July 14th, 2020


Latest General Motors saga is deja vu all over again

Megan McArdle

By Megan McArdle The Washington Post

Published Sept. 24, 2019

In 1994, Paul Ingrassia, a great writer on the business of making cars, proclaimed a new renaissance in the U.S. auto industry. "This is an American success story, born of a close call with disaster," he wrote, with Joseph White, in the opening of "Comeback: The Fall and Rise of the American Auto Industry."

Sixteen years later, Ingrassia ruefully recanted his earlier optimism in another book on Detroit, "Crash Course: The American Automobile Industry's Road from Glory to Disaster." He wrote: "Throughout the 1980s and 1990s, every time the Big Three and the [United Auto Workers] returned to prosperity, they would succumb to hubris and lapse back into their old bad habits. It was like a Biblical cycle of repentance, reform, and going astray, again and again."

I suspect that Ingrassia, who died Monday at age 69 from cancer complications, might have looked at the General Motors workers now on strike and thought: "And again."

It's easy to sympathize with either side in the dispute. The unions made massive concessions in 2008 to help the company recover from bankruptcy, and GM is now earning billions in profits every year. Why does so much of workers' pay still come in the form of chancy profit-sharing deals rather than steady wages? Why are there so many tiers of employees -- old GM, new GM, temps -- working the same jobs for vastly different rates of pay? Why are plants being closed?

Management, meanwhile, is determined to ensure that the next recession doesn't turn into a repeat of 2008 -- except next time Washington might decline to help. The company can't let the union claim so much value that everything must go exactly right for GM to stay solvent. So they're cutting unprofitable operations early, shifting the labor force toward lower-paid workers and performance pay, and trying to rein in the staggering cost of employees' incredible health benefits. Taking those steps will ultimately benefit workers if it allows the company to avoid another bankruptcy.

All quite reasonable. So why can't GM and the union explain these things to each other? How have both sides decided that their best option is a painful strike, in the hope that the other side will hurt even worse?

The short answer: "That's how it's always been." For most of the 20th century, Detroit was locked in the industrial equivalent of the Cold War, with two unfriendly superpowers -- a manufacturing oligopoly and its monopoly union -- carving up the American consumer between them. All the while, each sought some way to destroy their rival and take the whole pie for themselves.

That sort of environment doesn't really foster innovation, or quality, or a healthy, sustainable business. They got away with it for decades only because Detroit had the biggest, richest market in the world largely to itself.

Contrary to popular belief, Detroit did try to reform itself when imports showed up to unsettle that profitable equilibrium. GM built collaborative Japanese-style experiments like the NUMMI joint venture with Toyota, and GM's Saturn cars. But Detroit always ended up reverting to form, in large part because the United Auto Workers, born in the adversarial and often bloody organizing efforts of the 1930s, never was able to shed that past and fully embrace collaboration.

There have been echoes of that old order in the years leading up to this strike, during which relations became more and more adversarial, and management and labor kept blindsiding each other with unwelcome news. You hear the echoes, too, in the way GM workers now talk about the strike.

It seems that many ultimately expected 2008 to be a repeat of the past, with workers making concessions to ride out a downturn, then forcing the company to make them whole again -- and then some -- when things got better. Now that things are better, they think GM ought to make good on those expectations.

The problem is that in the good old days, the Big Three were always one really bad downturn away from disaster. And when the disaster finally arrived in 2008, it darn near took everyone's jobs with it. GM didn't need a short-term fix; it needed a long-term restructuring that brought costs and productivity in line with competitors, and kept them there.

With the assistance of a government task force, a bankruptcy judge and $50 billion in taxpayer cash, GM dumped debt, pruned dealer networks and product lines, shed legacy costs and got payrolls down to competitive levels.

Though the numbers have changed, it seems that the most important thing hasn't: management's mutually antagonistic relationship with its assembly line. And unless they find a way to restructure that, in the end, nothing else is likely to matter.

Sign up for the daily JWR update. It's free. Just click here.


Megan McArdle is a Washington Post columnist who writes on economics, business and public policy. She is the author of "The Up Side of Down." McArdle previously wrote for Newsweek-the Daily Beast, Bloomberg View,the Atlantic and the Economist.