The Great Recession, the G.M. and Chrysler Bankruptcies of 2007-2009,
and Recovery
The Great
Recession, with its foreclosures, personal bankruptcies, lost jobs, and closed automobile
assembly factories started with a slowing of auto sales after a banner year in
2005, during which almost 17.5 cars and light trucks were sold (see table). Afterwards,
a foreboding trend appeared that the American industry had experienced during
the late 1950s, and the ealate 1970s and early 1980s -- the
remarkable rise in the sale of “pure” imports. These vehicles were not cars made at the
transplants, and they increased significantly from 19.7 percent in 2005 to 26.1
percent in 2008. [Endnote] Concurrently, credit tightened. Since some 90% of
all automobile purchases were made with loans – that development also contributed
to a marked decline in U.S. production. [Endnote]. $4.00 per gallon gasoline
prices also caused a drop in consumer confidence. It turned out to be a perfect
economic storm directed at a fragile industry. In 2007, prior to the steep downturn,
union pension and healthcare costs as well as post-employment benefits were
addressed with the formation of a voluntary trust employee benefits association
that also provided for a lower entry wage of $14.20 per hour for up to 20% of
the UAW workforce. But it was too little a cost-saving measure, too late.
By the end of 2008
the Detroit Three were running out of cash and G.M. and Chrysler faced imminent
bankruptcy. The outgoing Bush administration, led by Treasury Secretary Hank
Paulson, responded with a Troubled Asset Relief Program (TARP) loan. A stopgap,
it kept the threatened firms alive, and acted as an important bridge between the
outgoing Bush and incoming Obama administrations. In the meantime, massive job
losses followed. Automobile assembly plants employment dropped from 185,800 to
123,400 and in parts plants from 607,710 to 413, 500. By 2009 only 10.6 total American-made
units were sold, and recovery to 2005 levels did not occur until 2015.
After President
Obama took office, a taskforce at the Department of Treasury was created with
bankers Steven Rattner and Ron Bloom
emerging as its leaders. Congress proved as ineffectual as auto industry
leaders in reaching a compromise agreement. Conservatives wanted the industry –
and especially organized labor – to pay a price for a government bailout, while
more liberal legislators favored a more lenient approach given the huge
economic and social ramifications if the industry were to fail. In the end, both
G.M. and Chrysler went through managed bankruptcies. G.M. was forced into
bankruptcy with a 61% taxpayer ownership. G.M. also had a new chairman and four
new board members who were appointed by the federal government. To allay
consumer fears, the government backed warranties and President Obama created a
Cash–for-Clunkers program to stimulate demand. Ed Whitacre, formerly at
AT&T, was persuaded to come out of retirement to head G.M., followed 9
months later by Dan Akerson, formerly CEO at Nextel and then the Carlyle Group.
Ford, securing a credit line during the
first half of 2008, avoided government intervention in their business
operations, and since 2011 has recovered nicely with annual profits ranging
between $6.2 and $8.3 billion. Chrysler recovered but now under the control of
the Italian car company, Fiat.
G.M. has endured
several crises since 2009, including one involving a faulty ignition switch. It thrives, in part the consequence of its
operations in China, where its Buicks are preferred as desirable vehicles,
along with Audis and Porsches. Geographically,
the post-Great Recession U.S. industry now has two areas of concentration
within the I-65 and I-75 corridor. Above
US 30, cutting east to west between Ohio, Indiana and Illinois, the auto
assembly scene is dominated by the Detroit Three and suppliers; below it are
the transplant with their headquarters in Japan, Korea, and Germany.
From the
perspective of organized labor, the UAW is no longer what it once was, neither
in the sense of its power during the 1950s or its obvious weaknesses after the
mid-1970s. In 2015 industry analysts Joel
Cutcher-Gershenfeld, Dan Brooks and Martin Mulloy concluded, “The UAW
transitioned from a union that primarily threatens to withhold labor to one
that primarily enables work. Union brings expertise to discussions of quality,
safety, productive and preventative maintenance, workforce development, and
team based operations.”[endnote]. In sum, the UAW has experienced a new role
and resurgence by finding purpose in a new business environment.
No comments:
Post a Comment