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IW 05

USA

The bankruptcy of the yanqui automakers and the workers

 

Ford announces its plan”: to fire 30,000 workers and to shut down at least ten plants (Detroit News, 7 Dec). A few days later, General Motors had announced the “firing of more than 30,000 workers and the closing of plants” (CNNMoney.com, 21 Nov). Delphi, the largest autoparts manufacturer (a spin-off from a division of GM), already in the process of bankruptcy (Chapter 11), also made the headlines when the spokesman of the automobile industry union (UAW) said that a strike was “probable”, in the face of the announcements of layoffs and the attempts to cut wages (Detroit News, 7/12). This is about the industrial heart of the northern United States. General Motors employs 324,000 workers in 20 plants; Ford 327,000 and Delphi 185,000 more.

“General Motors, directly and indirectly, employs 900,000 workers (in the United States), between publicity, auto and autopart sales, etc. Wehn GM closed its plants for 54 days during the 1998 strike, it reduced the economic growth of the United States by a full point for that quarter. So, what is bad for GM is undeniably bad for the United States” (BusinessWeek, 5/5).

They are losing the race

“Negative investment has made them abandon the fight to be up-to-date in technology and design. GM sales have dropped 5.2% in the last quarter due to domestic competition with Toyota, Nissam and other more agile rivals who have GM for lunch. Last month, the president of GM, Rick Wagoner, and his team were figuring out where they would be financially by the end of this year (The Economist, 17/11). While US automakers have announced the closing down of plants, Toyota has announced its “interest in the skillful workers in this State (Michigan) to open engine plants, but it does not know if it is welcome” (Detroit News, 6 Dec).

The Japanese automakers spend more dollars on research on fewer vehicles, with better technology. “GM executives divided the expenditure of 7 billion dollars on research and development last year, against Toyota's 15.3 billion. GM distributes that money on 89 models and 8 divisions; Toyota on 26 models and three divisions. The average sale of the Toyota models is 80,000 units per year in the United States, while the GM finds it hard to sell 52,000 units per model on average. And the Toyota models stay on the market an average of three years until they are redesigned, against close to four years for GM cars” (BusinessWeek, 5/5).

Another aspect of the problems is that “GM pays a lot of attention to the development of new 'all-terrain' (4 x 4) vehicles” but “the Vice President (of GM) himself admits that the potential market for these vehicles has declined dramatically with higher fuel prices”. And that it has not paid attention to lighter “all terrain” vehicles, which helped “its Japanese rivals to take over this segment” (The Economist, 17 Nov).

The fall in sales is deepening. “A new round of discounts by automakers announced in mid-November failed to calm the worries of buyers concerning fuel costs and other factors (...) The big three -General Motors, Ford y Chrysler- reported fewer sales in November (...) GM's sales plummeted” (Detroit News, 7 Dec).

Last May, Standard & Poor reduced GM's debt grade to the category of “junk”, which signifies that from that moment on it has no bank credit and neither can it have access to the debt market. No-one has enough confidence to provide financing. “Only in the first quarter of 2005, GM spent 3.7 billion dollars on interest payments over its 291 billion dollars of debt” (Slate, 19 May). This debt continued to pile up also due to increased losses, already higher than 4 billion dollars annually. In spite of its insolvency, the company “continued to pay dividends to its shareholders” (idem), which does not prevent its stocks from plummeting on the stock market, depreciating the value of the company with each passing day.

Inevitable confrontation

The big corporations have their own health care and pension plans; the companies' plans call for a severe reduction in wages, layoff compensation, health plans and pension benefits. The newspaper Detroit News (22 Nov) sums it up as follows: “both companies (GM and Ford) are wrestling with problems of productivity, health and pension cost scales and work regulations and collective bargaining agreements which no longer work in an economy of globalized automakers”.

Robert Miller, President of Delphi, says, speaking plainly: “I have some charts which sum up the situation. This compares Delphi wages including all legal costs. And it adds up to 76 dollars an hour, 27 dollars basic wage, 27 dollars in benefits linked to wages such as vacations, and also we have pension plans that are under-funded. All of this has to be considered. We have made the proposal of 12.50 dollars an hour, to which we add 8.33 dollars in benefits for active workers. Which would give us 20.83 the hour” (Detroit News, 20 Nov). The point the company is making is clear: reduce from 76 to 21 dollars the hour, so that US industry can become “competitive” again, reducing the wages of active workers and pension benefits and cutting back on health plan coverage.

Little time and bad news

There is little time left to make decisions. “Holes in GM's pockets?”, CNNMoney.com asks (6 Dec) in an article that reports that the company the 19 billion it has announced are unavailable. This was the only source with which to face current losses, since it can have no recourse to bank financing. These funds are apparently unavailable since they are earmarked for “payment of dividends” or “payment to suppliers”.

This increases the possibility of the company declaring bankruptcy and filing for Chapter 11. Which would bring about the biggest default in the history of US corporations, and would surely drag down suppliers, concessionaires, banks, etc.

To this colossal debt must be added the disappearance of the capital of the company on the stock exchange, which in the last five years has evaporated some 50 billion for the stockholders and hundreds of pension and health funds including it in their investment portfolios.

GM forms part of the Dow Jones Index portfolio as representative of the automobile industry; its eventual declaration of bankruptcy is unprecedented for a company forming part of that index.

In the last few hours, another catastrophic report has emerged involving GM. The company reports that it must call back 553,000 “all terrain” vehicles and trucks due to “defects in the braking system capable of extending the braking zone”, totaling since August some 800,000 vehicles in 14 northern states. The measure is linked to the “investigation opened by the National Administration of Highway Traffic Safety last April, of more than 1.2 million GM pickups and 'all terrain' vehicles sold in 20 states for problems with the anti-skid brake system (ABS system) (Detroit News, 23/12).

Smash the collective bargaining agreements

GM products are only part of the problem. After the massive layoffs of the '90's, “GM has nearly three retirees for each active worker. The situation could grow even worse still in the short term, given the possibility of more plants being shut down, as is expected to be announced next month” (The Economist, 17 Nov).

Each layoff generates a higher cost for each active worker. The calculations of the analysts establish that there is a difference in the price of GM vehicles compared to those of its rivals, of 1,600 dollars in costs related to the payment of employee pensions and higher health care spending (Business Week, 5 May).

For 2007 collective bargaining is scheduled to begin between the GM board and the UAW, but the president of GM is pressuring to achieve cutbacks in the cost of employee health coverage before that date. The company has already announced severe cutbacks in layoff compensation payments, in health plans and in various benefits.

The workers are preparing for the inevitable confrontation. “Workers at Delphi are getting ready for a possible strike next month, in spite of the announcement of the autoparts company to the effect that it is shelving its intention of cutting wages” (AP, 22 Dec).

Various analysts coincide that a strike at Delphi “would push GM close to bankruptcy” (Detroit News, 21 Dec).