After the Bailout: GM to Increase Foreign Production

I thought the idea of pouring billions of dollars down the various corporate rat-holes had a point, and that this point was to save the economy by making sure that these huge corporations remained in business. By doing that, the logic follows, many thousands of American jobs would be saved, thus saving the US economy and bringing back prosperity to all and sundry.

Maybe the folks at General Motors missed that memo.

According to Peter Whoriskey, a Washington Post Staff Writer, a document that General Motors has been quietly circulating on Capital Hill details how the number of cars that GM sells in the United States and builds in Mexico, China and South Korea will roughly double. “The proportion of GM cars sold domestically and manufactured in those low-wage countries will rise from 15% to 23% over the next five years, according to the figures contained in a 12-page presentation offered to lawmakers in response to their questions about overseas production.”

This is going to be a major political challenge for the White House and Congress, and points up some of the great weaknesses inherent in having the government involve itself in the running of private corporations. The company says it needs to be able to do this to remain competitive. They say that it makes both financial sense—foreign workers are paid far less than American workers—as well as logistical sense since it plans to introduce some of its foreign models, like the tiny, Korean-made Chevrolet Spark, to the American market. The government, however, has a number of distinctly conflicting priorities.

Obama poured all the money into GM in order to save an American company and American jobs. As former Treasury Secretary Robert Reich commented, “It raises fundamental questions about the purpose of bailing out these big companies. If GM is going to do more of its production overseas, then why exactly are we saving GM?" One viable answer to that question is that Obama owes the unions, especially the United Auto Workers, and they are dead against the idea of sending American jobs overseas.

Ultimately, though, it will be the public outcry that will be the most damaging. The people of the United States are frustrated, to say the very least, with the bailouts, TARPs, stimulus, rescues and all the other monetary shenanigans that have been going on in Washington. For GM to do this would be a terrible slap in the face. For the government to permit them to do it would be a knife in the back.

This brings us back to the political challenge for the Obama administration. Do they have the intestinal fortitude to bring GM, the unions, the company’s creditors, and all the other concerned parties back to the table to negotiate a reorganization that does not put GM in a position where it feels the need to cut domestic employment in favor of overseas jobs? That would mean wringing additional concessions from the unions and given the pro-union actions thus far, such as cutting the enforcement budget for the unit in the Department of Labor that investigates union corruption, giving the union a major ownership stake in Chrysler and pushing card-check legislation, it seems somewhat unlikely.

The Bottom Line

In the end, it will be interesting to see if the President can squirm out of this. What I expect is for GM to toe the line like the TARP-laden banks did in the Chrysler deal and do what Obama says regardless of the damage it may do to the company, which would be a true waste of the money spent to save it. That is what I expect, but not what I hope. You see, the rebellious hedge fund managers Obama excoriated for acting in the best interests of their investors have shown that the private sector still has some power, and that some still have the will to use it. In the end, the GM board may find its spine and do what it sees as being in the company’s best interests regardless of what the unions or the President have to say about it. If that is the case, then the money spent would have been spent wisely for GM would have a better shot at survival. Of course, if they do, they will bring down the wrath of the public, both on the heads of the company leadership and on the heads of the politicians who gave them all that bailout money in the first place. They will also set into motion the retributive aspect of that recently much-maligned force – the free market.

This will be an interesting summer.