. Bondholders could still balk, however, in which case GM would go into bankruptcy as well. [Note 18]

No matter what the outcome of the current crisis, the “Big Three” are not likely to return to the heights of their post-World War II heyday. In the 1950s and 1960s, the Big Three dominated the U.S. auto market. As recently as the late 1990s, they accounted for over 70% of total U.S. sales of new cars and light trucks. Now, they account for less than 50%. [Note 18] In the mid 1950s, General Motors alone accounted for over 50% of U.S. new-car sales. [Note 20] Today, the company’s market share is about 20%. [Note 21]Under the company’s proposed restructuring plan, it would employ less than 40,000 union auto workers, less than one tenth the number the company employed at its peak in 1970. [Note 22] There is no way to put Humpty-Dumpty together again, and it does not seem that any of the major players in this drama—the companies’ managements, the leadership of the UAW, or the government—really believe that there is. The real question is whether something new and better will be built from the wreckage of this industry.

Part I: Were Bailouts Necessary?

The government did not have to bail out the auto companies in order to keep workers employed and producing something (whether cars or something else).

In his testimony before the Senate banking committee in November, then-GM Chairman Rick Wagoner offered an apocalyptic vision of what would happen “if the domestic industry were allowed to fail” (that is, if the government did not cough up the bailout GM and Chrysler were requesting): “The societal costs would be catastrophic: three million jobs lost within the first year, U.S. personal income reduced by $150 billion, and a government tax loss of more than $156 billion over three years... not to mention the broader blow to consumer and business confidence.” [Note 23]

The figures, also cited by Chrysler Chairman Robert Nardelli, [Note 24] come from a November report by the Center for Automotive Research (CAR) predicting the consequences of “the Detroit Three automakers ceasing all operations in United States.” Wagoner and Nardelli obviously chose this “100 percent contraction scenario” to make the consequences of refusing a bailout seem as bad as possible. This scenario is extremely pessimistic, assuming the disappearance of GM and Chrysler, the disappearance of Ford, which did not even ask for a bailout, and a temporary (one-year) disappearance of all U.S. auto production by international auto companies. [Note 25] More importantly, however, the auto CEOs’ pleas snuck in the false assumption that the only way to avoid this nightmare was for the government to bail out the companies.

The current administration appears to be determined to save GM and Chrysler in one way or another. “We cannot, and must not, and we will not let our auto industry simply vanish,” President Obama declared. [Note 26] If the companies ceased to exist, however, the workers would not vanish. The factory buildings and machinery would not vanish. If the government wanted to keep the workers employed and producing goods (whether cars or something else), it could pay the workers their wages and benefits, buy or build factories and machinery, and pay for other necessary inputs, such as materials and energy. If the government wanted to keep the workers producing cars, it could buy the auto companies themselves, or it could buy the factories and equipment (and allow the companies to cease to exist). If it wanted to put those workers to work producing something else, it could buy the factories and machinery and re-tool them as needed, or it could construct new factories or equipment (if the existing production apparatus proved unsuitable to the new purpose, or too costly to re-tool). Maintaining employment and production, in short, would not require preserving the companies in anything like their present form.

Not only were the bailouts unnecessary for saving the jobs of workers at GM and Chrysler or other companies (such as suppliers and dealers) affected by the crisis, but they have not succeeded in doing so. Auto industry employment in the United States (including vehicle and parts manufacturing and sales) has declined by about 400,000 jobs in the last year. [Note 27] In fact, maintenance of employment does not appear to have been the objective of government policy (under either Bush or Obama). The government has encouraged layoffs by requiring deep cuts in company costs as a condition of the bailout. The companies have sought concessions on past obligations from workers and bondholders, concessions on future wages and benefits from workers, and massive layoffs. Under GM’s government-mandated restructuring plan (after the first round of bailouts), the company promised to lay off 47,000 workers worldwide by the end of 2009. [Note 28] Chrysler’s plan promised to cut 35,000. [Note 29] The Obama administration rejected both plans as inadequate, saying that viable restructuring plans for both companies would require deeper cost cutting. [Note 30]

Part II: The Economics of Nationalization

The government could have nationalized GM or Chrysler for much less than what it handed over in bailout money.

The nationalization of large private companies has suddenly become part of mainstream U.S. political debate. Even mainstream commentators have advocated the (temporary) nationalization of major U.S. banks as a necessary fix of the financial sector. With nationalization no longer “beyond the pale” of respectable debate, talk of nationalizing the auto companies began to trickle into mainstream debate. Some commentators compared the auto companies to the bankrupt railroads of the 1970s, which were nationalized (as Conrail) and later re-privatized. [Note 31]

The current administration has not set out to nationalize either GM or Chrysler. “Nationalization,” at least in the sense of government majority ownership, however, became a real possibility with GM’s April restructuring plan. Under the plan, the government would receive a majority of the stock in the company in exchange for the cancellation of over $7 billion in the company’s debt (from the bailout loans). [Note 32] Administration officials hastened to explain that they had not aimed to nationalize the company, that the administration had “no desire to run an auto company,” and that it would not seek representation on the company’s board. [Note 33]

From a purely economic standpoint, the government could have easily nationalized GM for much less that it gave out in bailout loans. GM stock has been trading for under $4 per share for almost all of 2009. At this price, the company’s total “market capitalization”—the amount of money it would take to buy all the shares owned by members of the public—is around $2.5 billion. (This number is usually interpreted as investors’ collective valuation of what a company is worth.) At the late April price of less than $2 per share, it was about $1 billion. So the government could have bought all the shares in GM for between $1 billion and $2.5 billion, depending on the timing, or a majority stake for half that. [Note 34] (These calculations are harder to make for Chrysler, since it is not a publicly traded company and so its stock does not have a market price, but the story would probably be quite similar.)

Had the government bought a controlling stake in either company, however, the money paid for the shares would not have been available for current production, retooling, or research and development. (This money would have gone to the shareholders, not the company.) Instead, the government could have forced the companies, which had no other place to turn for credit since no private lenders were willing to loan them money, to issue it enough new stock to give the government a majority stake. The issuance of new stock reduces the portion of a company owned by existing stockholders. If GM issued the government enough stock to give it a majority stake (just over 50%), for example, this would have reduced existing stockholders’ stake by half. A one-half stake in GM would have cost about half of the company’s market capitalization, or about one-half billion dollars at the late April share price. That money would have been in the possession of a company the government now controlled, and therefore available for operations. The government could have made additional financing available to the now-government-controlled company for additional shares of new stock, or as loans.

Instead of pursuing these options, the government extended bailout loans to both companies. It has handed $15.4 billion to GM so far. [Note 35] GM’s bankruptcy plan assumes the government will extend another $11.6 billion in loans, for a total of $27 billion. The plan has the government cancelling $7.4 billion of GM’s debt, and receiving a little more than half the company. [Note 36] In effect, if the plan goes through, the government will have paid over $7 billion for half of a company that is, right now, worth about $1 billion. The government, in effect, has become one of the creditors making dramatic concessions (taking a “haircut”) in the companies’ restructuring plans.

Part III: Buying the Assets

The government could have bought the assets of GM or Chrysler as an alternative to either making bailout loans or buying the company lock, stock, and barrel.

GM and Chrysler have considerable tangible assets (factories, machinery, and inventories), holdings in other companies (like GM’s stake in the consumer-finance company GMAC), cash reserves (dwindling fast), and so-called intangible assets (brand names, however tarnished). They also have vast liabilities (debts)—to bondholders, suppliers, warranty holders, current workers, and retirees. Had the government bought the companies, it would have bought both the assets and the liabilities.

The government has attempted to broker a process in which the two companies’ liabilities would be greatly reduced. As a condition of the bailouts, the government pushed GM and Chrysler to get concessions from both bondholders and the UAW. [Note 37] (The labor concessions have involved cuts in future wages and benefits, along with massive layoffs, in addition to reductions to past obligations. [Note 38]) If the government had bought a controlling stake in either company, it could have sought concessions from creditors (much as it has pushed the two companies to do). Some past nationalizations, such as Conrail, have also imposed harsh austerity measures on workers, so nationalization would not necessarily have been a panacea for workers. [Note 39]

Alternatively, the government could have bought the assets of GM or Chrysler rather than buying the company lock, stock, and barrel. In principle, it could have done this without waiting for them to burn through their remaining cash (plus the bailout funds) and declare bankruptcy. (Bankruptcy entails a great deal of uncertainty, and is usually dreaded by unions since it has been used historically by companies to cancel collective-bargaining agreements.) In late March, the Obama administration was considering plans under which both GM and Chrysler would be split into two companies, a “bad” company that would be liquidated and a viable “good” company (including most of the valuable assets) that would continue to operate. In the case of GM, the New York Times reported, most of the undesirable divisions and liabilities would be “left in the old company,” to be subsequently sold off and used, along with proceeds from the sale of its valuable components, to pay off creditors. A new company, “financed by the government,” would buy GM’s valuable divisions and assets. [Note 40] In the case of Chrysler, the administration’s plan aimed for Fiat to buy the “good” company. [Note 41] In neither case was the administration’s plan for the government to own the new company, though there is no reason in principle that this could not have been the goal.

The government could also have bought the assets of one of the companies in the event of bankruptcy and liquidation. Bankruptcy can lead to a company’s “reorganization,” in which case some or all of its debts and contracts may be voided, or can end in the liquidation of the company’s assets. The liquidation of a company means that the company ceases to exist, but not that its assets cease to exist—they are liquidated, not liquefied! The assets are sold off, and the proceeds are used to pay off at least some creditors. In principle, if the government wanted to get auto workers back to work producing cars, it could have bought the factories and machinery and paid the workers to produce cars. If it wanted to get them back to work producing something else, it could have still bought these factories and machinery and retooled for some other kind of production.

When a bankrupt company is liquidated, which creditors will be paid off first is always an issue. Neither Chrysler nor GM has enough assets to pay off all their creditors, so in the event of the liquidation of either company, some creditors would receive nothing. In a recent forum in the New York Times, UCLA law professor Lynn M. LoPucki argues that bankruptcy law gives workers “priority over the claims of ordinary creditors, including the bondholders, the suppliers, and the dealers.” In practice, however, who gets paid off first (or at all) often depends on the leanings of the bankruptcy court. [Note 42] No matter who bought the assets in a liquidation (the government or a private buyer), the concern would be that the proceeds would be used to pay off bondholders, and leave workers and retirees in the lurch.

The creditors who balked at Chrysler’s restructuring plan were “secured” lenders, meaning that they would have had first claim on the company’s assets, and so were holding out for either a liquidation or a better deal. [Note 43] As of early May, a bankruptcy judge decided that Chrysler’s restructuring could go ahead as planned, despite the creditors’ objections, so a liquidation does not seem likely. [Note 44] (As some of the bondholders abandoned the cause, the holdout group dissolved. [Note 45]) It is still possible that some GM creditors will oppose its proposed restructuring, and hold out for a liquidation. Were the government to buy the assets of a bankrupt company, it should ensure, either through the terms of the particular bankruptcy or through new legislation covering all bankruptcies, that obligations to workers and retirees are honored before obligations to bondholders. In practice, this would mean that bondholders would be “wiped out.”

Part IV: Replacing the “Private Welfare State”

The “private welfare state”—the system under which benefits like health insurance and pensions are provided mostly by private companies—is failing, and the only solution is comprehensive health and pension reform (including a national health-care system).

Since the Second World War, many large U.S. companies have provided benefits, such as pensions and health insurance, provided by the state in other rich capitalist countries. Under this system, sometimes known as the “private welfare state,” individuals enjoy pension and health benefits by virtue of employment at a company that offers them, not as a social right. The auto industry was one of the first to offer such benefits on a large scale (during the Second World War, as a way to get around the wartime wage freeze), and these benefits grew to be very extensive in the course of the postwar period. By the 1960s, they included health coverage for retirees as well as current workers. [Note 46]

The UAW’s objective in pushing for these benefits, especially health benefits, was not only economic, but also political. Walter Reuther, the head of the UAW in the 1940s, believed that imposing health-care costs on employers would push the companies to support a government health-care system, and so help to usher in such a system here. [Note 47] Obviously, that has not happened, to the detriment not only of the tens of millions left uninsured or underinsured, but even of the companies paying for such benefits. The growth of the private welfare state has resulted, for the auto companies and for other employers with long-standing retiree pension and health benefits, in enormous “legacy costs.” For every $55 in current labor costs, for example, Ford pays $16 in retiree pension and health benefits. [Note 48]

Workers at each of the Big Three have made major concessions on retiree health-care obligations. In February, the UAW agreed to accept Ford stock in exchange for about half of the $13.6 billion the company owes a retiree health-care trust. [Note 49] Under GM’s restructuring plan, a retiree health-care trust would receive 39% of the stock in the company. The UAW agreed to cancel about $10 billion in retiree health-care obligations, half of the total the company currently owes the trust, in exchange for this stake in the company. [Note 50] The trust has in effect forgiven $10 billion in debt for less than half of a company that, right now, is worth about $1 billion. Of course, the stock could end up being worth more (or less) in the future.

Under Chrysler’s restructuring, the UAW has accepted, in lieu of $10.6 billion in retiree health obligations (contributions owed by the company to a retiree health-care trust), $4.6 billion as a company IOU plus 55% of the stock in the restructured company. The total value of the deal was put at $8.8 billion, with the stock being valued at $4.2 billion. [Note 51] Since Chrysler is not a publicly traded company, however, it is unclear what the stock is actually worth—that is, what the trust will be able to sell the stock for when it needs cash to pay out benefits. Two years ago, the venture-capital firm Cerberus paid Daimler $7.4 billion for 80% of Chrysler’s stock, but $6 billion of that was retained by Chrysler and its financial arm (both controlled by Cerberus after the sale), and only $1.4 billion actually went to Daimler. [Note 52] Cerberus’ $6 billion investment in Chrysler was worth something to Daimler, since it increased the value of the 20% of Chrysler that Daimler still owned. However, the terms of the deal do not suggest that the company was worth over $9 billion then, as some commentators have estimated. [Note 53] It is possible, then, that the trust’s stake in Chrysler is worth less—perhaps much less—than $4.2 billion. Meanwhile, in the event that this stake ends up being worth more than $4.2 billion, under the terms of the plan the balance would go not to the trust but to the U.S. Treasury. [Note 54] Finally, the deal exposes retirees to additional risk since the viability of the company remains in doubt, and stock holders are last in line to be paid in the event of bankruptcy.

The auto companies signed collective-bargaining agreements promising auto workers pension and health benefits. Current and former employees have a special contractual claim on these companies for the benefits they have been promised, and should not be left without health or pension protections. (Pension benefits are insured by the government’s Pension Benefit Guaranty Corporation, though in the event that any of the auto companies defaulted on their pension obligations, workers would likely get much lower pensions that they had been promised. [Note 55]) In the grand scheme, however, all workers—whether or not they have enjoyed the good fortune of being employed by companies that offer retirement and health benefits—have a moral claim to a comfortable retirement and access to medical care.

The failings of the private welfare state scream out for a comprehensive reform, rather than a “fix” that applies only to this or that category of workers. This system leaves tens of millions of people without health coverage. (The Centers for Disease Control reported that over 50 million people in the United States lacked coverage at some point during 2006. [Note 56]) Workers with health problems are afraid to change jobs, due to the danger of losing their health insurance. Workers who lose their jobs face the catastrophe of losing health coverage, as is now happening to millions of workers. (The Center for American Progress reports that over 2 million U.S. workers have lost coverage due to unemployment during the current recession. [Note 57]) The private welfare state, moreover, contributes to enormous administrative costs resulting from the existence of so many different health insurance plans. It narrows the pools of individuals across which risk is spread, and so makes the cost of insurance greater.

A comprehensive solution to this crisis requires the creation of a national health-care system and the revision of the public pension system to make it much more redistributive. The “private welfare state” should be replaced by a system that treats health-care and retirement benefits as economic rights, takes these factors “out of competition” for workers (so workers will not have to sacrifice retirement or health benefits to save their jobs), and broadly spreads risk across the entire society.

Part V: Industrial Conversion

The number of cars being produced should go down, especially for environmental reasons, and resources should be directed to environmentally sustainable industries.

The government could keep auto workers employed producing exactly what they have been producing—by nationalizing the companies, buying assets like factories and machinery, or some other policy—but that should not be the objective. Cars, especially the gas-guzzling SUVs, pickup trucks, and high-horsepower cars that the Big Three have been cranking out, are an environmental and public-health disaster. They generate tons of pollution, waste vast energy resources, require huge amounts of space and infrastructure to store and operate, and pose grave danger to other users of public roads (including other motorists, cyclists, and pedestrians).

Producing these vehicles has also turned out to be a bad business plan. The Big Three bet heavily on large, gas-guzzling vehicles that had until recently been high-profit items. All three companies actually sell substantially more “light trucks”—pickups, SUVs, vans, and minivans—than cars. In 2008, light trucks accounted for nearly 60% of GM’s new vehicle sales; for Ford, nearly 65%; for Chrysler, over 70%. (Meanwhile, they accounted for about 40% of Toyota, Honda, and Nissan’s new vehicle sales.) [Note 58] Last year’s spike in fuel prices hit U.S. automakers especially hard. Both company officials and industry analysts recognized, however, that the demand for smaller, more fuel-efficient vehicles was more than just a temporary “spike.” U.S. consumers were shifting permanently toward smaller vehicles, and the Big Three had been caught behind the times. [Note 59]

The world auto industry suffers from chronic overcapacity. [Note 60] Auto companies have made huge investments in plant and equipment. Once these investments have been made, the companies pay these costs regardless of the number of cars they produce, so these are referred to as “fixed” costs. (Imagine a company that has signed a lease on a factory, for example, and has to pay the rent whether it produces one vehicle or a thousand.) If an auto company does not operate near capacity, the production cost per car goes up, as those fixed costs are averaged over a smaller number of cars. [Note 61] As a result, the auto companies have persisted in producing too many cars, resulting in enormous inventories and, for some companies, the sale of cars at a loss.

It is not a bad thing for auto production to decline. The U.S. auto companies, however, are now cutting production in an incredibly wrenching fashion, which is decimating employment and union membership in auto manufacturing, parts manufacturing, and auto and parts sales. Employment in auto and auto-parts manufacturing in the Untied States has declined by over 210,000 over the last year, and at auto and auto-parts dealerships by an additional 190,000. [Note 62] The government, meanwhile, has encouraged layoffs by requiring deep cuts in company costs as a condition of the bailout.

Instead of overseeing this bloodletting, the government could oversee a process of shifting workers and physical resources to environmentally sustainable branches of production with a minimum of disruption, insecurity, and pain. Existing plant and equipment could certainly be used (with retooling) to produce more fuel-efficient cars, hybrid cars, or electric cars. This is already in the cards to some degree. The government made improved fuel efficiency a condition of the initial bailouts last year, [Note 63] and the Fiat takeover plan includes incentives that will increase the company’s equity stake in Chrysler if it meets goals for the development of more fuel-efficient vehicles. [Note 64] GM has a primarily electric car (with a backup gasoline engine), the Chevy Volt, in the works for 2010, though some analysts have questioned design decisions that have contributed to the Volt’s high projected price. The company has also promised to develop 15 hybrid models by 2012. Ford has described plans for an electric van for 2010, with other hybrid and electric vehicles to follow by 2012. Chrysler had unveiled plans for a hybrid truck in 2010, with other hybrid vehicles to follow (prior to its subsequent bankruptcy and likely takeover by Fiat). [Note 65] The transformation of the U.S. transportation system, however, needs to be much more dramatic, shifting toward mass transit, much smaller motorized vehicles using sustainable energy sources, and human-powered vehicles (mainly bicycles).

It might be possible to convert former auto factories and machinery to the production of locomotives and rail cars, zero-emission buses, golf-cart-like electric vehicles, electric motor scooters, and bicycles—the artifacts of a new transportation system. (Chrysler already owns a division that produces small “neighborhood electric vehicles (NEVs), though not in mass-market numbers. [Note 66] Meanwhile, GM has created, in collaboration with Segway, a prototype small electric vehicle. Segway officials, however, say no decision has yet been made about its commercial future. [Note 67]) If the government were to purchase the auto companies’ assets, it could retool the factories and machinery for producing these other kinds of transportation machines. If the existing factories and machinery were not suitable for these purposes, or it would be very costly to retool, it might be preferable to scrap all or part of the old facilities and machinery and build anew. The government, in other words, would not necessarily have to buy the scraps of the auto industry to build up these other industries. Workers displaced from the auto industry could still be re-employed by deliberately directing investment toward hard-hit areas.

Building more of these other kinds of transportation machines is just one aspect of creating a sustainable transportation system. Bicycles, for example, are not exactly new inventions. Despite their enormous environmental and resource-use advantages over cars and trucks (less material required for manufacture, superior energy efficiency, far lower pollution, lower space requirements for use and storage, less wear-and-tear on infrastructure, less danger posed to other road users, etc.), however, most people in the United States still travel primarily by car. A transformation of the U.S. transportation system toward environmental sustainability would also require not only new transportation machines, but also radical changes in the use of public space, such as the creation of car-free zones, to make roads safe and welcoming for non-motorists.

Part VI: Workers’ Control

The failings of management have triggered calls for the replacement of particular executives, but should also be an opportunity to question the entire system of top-down management.

The Big Three managements have led the companies and their workers to the brink. As BusinessWeek’s Detroit bureau chief David Welch writes in his account of GM’s fall from the pinnacle of the auto industry, management “just made too many mistakes for too long.” [Note 68] The requests by GM and Chrysler for public money triggered calls for the ouster of at least top executives, and the Obama administration insisted in late March on the resignation of GM head Rick Wagoner as a condition for further government assistance. [Note 69] So far, however, calls for a change in the top management personnel have not come with calls for broader changes to the authoritarian system of control that pervades capitalist corporations.

The arguments for workers’ control of production are, ultimately, the familiar principles of self-government: All people should be able to make for themselves the decisions that affect their lives, and should not have to accept decisions imposed on them. When such decisions affect many people, each should be able to participate equally in a system of collective decision-making. People should not to have to answer to a lord, a master, or a boss. The authoritarianism of the capitalist workplace collides with these principles. In the workplace, most people do not have—or, very often, expect—the right to make decisions for themselves or to elect representatives to whom they delegate decision-making authority (and whose authority they can revoke if they decide). Instead, they answer to a boss, whether the owner of the company where they work or a delegate of the owners, who definitely does not rule by consent of the governed. The principles of self-government are an important part of U.S. political culture, and so offer an opening to discussions of workplace democracy in this country. They are also universalistic principles, demanding the equal inclusion of all, irrespective of national borders or any other dividing lines.

Ideas of workers’ control have a long history in the United States, but are no longer really part of the culture of the U.S. labor movement. During their post-World War II heyday, U.S. unions by-and-large accepted that the production process, product design, pricing, and other major decisions were “management prerogatives.” In return, workers in “core” industries (like auto, steel, and trucking) got recognition of their unions, real-wage increases tied to productivity growth, steady employment, and the benefits of the private welfare state. This arrangement is often known as the “capital-labor accord,” or the “limited capital-labor accord,” since it never covered all—or even most—U.S. workers. [Note 70] Since the 1970s, employers have shredded their side of the bargain. The “management prerogatives,” however, have remained.

Early reports of Chrysler’s restructuring plan, under which the UAW retirees’ health-care trust would get 55% of the stock in the company, suggested that the union would “own” or “control” the company. The union quickly denied that it would control Chrysler, pointing out that the retiree health-care trust was an independent entity and assuaging any fears that the union would be making managerial decisions at the company. [Note 71] (The UAW also announced that the trust would quickly sell off its shares to pay out benefits. [Note 72]) This defensiveness suggests the hostility in mainstream political culture to any hint of workers’ control. In reality, though, the Chrysler deal does not involve workers’ control or ownership in any meaningful way. The restructuring plan includes different categories of stock, and the category that the trust holds is defined in a way that means that the trust’s 55% does not constitute a majority of the voting power. [Note 73] The trust would have only one (non-voting) seat on the board of directors, compared to four seats for the U.S. government and three for Fiat. The Wall Street Journal reported that Fiat’s CEO would become the head of Chrysler or appoint someone else to the position. [Note 74] Under the Chrysler restructuring plan, it is Fiat, not the union or the workers, that will have operational control of the company.

As bankrupt as the current system of top-down management may be, a new system will not come about automatically, nor without a fight. For the auto industry, it is not likely to come about at all without a major upsurge in workers’ resistance to the current restructuring. This may take place through the UAW and other existing unions, come from outside the existing unions (through the emergence of new workers’ organizations or through “wildcat” actions), or both. The labor upsurge of the 1930s, which created the UAW and other major unions, took both forms. The fight-back today need not begin with a highly ideological commitment to a new system of workers’ control. It may begin with something as basic as a refusal to accept layoffs. Workers at the Chicago-area manufacturer Republic Windows and Doors, who sat-in at their factory in December rather than accept layoffs, offer an example of such resistance. [Note 75] The tactic, a factory occupation, echoes the origins of the UAW itself—whose sit-down strikes unionized GM in the 1930s. [Note 76]

For the auto industry today, the fight-back would have to involve enormous numbers of workers, and not just in Detroit, but across the world. The auto companies are worldwide employers. Right now, to the extent that the discussion of the industry’s future is about the fates of the workers, it is mainly limited to U.S. workers. A partially or fully nationalized U.S. auto company or industry (under whatever system of control), however, would not necessarily protect the interests of workers in other countries. Proponents of workers’ self-management should advocate for the rights of all workers and their equal inclusion in any future system of control. Ultimately, however, whether the voices of workers, here or abroad, are heard will depend primarily on their own capacity for collective action and their own demands for real democracy.

end of article

Alejandro Reuss teaches economics at Wheaton College and is a member of the Dollars & Sense collective.

Intro | Pt. I | Pt. II | Pt. III | Pt. IV | Pt. V| Pt. VI | Full article

End Notes:

1. Eric Peters, Too Many Cars, Not Enough Market, American Spectator, February 11, 2009.

2. Mike Spector and Joseph B. White, Auto Bailout Caps Flawed Relationship, Wall Street Journal, December 22, 2008.

3. Analyst: Big Three Still Lag on Fuel Efficiency, National Public Radio, June 11,2008; “Consumer group: Big 3 dragging heels on fuel economy”, CNNMoney, July 17, 2007.

4. David Leonhardt, $73 an Hour: Adding it Up (Figuring Autoworkers’ Pay), New York Times, December 10, 2008.

5. Kevin Krolicki, U.S. February auto sales plunge as recession deepens, Reuters, March 3, 2009.

6. General Motors Corporation, Analysis Tools, Financials Table, Income Statement (Annual), New York Times.

7. Nick Bunkley, G.M. Posts a Quarterly Loss of $6 Billion, New York Times, May 7, 2009.

8. Ford Motor Company, Analysis Tools, Financials Table, Income Statement (Annual), New York Times.

9. The Big (Troubled) Three, New York Times, March 30, 2009.

10. Billions Received, But Needing More, New York Times.

11. U.S. to give Chrysler $500 mln, GM up to $5 bln in new aid, Reuters.

12. David E. Sanger, David M. Herszenhorn, and Bill Vlasic, Bush Aids Detroit, but Hard Choices Wait for Obama, New York Times, December 19, 2008.

13. Remarks by the President on the American Automotive Industry, The White House, Office of the Press Secretary; Peter Valdes-Dapena, Do or die for GM and Chrysler, CNNMoney, March 30, 2009.

14. Alex P. Kellogg and Kris Maher, UAW to Get 55% Stake in Chrysler for Concessions, Wall Street Journal, April 28, 2009; John Lippert and Mike Ramsey, UAW Said to Get 55% Chrysler Ownership, Board Seats, Bloomberg, April 28, 2009.

15. Obama Administration Auto Restructuring Initiative: Chrysler-Fiat Alliance, The White House, Office of the Press Secretary, April 30, 2009; Jim Puzzanghera, Chrysler’s major bondholders slash its debt, Los Angeles Times, April 29, 2009; Alex P. Kellogg and Kris Maher, UAW to Get 55% Stake in Chrysler for Concessions, Wall Street Journal, April 28, 2009.

16. Zachery Kouwe and Micheline Maynard, Chrysler Bankruptcy Looms and Deal on Debt Falters, New York Times, April 29, 2009; Neil King Jr. and Jeffrey McCracken, Chrysler Pushed into Fiat’s Arms, Wall Street Journal, May 1, 2009.

17. John D. Stoll and Sharon Terlep, Plan Sees a Smaller, Focuses—and Profitable—GM, Wall Street Journal, April 28, 2009.

18. Steven Mufson, GM’s New Road Map: Partial Nationalization, Washington Post, April 28, 2009; John D. Stoll and Sharon Terlep, GM Offers U.S. a Majority Stake, Wall Street Journal, April 28, 2009.

19. America’s Other Auto Industry, Wall Street Journal, December 1, 2008; Autodata Corporation, U.S. Light Vehicle Retail Sales, April 2009.

20. Autodata Corporation, U.S. Light Vehicle Retail Sales, April 2009.

21. A brief history of General Motors Corp., Associated Press, September 14, 2008. Autodata Corporation, U.S. Light Vehicle Retail Sales, April 2009.

22. Bill Vlasic and Nick Bunkley, G.M.’s Latest Plan Envisions a Much Smaller Automaker, New York Times, April 27, 2009.

23. Prepared testimony by Rick Wagoner, Chairman and Chief Executive Officer, General Motors Corporation, to the United States Senate Banking, Housing, and Urban Affairs Committee, Washington, D.C., November 18, 2008, Wall Street Journal.

24. Chrysler CEO Bob Nardelli’s Testimony Transcript, November 18, 2008.

25. David Cole, Sean McAlinden, Kristin Dziczek, Debra Maranger Menk, CAR Research Memorandum: The Impact on the U.S. Economy of a Major Contraction of the Detroit Three Automakers, Center for Automotive Research (CAR), November 4, 2008.

26. Remarks by the President on the American Automotive Industry, The White House, Office of the Press Secretary.

27. Automotive Industry: Employment, Earnings, and Hours, Bureau of Labor Statistics,

28. General Motors Corporation, 2009-20014 Restructuring Plan, February 17, 2009.

29. Chrysler Restructuring Plan for Long-Term Viability, February 17, 2009.

30. Remarks by the President on the American Automotive Industry, The White House, Office of the Press Secretary.

31. Louis Uchitelle, , New York Times, March 15, 2009.

32. John D. Stoll and Sharon Terlep, , Wall Street Journal, April 28, 2009.

33. Steven Mufson, , Washington Post, April 28, 2009.

34. General Motors Corporation, , New York Times; General Motors Coporation, , New York Times.

35. Nick Bunkley, , New York Times, May 7, 2009.

36. John D. Stoll and Sharon Terlep, , Wall Street Journal, April 28, 2009.

37. David E. Sanger, David M. Herszenhorn, and Bill Vlasic, Bush Aids Detroit, but Hard Choices Wait for Obama, New York Times, December 19, 2008.

38. Obama Administration Auto Restructuring Initiative: Chrysler-Fiat Alliance, The White House, Office of the Press Secretary, April 30, 2009; Jim Puzzanghera, Chrysler’s major bondholders slash its debt, Los Angeles Times, April 29, 2009; Alex P. Kellogg and Kris Maher, UAW to Get 55% Stake in Chrysler for Concessions, Wall Street Journal, April 28, 2009; Steven Mufson, GM’s New Road Map: Partial Nationalization, Washington Post, April 28, 2009; John D. Stoll and Sharon Terlep, GM Offers U.S. a Majority Stake, Wall Street Journal, April 28, 2009.

39. Louis Uchitelle, Railroad Bailout May Offer a Model for Detroit, New York Times, March 15, 2009.

40. Brian D. Glater, U.S. Hopes to Ease GM to Bankruptcy, New York Times, March 31, 2009; Jeffrey McCracken, Monica Langley, and John D. Stoll, Bankruptcy Leads Possible Plans for GM, Chrysler, Wall Street Journal, March 30, 2009.

41. Jeffrey McCracken, Monica Langley, and John D. Stoll, Bankruptcy Leads Possible Plans for GM, Chrysler, Wall Street Journal, March 30, 2009.

42. Lynn M. LoPucki, Legal Rights vs. Reality, in: Room for Debate: &ldwuo;Auto Workers: Rescue Them or Not?,” New York Times, March 9, 2009.

43. A Road Map to a Chrysler Bankruptcy, New York Times, April 30, 2009.

44. Michael J. de la Merced and Jonathan D. Glater, Plan to Sell Chrysler to Fiat Clears Bar, New York Times, May 5, 2009.

45. Michael J. de la Merced, Creditors Opposing Chrysler’s Overhaul Plan End Alliance, New York Times, May 8, 2009.

46. Ron French, World War II created health insurance perk, Detroit News, October 25, 2006.

47. Bill Koenig, UAW Chief Faces Reuther Legacy, ‘Crashing’ Industry, Bloomberg.com, July 20, 2007.

48. David Leonhardt, $73 an Hour: Adding it Up (Figuring Autoworkers’ Pay), New York Times, December 10, 2008.

49. Nick Bunkley, U.A.W. Agrees to Concessions at Ford, New York Times, February 23, 2009.

50. John D. Stoll and Sharon Terlep, GM Offers U.S. a Majority Stake, Wall Street Journal, April 28, 2009; John D. Stoll and Sharon Terlep, Plan Sees a Smaller, Focused—and Profitable—GM, Wall Street Journal, April 28, 2009.

51. John Lippert and Mike Ramsey, UAW Said to Get 55% Chrysler Ownership, Board Seats, Bloomberg, April 28, 2009.

52. Chris Isidore, Daimler pays to dump Chrysler, CNNMoney, May 14, 2007.

53. Doug Henwood, The UAW’s Chrysler Stake: How 55% = 0%, LBO News.

54. Doug Henwood, The UAW’s Chrysler Stake: How 55% = 0%, LBO News.

55. Mary Williams Walsh, Plight of Carmakers Could Upset All Pension Plans, New York Times, April 23, 2009.

56. Robin A. Cohen, Ph.D., and Michael E. Martinez, M.P.H., Health Insurance Coverage: Early Release of Estimates from the National Health Interview Survey, January—September 2006, Division of Health Interview Statistics, National Center for Health Statistics, Centers for Disease Control.

57. Nayla Kazzi, More Americans are Losing Health Insurance Every Day, Center for American Progress, May 4, 2009.

58. Autodata Corporation, U.S. Light Vehicle Sales—April 2009.

59. Ken Bensinger, Pickup truck, SUV sales run out of gas, Los Angeles Times, June 4, 2008.

60. Eric Peters, Too Many Cars, Not Enough Market, American Spectator, February 11, 2009.

61. James Crotty, Why There is Chronic Excess Capacity, Challenge, Vol. 45, 2002.

62. Automotive Industry: Employment, Earnings, and Hours, Bureau of Labor Statistics.

63. Mike Spector and Joseph B. White, Auto Bailout Caps Flawed Relationship, Wall Street Journal, December 22, 2008.

64. Neil King Jr. and Jeffrey McCracken, Chrysler Pushed into Fiat’s Arms, Wall Street Journal, May 1, 2009.

65. Matt Vella, Can the Chevy Volt Save GM?, BusinessWeek, October 29, 2008; Alex Taylor, Taking the charge out of Chevy’s Volt, Fortune, March 3, 2009; Automakers Commit to Fuel Economy, Electrification in Long-Term Plans, Energy Efficiency and Renewable Energy, U.S. Department of Energy, December 3, 2008.

66. Robert Nardelli, Chrysler’s Plan for Short-Term and Long-Term Viability, United States Senate Committee on Banking, Housing, and Urban Affairs, December 4, 2008.

67. Sharon Terlep, GM, Segway to Make Vehicle, Wall Street Journal, April 7, 2009; Jim Motavalli, GM Conjures Up a People-Moving Pod, New York Times, April 6, 2009.

68. David Welch, How GM Lost its Sales Crown to Toyota, BusinessWeek, January 22, 2009.

69. Outside Pressure Grows for GM to Oust Wagoner, Wall Street Journal, December 8, 2008; Neil King Jr. and John D. Stahl, Government Forces Out Wagoner at GM, Wall Street Journal, March 30, 2009.

70. David Montgomery, Workers’ Control in America, Cambridge University Press, Cambridge, 1980.

71. Matthew Dolan, UAW Says Won’t Control Chrysler, Wall Street Journal, May 1, 2009.

72. UAW trust intends quick sale of Chrysler stake, Reuters, May 5, 2009.

73. Alisa Priddle and David Shepardson, UAW trust won’t get control of Chrysler, Detroit News, April 29, 2009.

74. Christine Tierney, Treasury will administer VEBA’s Chrysler stake, Detroit News, April 30, 2009; Neil King Jr. and Jeffrey McCracken, Chrysler Pushed into Fiat’s Arms, Wall Street Journal, May 1, 2009.

75. Monica Davey, In Factory Sit-In, an Anger Spread Wide, New York Times, December 7, 2008.

76. Monica Link and Larry Gabriel, The Flint Sit-Down Strike, UAW Solidarity, Jan.-Feb. 2003.


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