Who's to Blame for GM Fiasco

GM has announced that it cease production at four North American truck plants, laying off 1000 workers at the Oshawa plant. Workers are obviously very upset since they just signed a contract guaranteeing job security until at least 2011. As the dust settles today, talk radio will likely be bristling over who's to blame for this. I'm hardly a union supporter but I do feel this was an act in bad faith. It also shows some weaknesses in GM's management and the business itself. The questions to ask now are what caused this and what can we do about it.

I've personally never owned an American car and I never would. Some may think me to be in the wrong to not buy locally. However, I feel that there are no American cars currently on the market that are both reliable and fuel efficient, or meet my needs. The American car has become what the Japanese cars once were, garbage. I've known a few people who own or deal with GM products and they've all said they need major repairs only after a couple years of ownership. The likes of Honda and Toyota are built solid and they take pride in that notion. Quality issues are across the board when it comes to American manufacturers but GM tends to have the worst record of the bunch due to cost cutting measures and part substitutions. It's one of the reasons the cars tend to be so cheap.

Another problem for the American manufacturers has come from the price of gas which has led to the crash of the big vehicle market. Back in the 1990s, you could but a litre of gas for a scant (by today's standards) 50 cents. The monster 30 gallon tanks in SUVs, pickups, and minivans could be filled for $50. 2007 is when I would pin the shift since it's the year when prices stabilized at at or over $1 per litre in Canada. Today at a $1.30, that massive tank now costs over $130 to fill. Assuming you fill that thing up once a week, every week, it would cost $6760 per year for fuel alone. This compares to about $2600 eighteen years ago, which is about $3800 in today's money. It's interesting to note we're paying 177% more for fuel than we should be. I digress. Obviously six grand is a lot of money when the average income is only about $30,000. In the 1990s, SUVs and vans were seen as practical due to the perception of them being safer and also because of their greater flexibility. Today as a commuter vehicle, the price of gas has made them prohibitive for the average consumer to operate. This second problem is the one GM has chosen to blame for the job losses at its four truck plants, including the one in Oshawa.

The question people have been asking is who is to blame for this. I place the blame squarely on GM and the Canadian Auto worker's Union. Over the past few years, General Motors has made a series of bad business decisions. The writing has been on the wall for some time but the company's management was either too blind or too stupid to read it. From about 2002 to 2008, the price of gas has jumped from around 60 cents to $1.30 in Canada. Analysts in both Canada and the US had been warning automakers for some time that the market for small and medium trucks would burst soon. 2005 was a benchmark year since it was the first time gas prices touched record highs. It was also the first year where gas rose over the psychological barrier of $1 per litre. 2008 has seen a sharp drop in demand in SUVs and vans and a sharp rise in the demand for cars and crossovers. You didn't need to be an economist or auto market expert to have seen this coming three years ago. However, the folks at GM continued churning out these large vehicles. They overproduced a product and now nobody wants it, the price of them has dropped dramatically and people who already own trucks find they cant' sell them. It's simply supply and demand. Nobody wants the sub 20mpg SUV anymore. Honda and Toyota et al out in Japan jumped in on the small car market years ago. People laughed at the concept of compact cars being in high demand, but now they are. It's now Toyota and Honda laughing their way to the bank. Other American automakers were late to the starting gate. Both Ford and Chrysler have now released their own widely successful lines of crossovers and small cars. When opportunity called, GM execs must of been in the washroom. Under basic consumerism, if you can't give the people what they want, they'll go someplace else, and you loose business. To add to the matter, GM signed a contract with it's workers just two weeks ago guaranteeing job security until at least 2011. To come back fourteen days later and say "we were kidding, 1000 of you are going to loose your jobs" is highly unprofessional and in very bad faith. For a company that badly needs some good PR, they certainly aren't doing much to help themselves. I expect the shareholders are going to eat them alive on this since it seems to me the company needs a change in management.

The union too is part to blame, mainly for making North American labour uncompetitive. Out of any job, autoworkers have some of the sweetest of perks, on par or even beyond those of school teachers in this province. They have full medical, dental, and vision care. They get very generous pensions. The company basically looks after your family from cradle to grave under these contracts. On top of that, they get higher cost of living increases than anyone else. I remember hearing from someone that assembly line workers make $70 per hour, which is double what most other unskilled labourers get. These perks of course come at a price. Companies go to countries like Mexico, where you can pay the workers under half of what you have to pay North American workers. However, Mexican workers are still getting double what they would make doing another job so they're quite content with the pay and perks they get. Since they don't need skilled labourers to put cars together, automakers are going to naturally seek out the cheaper rate. This is not necessarily a bad thing, since as I said, the Mexican worker is going to be making more than what they would have, thus increasing their standard of living. The problem is that the CAW and the UAW have painted themselves into a corner. They treat these perks as a god given right but in the process, they're pricing themselves right out of the labour market.
For years, we've known that manufacturing is not the way of the future. The second industrial revolution in the 1960s was a sign of this when people began moving out of factories and into to services. Right now, this is currently transitioning to focus on more personal based services as companies outsource their work to other countries. This means a transition to a more educated workforce. Analysts are predicting a huge boon for skilled trades and professions such as doctors. Unskilled, assembly line labourers are becoming obsolete. The notion of job security in this day and age too is foolish. They tell kids these days that you will most likely have several jobs over your lifetime. Nobody works for the same company for 40 years anymore. However, unions are choosing to fight what they call the scourge of globalization. At this point though, stopping globalization is like trying to stop a tornado. CAW boss Buzz Hargrove has called for the federal government to levy teriffs on import cars, but this is impossible to do. The whole irony about this is that both Honda and Toyota have several plants in Canada and the US. They may not be part of the CAW though, which could be Buzzy boy's problem. Besides that, putting tariffs on foreign made goods is an ass backwards approach. This form of thinking is no different from the Luddites back during the first Industrial Revolution. They too were tilting at windmills. This is not capitalism's fault either since globalization has shown to care little of what economic system you are running under. Take China for example.

The final share of blame goes to the provincial government. Like the unions, they too have failed to see the path of globalization ahead of them. They've convinced themselves that Ontario always has been and always will be a manufacturing heartland. As I said though, the current trends are showing otherwise. Obviously it is in the government's best interest to keep workers employed, however they are choosing to ignore the changing realities. One of the biggest problems is the handing out of multi-million dollar aid packages to the automakers such as GM. I believe that these handouts only reinforce bad business decisions. Essentially, the province has forked out tax payer dollars to keep people manufacturing a product that nobody wants. While this is not the sole reason why GM has been making poor decisions, it certainly is a contributing factor. Of course the argument can be made that without those handouts, Oshawa workers would have found themselves without jobs long before now. True, but they're still ultimately going to loos their jobs. All these handouts did was delay the inevitable for a couple of years. However, doing nothing doesn't win votes and I really don't see any practical/feasible alternative either the province or the federal government could have taken.

The auto industry is failing in Ontario. Ultimately this round has been the fault of General Motors and they should shoulder most of the blame. The union too has made mistakes by pricing themselves out of the market at a time when manufacturing is becoming obsolete. There will likely be a lot of questions asked over the coming weeks, including a possible wildcat strike by GM employees. However, one cannot delay the inevitable. The province and the feds need to brace for more of this to happen in the future and contingency plans need to be made as soon as possible. Ontario has already made the moves to retrial manufacturing workers who have lost their jobs but this may not be enough. Unfortunately, there is not much that can be done to alleviate this, or at least nothing that couldn't have been done years ago.