General Motors’ cuts may restore competition

Freedom Newspapers

The United Auto Workers’ top two officials held a news conference recently blasting General Motors’ decision to slash 30,000 jobs and close nine manufacturing plants in North America.

“(The) action by General Motors is not only extremely disappointing, unfair and unfortunate, it is devastating to many thousands of workers, their families and communities,” the UAW officials said.

Well, of course the cuts, layoffs and downsizing of about 10 percent of GM’s workforce will be painful, but put in a broader perspective, there’s not much else that General Motors could have done.

Market analysts, in fact, view the retrenching, along with a recent deal to reduce health-care costs, as a fairly small step in the right direction. So far this year, GM has lost $4 billion.

General Motors, as a key player in the global automotive market, needs to spend more time catering to customers and less time to its workers. The current GM morass was a long time in the making.

During the recent period of factory incentives, GM lost $1,227 per vehicle in North America, compared with a profit of more than $1,000 a vehicle from the major Japanese manufacturers, according to the Los Angeles Times. You can’t make up those losses in volume.

Since the incentive programs on 2005 models were discontinued, GM (and Ford, to a lesser degree) began losing sales and market share. GM, which once sold a majority of vehicles in the United States, watched its market share fall to 25.6 percent from 27 percent in the most recent quarter.

U.S. car manufacturers blame gas prices and other factors, but Toyota and Honda have rising sales and have picked up market share. Japanese and Korean cars now grab 40 percent of U.S. sales.

GM has 2.5 retirees for every worker and reportedly pays $1,500 in benefit costs to retirees per vehicle compared to about $300 per vehicle for Toyota.

As a result, GM had to drop its plans to modernize its engines.
In the public sector, unsustainable benefits for retirees are racking up debt, causing municipalities to pass pension bonds and look for tax increases. No end is in sight given there is no bottom-line restraint. When officials are too generous to unions, the taxpayer pays.

Fortunately, in the private sector, there is ultimately a day of reckoning. That day may be here for General Motors. The painful cuts may be a good step toward restoring the past glory of this rusting icon of American engineering by forcing it to compete with better and more cost-effective products.