[Outlook]GM: Driving toward disaster

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[Outlook]GM: Driving toward disaster

GM: Driving toward disaster
Up until the early 1970s, General Motors had so large a market share in the United States that it was careful not to violate antitrust laws. The automaker’s influence reached the highest corridors of power, and it was even said that whatever was good for GM was good for the country as a whole.

But now, the company is on the brink of extinction. A U.S. research center predicts that if GM goes bankrupt, 2.5 million people will lose their jobs. The bankruptcy will reduce incomes, and that will in turn lead to a reduction in tax revenues. That loss is estimated at $50 billion this year and more than $100 billion for three years after that, according to one research center.

It is understandable that the U.S. Democratic Party is taking the lead in arguing that the automobile makers should be supported. Others strongly oppose the idea, however, saying the company would go bankrupt in the end anyway. That side says that the firm is $48 billion in debt already, and therefore $25 billion in government support won’t be sufficient.

When you are an auto manufacturer, the most important aspect of your business is having models that sell. GM, however, primarily makes inefficient SUVs and big pickup trucks. As the company didn’t produce energy-efficient vehicles when oil prices were high, it can’t compete against Japanese- or Korean-made cars.

GM’s cost structure is also a problem, just like the other two of the Big Three U.S. car manufacturers - Ford and Chrysler. GM’s labor costs are more than 50 percent higher than those of Toyota’s U.S. factories. When U.S. cars sold well in the past, the powerful United Auto Workers union pushed labor costs up as high as they could. The three major carmakers even pay the health insurance fees for 780,000 retired workers. Money that should be invested in development of new technologies is being used elsewhere.

Last year, the UAW made a significant concession, establishing a trust fund to pay for retirees’ health insurance, but it was probably already too late. Those who cry out for liberal economic principles oppose government support for GM. They think that the UAW monopolized the labor supply and distorted wages, leading American cars to lose their competitiveness.

Some say that GM must be allowed to go bankrupt, so that it can be reborn as a company with a competitive cost structure. But once the firm falls into bankruptcy, it’s unlikely that it will be able to get back up again. In a survey conducted this summer, more than 80 percent of respondents said that if the Big Three automakers went under, they would buy their cars from other companies.

The UAW is expected to file a lawsuit against GM if the company goes bankrupt and seek money that it promised to donate to the trust fund. So, the bankruptcy won’t only lead to a sharp decline in sales, but also a lawsuit, and as a result the company will likely disappear forever.

If GM does go bankrupt, it could have an impact on the Korean auto industry. If GM factories are shut down, American makers of car parts will go bankrupt one after another. Hyundai Motor’s factory in Alabama and the Kia Motors factory in Georgia that is soon to start operations won’t be able to get parts from these companies. If the production lines of those factories have problems, Korea’s other small and midsized car parts makers that have moved to the U.S. will suffer damage as well.

If GM goes bankrupt, it will damage the auto industry not only in the U.S., but also in Korea. In the long term, Korea’s automakers can increase their market share in the United States. But to change a crisis into a good opportunity, Korea’s metal workers’ union must not repeat the same mistake the UAW has made.

Unfortunately, domestic labor movements in the auto industry have been even more militant than the UAW. We should learn a lesson from the crisis that GM is facing in order to prevent a similarly unfortunate event from happening to Korea’s economy.

One wonders what Korea’s unionized metal workers are thinking as they watch the deep trouble that the UAW has gotten itself into.

It’s also worrying if metal workers think that they will not make the same foolish mistake the UAW did, saying they won’t fight the companies all the way into bankruptcy. Ten years ago, UAW leaders said exactly the same thing.

*The writer is a professor of business administration at Kookmin University. Translation by the JoongAng Daily staff.

by Yu Ji-soo
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