Good for GM?

“What’s good for General Motors is good for the country,” GM president Charles Erwin Wilson reportedly declared in the Senate in 1953. Historians claim that overly eager newspapermen took Wilson’s comment out of context, but the quote stuck and over the years became a classic.

It was a perfect fit. GM was then by far the largest industrial company in the world and an unquestioned leader of the global automotive industry. It was so big that only the Soviet government, which owned all the productive assets in the USSR, employed more workers. Its vehicles dominated the roads in every country whose citizens could afford such luxuries as private motor cars. In the United States, GM’s market share peaked at 50 percent. Its vertical integration was such that, according to industry lore, it owned some of the sheep that provided wool for its seat covers.

The importance of the company for the U.S. economy was hard to overestimate. In the early post-World War II decades, the motor vehicles industry accounted for over 5 percent of GDP directly, but taken together with related manufacturing and service industries its weight was far greater. By the mid-1950s, GM became the first U.S. conglomerate ever to pay $1 billion in taxes. It comes up to $8 billion in today’s money, but much more in terms of contribution to government revenues. In the 1950s, federal revenues averaged $70 billion per year, of which GM paid 1.5 percent.

Poster Child of CapitalismEven more important, GM’s history, ever since it was founded exactly a century ago, closely paralleled the history of America’s economic development. Relations between management and its organized labor were constructive and cooperative. The company earned sizable monopoly profits and it readily shared them with its workforce. A card-carrying member of the United Auto Workers union became a poster child of American capitalism: skilled, well-paid and confident of his family’s future, since he was protected by generous company-funded medical and pension benefits.

GM was also one of the first U.S. conglomerates to initiate worldwide expansion. In the 1920s, it bought Vauxhall in the U.K. and Opel in Germany. Together with Ford, it shaped the automotive styling in Western Europe and the rest of the world. Over the years, GM added Saab and Daewoo to its stable, and only recently it held stakes in such companies as Subaru, Isuzu, Suzuki and Fiat.

Decline and Fall?Over the past decade, however, there has been an accelerated contraction and retrenchment at GM. Not only in foreign markets, where it sold off most of its Japanese holdings and a stake in Fiat, but at home as well. Parts production was amalgamated into Delphi Corp. and spun off in 1999 — just in time, since the world’s largest parts supplier is now bankrupt. GM sold a controlling interest in GMAC, its financing arm, to Cerberus Capital Management, a private equity group — also just before the company’s residential mortgage portfolio became a drag on profitability.

This year, the deterioration in GM’s financial position has accelerated. It has shut down plants and curbed production as demand for motor vehicles — and especially for its gas-guzzling SUVs and light trucks — tanked. It appears to have abandoned preoccupation with safeguarding its market share, as the proportion of imported motor vehicles in the U.S. market continues to climb. The Detroit giant is now considering more asset sales, and may place on the block one of its newest divisions, Hummer, the symbol of American over-consumption.

GM’s share price fell below $10 in July, the lowest level in some 55 years, going back to the time when Wilson made his unforgettable statement. Adjusted for inflation it is lower still, priced at $1.25 in 1950s dollars.

Even though GM still vies with Toyota for the global No. 1 spot among volume sellers, its market capitalization has dropped toward $6 billion, or around 4 percent of Toyota’s. Rating agencies have downgraded GM’s debt further into junk category, citing the possibility that the once-unassailable American industrial giant may actually go belly up.

Industry ProblemsWilson’s dictum seems to be holding true in times of trouble as well. GM’s difficulties reflect those of the U.S. economy at large. U.S. industry is not competitive, despite the dramatic decline of the U.S. dollar, which lost some 50 percent of its value against the euro over the past decade. At a time when price competition has become the main marketing point for generic goods and services, the United States is among the world’s costlier producers.

Wages are only one problem. Employers across the U.S. are also battling rising costs of health insurance and pensions — which are also at the root of GM’s problems. Unfunded liabilities to current and retired employees have sunk the company’s creditworthiness and added over $1,000 to the cost of producing every GM vehicle.

The U.S. is facing the dual problem of skyrocketing medical costs and a growing army of uninsured, but political paralysis in Washington has prevented any meaningful solution from emerging.