The auto bosses have been driving to take this profit crisis out on their workforce by slashing jobs and demanding wage and benefit concessions. Meanwhile, the financial troubles of these monopolies are having a deep impact on the economy in the region and sending a shudder down the spines of bankers, stockjobbers, and other capitalists whose fates are intertwined with theirs.

Production cuts and plant closings by General Motors and Ford this month have added to an already ailing economy in Michigan. The official unemployment rate in Detroit was 14 percent in 2004, up from 9.8 percent in 2001. More than 200,000 factory jobs have been eliminated in the state since 2000, bringing the statewide unemployment rate to 7.1 percent, two points above the national average.

In March, GM announced it would lose $2 billion in cash this year, instead of an earlier projection that its cash flow would increase by that amount. The auto giant’s stock plummeted to a 12-year low in April. Both GM and Ford cut production by 10 percent in the first quarter of 2005. Currently about one-third of the two automakers’ sales go to their own employees, their family and friends, or to rental companies and corporate fleets at razor-thin profit margins, the New York Times reported.

The sagging stock values have a broad impact. The Michigan Department of Treasury is a major holder of auto stocks, including 1.2 million GM shares and 2.4 million Ford shares. The state government of Michigan is one of three states with deficit budgets, and is already slashing education, medical benefits, and road repair budgets.
 
Crisis of overproduction
As competition has intensified, GM and Ford have steadily lost a considerable share of the U.S. auto sales market. Auto monopolies based in Asia have captured 31 percent of the U.S. market, while the combined share of U.S. auto giants sank to a new low of 58.7 percent, according to Autodata Corp. Chrysler—majority-owned by German automaker Daimler—is the only U.S. auto manufacturing company that increased its market share last year, with a 4 percent gain.

To reduce their massive stockpile of unsold cars that sit on the lot, GM, Ford, and Chrysler sank $60 billion into rebates last year, but saw a less than one percent raise in sales as a result. Discounts averaged $4,000.

Now, GM is closing and temporarily idling assembly plants in an attempt to reduce a huge surplus of 1.3 million cars and trucks that are sitting on dealers’ parking lots and on state land.

GM’s 85-year-old assembly plant in Lansing, Michigan, which makes the Chevrolet Classic and Pontiac Grand Am, will be closed in May. More than 3,000 production workers will be laid off. The company says most of them will eventually be hired to work in a new GM plant that is expected to start production in 2006. Later this year, GM plans to shut old plants in Baltimore, Maryland, and Linden, New Jersey. But some analysts say this is not enough. More than 40 percent of GM’s capacity is either idle or produces low-profit-margin vehicles primarily destined for rental companies, the Detroit News reported.

Short-term GM and Ford plant closings are common. The 500 production workers at GM’s Chevrolet SSR plant in Lansing returned to work in March from a six-week layoff to learn the plant would be shut down again for two weeks in April.  
 
Bosses squeeze the union
In addition to eliminating jobs and restructuring production by closing old non-profitable plants, the U.S. auto companies are driving to cut costs by pressing for concessions on benefits and wages from their workforce.

The United Auto Workers (UAW) union agreed March 20 to allow Chrysler to charge workers in its U.S. plants annual deductibles of between $100 and $1,000 for health care that had previously been fully covered. The move affects 35,000 workers and retirees.

The medical benefits were renegotiated under a 1982 clause in the national contract between Chrysler and the UAW that allows Chrysler to reduce health coverage if the company’s health costs increase substantially. This year the clause was invoked for the first time.

Chrysler plans to invest $506.8 million to renovate two auto plants in Sterling Heights, a northern suburb, the News reported. State and city government officials have granted the company $37 million in tax breaks. The company announced it has reached an agreement with the UAW that would allow it to introduce “team-based work rules” similar to those employed by Japanese auto manufacturers. The new work rules eliminate job classifications, allowing the bosses to speed up production and reduce the workforce.

GM was not successful this time around in wresting health-care concessions of a similar scope from its workers. Following an annual meeting with GM bosses in April, UAW officials announced that the union would not reopen the contract to hike health-care costs. But the union has allowed the auto giant to renege on an agreement to replace 6,800 workers who have retired, quit, or been fired. Eldon Renaud, president of UAW Local 2164 in Bowling Green, Kentucky, said the job concessions were “a greater savings to GM than the cost of health care.”  
 
Parts manufacturers follow suit
Facing a similar profit crisis, auto parts manufacturers are pursuing similar cutbacks and concessions from their workers. In December Standard and Poor’s lowered parts manufacturer Delphi’s credit rating to junk status. Delphi has closed five factories in other countries and is closing four U.S. plants.

Visteon was rated at junk status a year ago, and is now rated at BB+, below investment grade. Junk bond status means that loans cost millions of dollars in finance charges, often pushing businesses to file bankruptcy. Losses at Visteon have eliminated all but $434 million of its original net worth in 2000 of $3.58 billion, reported the Detroit Free Press.

These companies were spun off from GM and Ford five years ago as part of an effort by the auto giants to increase productivity and weaken the union. At that time the UAW negotiated a contract that included the same rate of pay at Visteon as the workers in assembly plants. Last year, though, the union agreed to concessions that reduced wages and benefits for new hires by as much as 65 percent. Visteon has negotiated an agreement to further cut payments to its 17,700 Ford workers by another $25 million a month through the rest of 2005.

Nearly 5,000 workers were laid off by Delphi in Michigan last year. The company plans to cut another 8,500 jobs worldwide in 2005.
 
 
Related articles:
U.S. real wages fell in 2004, continuing 30-year decline  
 
 
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