[Market Economy Guide] GM’s Crisis in the U.S. and Labor-Management Harmony

GM was driven to bankruptcy by militant unions’ strikes and incompetent management.

Only belatedly did the union cooperate—agreeing to no strikes and cuts to benefits—allowing the company to recover.

GM is an automobile manufacturer that represents the United States. Along with Ford and Chrysler, it once formed America’s “Big Three” automakers. Having acquired Daewoo Motors, it is also familiar to Koreans as “GM Korea.” GM’s origins go back nearly a century, alongside the dawn of the automobile as a modern technological innovation. In that sense, the history of GM is the history of the automobile itself.

“What’s good for GM is good for America”

The origin of the name GM, or “General Motors,” is also interesting. In the early 20th century, the United States was crowded with automobile companies, but among them Ford—armed with Fordism and the conveyor belt—stood out clearly. GM was the company formed by the alliance of several automakers to compete against Ford.

After defeating Ford in fierce competition, GM dominated not only the U.S. but also the global automobile market from the 1950s onward. It was during this period that the phrase, “What’s good for GM is good for America,” emerged. The speaker was Charles Wilson, a former GM chief executive officer who later served as Secretary of Defense under the Eisenhower administration. After being nominated as secretary, Wilson was asked at his congressional confirmation hearing what he would do if the interests of GM and the U.S. government conflicted. He replied that he would make a decision in line with the interests of the U.S. government, but added that there would be no conflict between the interests of GM and those of the United States. He was convinced that GM’s interests were America’s interests. The episode illustrates just how prominent GM’s position was in the United States.

Yet even GM, which had seemed so solid, could not escape the fate of rise and decline. Suffering for years from sluggish sales and a deteriorating financial structure, GM sought a comeback in the early 2000s by consolidating overlapping brands such as Saab, Saturn, and Pontiac. Even so, it could not overcome the shockwaves of the 2009 subprime crisis, received public funds, and at one point fell to the status of a state-run company, with the U.S. government’s stake exceeding 60%.

A succession of excessive benefits and strikes

The collapse of the American auto industry was not GM’s alone. Ford, the second-largest company after GM, also suffered financial difficulties for a long time. Chrysler was first acquired by Germany’s Daimler and then sold off again to Italy’s Fiat.

There are many complex reasons why the American auto industry declined. But a substantial share of the blame must be laid at the feet of the United Auto Workers (UAW), which remained uncompromising and hard-line throughout.

By its nature, the auto industry has a structure in which unions can easily gain leverage. In the large, elongated automobile production process, if even one stage stops, the entire process has no choice but to stop. It is easy to understand if one imagines a conveyor belt on which products must flow smoothly like running water. Even if moderate workers are doing their jobs in 99 stages, if just one stage is dominated by militant workers, the whole factory can be paralyzed. Once unions accumulate experience winning concessions from the company through repeated strikes, the voice of hard-liners within the union naturally grows stronger. The company becomes increasingly preoccupied with appeasing the union and loses its grip on management. One reason global automakers have invested enormous sums and effort in factory automation is that it is, in part, the bitter fruit of the conduct of such auto unions.

American automakers lost international competitiveness because of this union obstruction and ultimately met disaster. Even as foreign automakers’ penetration of the U.S. market became visible and company performance deteriorated badly, the union’s demands for wage increases and expanded benefits never ceased. It is well known that even when the company was on the verge of collapse, GM was still paying more than 100 trillion won in pension and health insurance costs for retirees who had left the company long ago. If such a company did not enter bankruptcy proceedings, that would be stranger still.

Belated regret and participation

After watching America’s automotive kingdom collapse, the UAW repented belatedly and gave up the vested interests it had long enjoyed. When GM filed for bankruptcy protection in 2009, the UAW declared that it would not go on strike at workplaces until 2015 and agreed to reduce excessive welfare costs. In effect, it acknowledged that the union’s frequent strikes and unreasonable demands on management had contributed to GM’s bankruptcy. The UAW also cooperated with restructuring and a wage freeze, joining in the effort to save the company. Based on this labor-management cooperation, GM was finally able to emerge from the bailout at the end of 2013.

■ Please remember

It is well known that even when the company was on the verge of collapse, GM was still paying more than 100 trillion won in pension and health insurance costs for retirees who had left the company long ago. If such a company did not enter bankruptcy proceedings, that would be stranger still.

Sung-no Choi

President, Center for Free Enterprise (CFE)

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Original title: [시장경제 길라잡이] 미국 GM의 위기와 노사 화합

Author: Sung-no Choi

Date: 2019-05-20

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=13&idx=20205