By on December 3, 2012

In the end, the money that towns across America gave General Motors did not matter… G.M. walked away and, thanks to a federal bailout, is once again profitable. The towns have not been so fortunate, having spent scarce funds in exchange for thousands of jobs that no longer exist.

Timing is everything. The exhaustively researched and rather bleak article regarding the predatory impact of major corporations on small, relatively powerless local governments that appeared in the New York Times on Saturday certainly doesn’t fit in with the what’s-good-for-General-Motors-is-good-for-the-country-and-everything’s-great mantra chanted by much of the press prior to the Presidential election. Let’s not be cynical; perhaps this is a brave example of speaking truth to power, the American paper of record demanding more accountability and more fairness from a corporation which is still largely owned by the United States Government.

Regardless, this piece (brought to our attention by Editor Emeritus Ed Niedermeyer) is worth reading with attention. From its taxpayer-funded greenfield factories in Tennessee to Ypsilanti’s surely doomed lawsuit against it, the specter of the General twists and twirls throughout the entire narrative. It’s written from a point of view that is classic NYT: business should be under the thumb of all governmental entities, from city council to Star Chamber, and those businesses should be held completely liable for any negative effect on their hosting communities, even if said negative effect is a result of unforeseeable circumstances. There’s a unique sort of mindset expressed in counting tax deferments as equal to lost income — that’s a lot like buying a set of work boots to get a job and then complaining that your boss just took the cost of those boots out of your pocket. It’s also somewhat disturbing to see the Times suggest, even obliquely, that collusion between governments to reduce tax incentives might be desirable.

Those minor quibbles aside, however, the article makes a solid point. A lot of communities spent a lot of money on General Motors, only to see their investments discarded and destroyed by a national government which absolved the debts, gave the UAW a seat made of investors’ bones on the board and told the city councils of the Midwest and elsewhere to go pound sand. Big government and big business hand in hand, crushing the opposition. There used to be a word for that, you know.

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68 Comments on “New York Times On GM’s Fleecing Of Small Town America...”


  • avatar
    danio3834

    When the Government gets too involved in private business, this is what happens. The interests of some are served, while the interests of others are ignored.

    The only true fair way to have dealt with it would have been to stay out of it and let things fall where they may. I don’t like the consequences any more than anyone else, but since when should we never have to face the consequences of our actions?

    In the reality of today, what is GM, or the Government for that matter, realistically supposed to do? Keep factories open with no demand for the product?

    The article sounds a lot like Michael Moore blaming GM for ruining Flint when there wouldn’t hardly have been a Flint in the first place without GM.

    Probably the most profound thing in the article is what Don Hall said, “It’s really not creating new jobs,” Mr. Hall said. “It’s motivated by politicians who want to claim they have brought new jobs into their state.”

    Local politicians also need to be held accountable for their actions in this regard.

    • 0 avatar
      jeffzekas

      “Fall where they may” means another Great Depression.

      Government MUST be involved, BUT government must REGULATE the worst excesses of the private sector, as well as demanding jail time for those who crashed Wall Street through their greed.

      Doing nothing means allowing the Chinese (who DO subsidize and control their industry) to take over ALL manufacturing and production.

    • 0 avatar
      Power6

      I fail to see how this is “government getting too involved in private business” other than you are conservative hammer looking for a “big government” nail…

      This is the free market in action, the local governments were free to offer up incentives that their citizens wanted to bring in the jobs, they gambled and they lost. Perhaps they might think about giving their money away for uncertain future promises. GM was heading for the bankruptcy anyways, I don’t see how whether there was a “bailout” or not would have changed the fortunes of those communities giving money away to GM.

  • avatar
    sco

    Saw this article in the Times yesterday and the thing that stuck with me, regardless of how you feel about the the relationship between government and private enterprise, is the extreme pressure local officials feel to lure jobs to their communities for short term benefit, regardless of the long term implications. In essence, the local hero pol will have moved on long gone before the real consequences of massive tax breaks are felt.

    • 0 avatar
      ranwhenparked

      That’s just how politics works. Elected leaders do what they need to do to get themselves elected, then find a way to kick the can just far enough down the road to ensure that they’re either retired, dead, or moved to higher office when the bills come due. They don’t care about leaving a mess behind because they likely won’t really know the person that replaces them and heck, he might even be from a different political party, so who cares.

      Not saying it’s good or bad, it’s just the nature of the beast and can’t be changed.

      • 0 avatar
        danio3834

        Anyone who says it can’t be changed is just another tax paying constituent who is refusing to do anything about the abuse of power exhibited by the officials they elected.

        The people have the power to hold the officials responsible.

      • 0 avatar
        ranwhenparked

        @ danio3834

        It’s not that the people don’t try, it’s that nothing ever changes. The problem is the entire “political class” that forms the pool of candidates for both major parties, and it eventually goes on to infect whatever outsiders are able to break into it.

      • 0 avatar
        danio3834

        The peopel have other choices than voting for the lesser of both evils in the two major parties. I know it’s difficult to see them when election fever hits every 3.5 years. If people really want change, they have the power, just like their forefathers did 236 years ago.

        Perhaps the level of discontent has not been raised enough yet.

    • 0 avatar
      raph

      @ Danio – much truth spoken there, I’m baffled as to why people so slavishly vote for demicans or republocrats? Among the worst reasons; “Voting for a third party is just giving a vote to the other side” and “I only vote for winners”.

      • 0 avatar
        cognoscenti

        @ralph – Are you trying to refute the statement that votes for a third party are “taken” from some other candidate? I suggest you ask Al Gore what he thinks about Florida in 2004.

  • avatar
    tatracitroensaab

    tax breaks ARE exactly the same as handouts. If you are telling a company that they dont have to pay taxes that they are legally required to pay, its the exact same thing as giving that com[any money, just as tax exceptions for ethanol are in fact ethanol subsidies. This isnt the “liberal media” thats talking — this is mainstream economics.

    • 0 avatar
      ranwhenparked

      Exactly right. If you want companies to pay less taxes, then lower them for all companies, if you don’t want to do that, then make them all pay the same higher rates. Keep the playing field level, the special deals for the pet projects of the well connected need to stop.

      • 0 avatar
        Toad

        Tax breaks, incentives, and varying tax rates create the opportunity to pit interest groups against each other; this is the mothers milk of politics.

        If we had flat income, property, and sales tax rates there would be much less to argue about. Decide how much government we want, then set the flat rate accordingly vs. convincing people that somebody else is going to pay for it. This would also greatly reduce the opportunity for graft, kickbacks, sweetheart deals, and campaign contributions…which is why it probably won’t happen.

      • 0 avatar
        Morea

        tatracitroensaab “tax breaks ARE exactly the same as handouts. If you are telling a company that they dont have to pay taxes that they are legally required to pay…”

        Are you saying that tax breaks are illegal? No of course you aren’t. However, what you are saying makes synonymous the concept of tax laws and equitable treatment. Nothing could be further from the truth.

    • 0 avatar
      Pch101

      “tax breaks ARE exactly the same as handouts.”

      Not even close.

      If Company A chooses not to start an operation in Nowheresburg County, then it’s a sure thing that Nowheresburg County won’t be collecting any taxes from Company A’s business, since Company A doesn’t bother with the place.

      If Company A does set up an operation there on the condition of getting a future tax break, then it’s still going to pay more taxes to Nowheresburg than it would have in the alternative. (The county’s alternative to the tax break, as discussed above, was to collect zero.)

      • 0 avatar
        redav

        That is correct for the small-scale tax situation, but on a larger scale, Company A choosing to operate in Nowheresburg means Anytown won’t get that revenue, which Company A would have opperated without the tax incentive.

        On the big-scale, tax revenue does go down, but Nowheresburg & Anytown don’t share revenue, so all that matters to them is will they get any of it.

      • 0 avatar
        Pch101

        “on a larger scale, Company A choosing to operate in Nowheresburg means Anytown won’t get that revenue”

        You’re assuming that in the absence of incentives that Company A is going to operate in Anytown. But it’s possible that if there aren’t enough incentives, Company A may not bother to go to Anytown.

        In the alternative, the Anytown that you describe could be located in another country. These communities aren’t just competing with other American towns for their business.

    • 0 avatar

      I think it’s interesting that you think that the government taking less of a company’s money is a handout. Whether or not individual companies should get tax breaks is a separate issue but your viewpoint is based on a notion that what’s mine is really not mine but rather the government has first claim on “my” money and that I should regard them taking less of it as some kind of leniency on their part.

      • 0 avatar
        Power6

        I took it he spoke in an economic sense not ideological, then you co-opted that argument for your own purpose.

        A tax break is a handout in the sense that is a sort of rebate, money that would otherwise be owed. Revenue and hence services, the citizens of a locality, however mislead by their local reps they might be, have offered to give up.

        On the other hand an obvious small gov’t guy like you might recall the flat tax movement? They have a great point in that corporations don’t pay taxes. You and I and all of us do. There is not really a distinction the corporation is simply a pass through. So perhaps the gov’t luring the automakers plants are smart enough the real taxes are paid on payroll and income from jobs. Sorta sucks for the towns giving out property tax breaks I guess but the states probably love it.

      • 0 avatar
        tatracitroensaab

        It’s a viewpoint that takes some time to get used to but basically my argument is this: the money that you are legally required to pay in taxes isn’t really your money anymore, because you don’t have access to it unless you either do tax evasion or get tax breaks. The rest of the money is yours, but your tax dollars are the government’s. Therefore if you have a tax break where you pay less than what other people are required to pay, it’s basically the same as a government subsidy, since other people are going to have to pick up the slack for the government services that the company/person isn’t paying for, and so by extension, are paying higher taxes so that one interest group can pay less.

        This isn’t necessarily the view of statists, the Economist has endorsed closing tax breaks and loopholes, among others.

      • 0 avatar
        Morea

        @tatracitroensaab The problem with your argument is that the tax laws are already filled with exceptions put there by politicians to benefit special interests. A “tax break” is just another tax law. Tax laws are just as much about controlling behavior as raising money.

        Also, the money you earn does belong to you (all of it), you just have an obligation to pay the government part of it (as taxes). This is akin to a home mortgage: you own the home but you owe the mortgage company money and the debt is secured by the home itself. The bank does not own your home, it only does so in foreclosure.

  • avatar
    DC Bruce

    I believe it’s generally accepted that tax subsidies to business rarely pay for themselves, even if the business doesn’t go bankrupt. Just like it’s generally agreed that taxpayer-funded pro sports arenas don’t pay for themselves either.

    In a similar vein, and on a much smaller scale, I recall hearing a story about a town in upstate New York which granted some tax breaks to get a manufacturer of high-fidelity loudspeakers to locate there. In due course, the company went bankrupt (although, under its principal, it rejuvenated itself under an almost identical name, but sent most of the production work to China). The sad part is that same down did another, similar, deal with another loudspeaker manufacturer — this time with a guy who had no scientific background in loudspeaker design but was an excellent cabinet maker. Same result after a few years.

    But I don’t think the moral of the story is that GM is a bad guy (maybe with less than competent leadership, but not malevolent) or that the politicians were bad guys (some may have been, frankly, desperate), but rather that these deals are bad deals and simply should not be made.

    At best, there should have been a different structure to the deal, like requiring GM to pay the deferred taxes into some sort of escrow account, which they forfeited to the city if the plant did not remain in operation for X number of years. If the plant stays in operation for the specified time, then GM gets the escrow disbursed to it — or at least some fraction of the taxes avoided/deferred. This at least shits some (or all) of the risk on to the company getting the tax break.

  • avatar
    Dynasty

    “At best, there should have been a different structure to the deal, like requiring GM to pay the deferred taxes into some sort of escrow account,…”

    This idea might work, if it were used everywhere. More than likely, if presented with this idea, the company would move onto the next town who is not requiring the deferred taxes be put into an escrow account.

  • avatar
    sunridge place

    Nice headline…good lord. Perhaps you could have included a picture of starving puppies being crushed by a giant Silverado HD.

    The ironic thing is that here in Red State Texas (which gives away the farm on this stuff more than anyone)GM recently declined trying to get tax credits on their most recent investment.

    http://www.statesman.com/news/business/gm-bringing-tech-center-500-jobs-to-austin/nR7yb/

  • avatar
    PintoFan

    Do you think any of this would have come about if this country hadn’t started binging on imports in the early 1970s? For decades, American industry was highly successful, without needing a constant stream of welfare from starved state and local governments. Ever since the economic powers that be decided it would be best to sell out our standard of living for cheap foreign goods, that system has collapsed. As long as corporate America can hold a fair wage hostage from the majority of citizens, then this trend will continue. Companies will beg, borrow and steal under the phony illusion of “market freedom” and the need to wring further and further tax concessions out of the middle and lower class. It’s how Walmart built their business, it’s how Toyota and most of the other transplants have been successful, and it’s how Amazon obliterated small-town booksellers (on the back of a groaning and collapsing postal system). To single out GM for parasitic behavior is to ignore the fact that the game has been played this way ever since our borders were opened and war was declared on the middle classes.

    Free trade means that everyone’s standard of living inevitably sinks to the level of the lowest-cost provider. It hit the Midwest first, but now it’s going to hurt everyone else as time goes on.

    • 0 avatar
      bikegoesbaa

      “Ever since the economic powers that be decided it would be best to sell out our standard of living for cheap foreign goods, that system has collapsed. ”

      “Powers that be” = consumers tired of low-quality products from American companies who decided they had an inherent right to be profitable regardless of how noncompetitive they were?

      • 0 avatar
        PintoFan

        No, “powers that be” would be the cynical cadre of industrialists and politicians that decided the American labor movement was a nuisance that needed to be broken, one way or another. The result was a decades long hate campaign to convince middle America that buying tons of poorly made, disposable imported white goods at rock bottom prices was somehow good for them, good for their neighbors, good for the environment, and good for the economy. All that was left in the end was a hollow shell of suburban conservatism, a shattered economy, and banana-republic levels of income inequality. Exactly as planned.

        As long as you can socialize the externalities of “cheap” goods, then most people won’t complain, because they can’t see beyond their own nose. More people are starting to wake up to it, though, as their jobs evaporate too.

    • 0 avatar
      geeber

      Toyota was successful because management and labor worked together to institute a process of continuous improvement that ultimately benefited the people who bought its vehicles. It also, incidentally, benefited the workers in its plants.

      That approach ultimately worked better than whining about “unfair competition” or “currency manipulation” while raking in fat bonuses (management) or wailing about the 1936 GM sitdown strike and refusing to budge on outdated work rules (UAW).

      The Postal Service is in trouble because of declining volume, thanks to electronic mail messaging and the internet. If anything, the additional volume generated by Amazon sales is probably appreciated.

      The world changes. It’s not 1965 anymore – GM, Ford and Chrysler don’t have 90 percent of the market, 1 million people aren’t lining up to buy a full-size Chevrolet out of habit, lots of people send e-mails instead of letters and many people prefer to shop online from the comfort of their home instead of dragging the kids to a bookstore. Adapt or die.

      • 0 avatar
        PintoFan

        Toyota was successful because it was able to take advantage of one of the most poorly-paid and mistreated workforces in the industrialized world for decades, one that was made docile through a combination of both government collusion and corporate malfeasance. Just like Britain 200 years ago, just like America a century ago, and just like China today. Do you think it’s a miracle that Japanese industry is collapsing now that the decades-long shell game of currency manipulation, hidden tariffs, and worker suppression is unraveling? The same thing will happen to China too, and it will not be pretty. The only reason the Japanese are getting out of the game now is because they’re running out of money, and population. The de-Japanification of Toyota is the only way the company can hope to survive. Look for them to try ripping off more local communities the same way they stiffed Kentucky and California.

        One of the key reasons for the success of Amazon, like many internet mail-order companies, is that the cost of shipping goods isn’t actually reflected by the price you pay at the counter. We’ll get reduced services, employee layoffs, and public bailouts before Amazon actually has to pay the real cost of transporting items cross country, or passing that cost along to consumers up front. That’s what happens when you let corporations hold you hostage for every cent you’re worth. Walmart is no different; if it had to pay its employees a living wage rather than pawning them off on different forms of public assistance, its competitive advantage would nearly disappear. The same thing is true with a lot of “big box” chains.

        Your problem is that you really believe all the syrupy rhetoric about “the game changing” and “creative destruction,” when in reality those were ideas created purely to fool the bottom 90%. Nobody with actual money believes that crap. It’s just useful propaganda for furthering the cause of wealth extraction.

      • 0 avatar
        Truckducken

        PintoFan,
        Sitting here in Kentucky trying to figure out which of these tens of thousands of Toyota and supplier employees and surrounding prosperous municipalities have been ‘ripped off’. And as for Cali, how does one call the situation wherein Toyota helped GM prop up a completely uncompetitive plant for decades, while giving GM full access to the vaunted Toyota quality systems, a ‘ripoff’?
        For your failure to recognize that Japanese cars were the best thing to happen to the US auto scene since the IC engine, I hereby sentence you to drive Pintos and Vegas until your time on this planet is up.

      • 0 avatar
        Dimwit

        Pintofan: I don’t know what you’re drinking but I think it’s poisonous. Scary, dude!

      • 0 avatar
        Luke42

        @PinfoFan:

        Your argument about Amazon misses one thing: the rest of the stuff we buy from bricks and mortar stores is shipped in from the same factories as the stuff Amazon sells. In comparison to a Target, Amazon makes two changes:

        a) With Amazon, the stuff no longer has to stop at some random place on the outskirts of a town somewhere.

        b) Hundreds of private vehicles no longer have to make trips to that random place. These trips are replaced by a small number of delivery trucks, and delivery companies work hard to optimize the route.

        So, Amazon still wins in the possible-future that you were describing.

        A true re-localization of business would create the effect that you’re talking about. But a lot more than expensive transportation has to happen to create a true relocalization of business that would truly help the local mom-and-pop farms and small business that we all know and love. Even in a world of extremely high transportation costs, it’s hard to imagine not shipping around some goods, especially the current generation of small/efficient/lightweight mobile devices and laptop computers. The economies-of-scale, small size, and relatively low parishibility (in real life) of these things makes them worth making in a few factories somewhere and then delivering by Amazon, even in a transportation-constrained world. It’s hard to imagine a true localization of the electronics business (which provides the underpinnings for my industry). It’s a lot easier to imagine the re-localization of the food industry but, after some reading/thought/calculation, there are some surprises there too.

        Flying in produce from the southern hemisphere probably doesn’t make sense in a TRANSPORTATION constrained world. But, in an ENERGY constrained world, it can make sense for stable foods — because greenhouses and storage both take energy. The devil is in the details in this one, though, and the results can be surprising. That agri-fright-airplane might actually use less energy to deliver tomatoes than heating and lighting a greenhouse all winter out here on the prairie.

        BTW, My local big-box grocery store has produce by the season, and what’s on the menu is of higher quality than the “same stuff year round” from where I grew up on the East Coast. The produce manager makes this small concession to reality, and I like it a lot. It’s not what the local food people want, but it’s the kind of sensible step toward reality that works for mainstream people like me — at least out here in the Midwest which has a strong sense of agriculture, and respect for the seasons. And how could not respect the season when it’s 0F with a 20mph “breeze” whipping snow across a thousand miles of prairie!

        Anyway, I’ve thought a lot of these issues and would love to talk more over a pitcher of beer and a calculator.

      • 0 avatar
        geeber

        PintoFan: Toyota was successful because it was able to take advantage of one of the most poorly-paid and mistreated workforces in the industrialized world for decades, one that was made docile through a combination of both government collusion and corporate malfeasance.

        Nonsense. Toyota’s success is rooted in its implementation of Deming’s quality principles, along with a complete buy-in by both top management and the workforce. If you really believe that Toyota’s Japanese workers were mistreated serfs, you obviously have no idea as to what conditions are really like in Japanese factories.

        PintoFan: Do you think it’s a miracle that Japanese industry is collapsing now that the decades-long shell game of currency manipulation, hidden tariffs, and worker suppression is unraveling?

        So….tariffs have caused the “collapse” of Japan, in your view, but they would apparently work just fine for us?

        Perhaps the problems with Japan stem from the inability of government and the financial sector to write off bad loans made during the height of the Japanese real estate bubble?

        PintoFan: The de-Japanification of Toyota is the only way the company can hope to survive.

        You should support this trend, because, based on what I can see, the “de-Japanification” of Toyota (and Honda) involves shifting an increasing amount of vehicle development and production to the United States. But, somehow, someway, I’m sure that, in your view, that will be more proof as to how the evil Toyota and Honda are “ripping us off” (you know, by building vehicles Americans want and employing fellow Americans at good wages to do it).

        PintoFan: Look for them to try ripping off more local communities the same way they stiffed Kentucky and California.

        Here’s a history lesson – Toyota stepped in and kept a dysfunctional GM plant in operation for many years after GM was ready to close the gates in the 1980s. The Fremont plant would have closed decades ago if Toyota hadn’t partnered with GM in that plant.

        GM, by the way, was free to see how Toyota operated and implement the same quality control and plant management processes in its own plants. GM was “ripped off” by a complacent corporate culture that refused to believe it was Toyota’s superior management methods, not intensive automation or lower labor costs, that played a large role in Toyota’s success.

        Toyota is still building vehicles and providing good jobs for Kentucky residents. What you are really upset about is that, one, the UAW hasn’t been able to organize this plant, and two, the vehicles the plant has produced have largely been superior to the Big Three offerings. Saying that Toyota has “ripped off” Kentucky is the height of nonsense.

        PintoFan: One of the key reasons for the success of Amazon, like many internet mail-order companies, is that the cost of shipping goods isn’t actually reflected by the price you pay at the counter.

        I hate to break it to you, but someone has to pay the cost of shipping goods. If the price isn’t reflected in the cost the customer pays, then Amazon bears it, unless it is using fairies and unicorns to transport goods to the final customer. It might help if you spent less time spinning fantastic conspiracy theories and more time learning how business really works.

        PintoFan: We’ll get reduced services, employee layoffs, and public bailouts before Amazon actually has to pay the real cost of transporting items cross country, or passing that cost along to consumers up front.

        See Luke42′s comment, which effectively rebuts this claim.

        PintoFan: Your problem is that you really believe all the syrupy rhetoric about “the game changing” and “creative destruction,” when in reality those were ideas created purely to fool the bottom 90%. Nobody with actual money believes that crap. It’s just useful propaganda for furthering the cause of wealth extraction.

        Yes, we need to freeze time at 1965, and never change anything, because someone’s ox might get gored.

        Shorter version of all of your posts: Every change in consumer culture or buying habits is really a conspiracy by big business, but always buy a Big Three car made by the UAW, and keep believing that the Pinto was superior to the Corolla and Civic, and life will be wonderful.

      • 0 avatar
        silverkris

        Actually, the Postal Service’s biggest problem is a recent Congressional law (about 2006) that calls for the USPS to pre-fund health care benefits for retirees 75 years into the future. No private sector company or even other branches of the federal government is forced to do this. This accounts for the bulk of the financial losses of the USPS. One would think some folks in Congress are trying to sabotage the USPS given that its pension funds are 100% funded and healthy.

  • avatar
    jjster6

    Two quotes come to mind:

    “Bankruptcy is a blunt instrument.” Author unknown.

    “Democracy is the worst system in the world next to all of the others.” Winston Churchill.

    • 0 avatar
      CJinSD

      Churchill didn’t claim to originate the statement, although he quoted something similar in the House of Commmons without attributing it to any specific individual. In his book he wrote, “Many forms of Gov­ern­ment have been tried, and will be tried in this world of sin and woe. No one pre­tends that democ­racy is per­fect or all-wise. Indeed it has been said that democ­racy is the worst form of Gov­ern­ment except for all those other forms that have been tried from time to time.…”

  • avatar
    tomLU86

    Americans just need to look in the mirror. There is no free lunch. I agree with both PintoFan and bikegoesbaa.

    Free trade is not ‘free’–out competitors either cheat or use rules that suit them. That said, until the late 1960s, the relatively-high priced American worker was the most productive in the world, in general. HE (few women) created nice, fat profits for the wealth (stockholders) and upper middle class (mgt), while being able to have a good standard of living.

    Starting in the late 60/early 70s, many Americans, well-paid and not, discovered high-quality, low-priced foreign goods and started buying them–”more for less”. Beetles, Toyotas, Datsuns, Sony TVs, cameras, later smaller Korean products, followed by Chinese.

    The rising tide of foreign goods gradually ‘drowned’ the ‘overpaid’ American worker, who could no longer compete.

    Free trade is great when you have a job. When you lose it, not so much.

    US mgt can, and justly is, criticized for being greedy. But the same is true of consumers. Few Americans pondered the morality of Japanese dumping TV sets and putting Admiral, Zenith, RCA, etc out of business, or the morality if Japanese workers working like dogs with none of the environmental protections that unions, and indeed the American public, demanded for Americans; or the fact that Japan and Korea were closed to US autos.

    So now, we import most things we use, and most American workers cannot support a family of four at a decent standard of living on one income.

    Cheers!

    • 0 avatar
      geeber

      How about the morality of expecting the consumer to buy a certain product so that companies can keep building the same thing in the same way, but at ever-higher prices, and with ever-crappier quality? That was what life was really like in the 1970s.

      And, somehow, I don’t recall either the UAW or Big Three management offering to pay the repair bills of the domestic clunkers I saw too many friends and relatives buy in the 1970s.

      It’s not greed if I refuse to buy an inferior American product when there is a superior product available. It is, however, the height of stupidity to expect me to do so.

    • 0 avatar
      DrunkenDonuts

      I agree with a lot of this. There are some more worrying trends I’m seeing, though. I get worried when I see companies like Apple, who has a higher GDP than many countries, charges a premium price for its products AND uses cheap Chinese labor. I can understand Wal-Mart, the land of cheap plastic Chinese crap, to sell you cheap products for cheap. But here is Apple, a company using cheap labor to provide you with ‘premium’ products. But the people love it!

      It seems as if the American consumer is content to its fate of spending itself to death, while the American CEO is laughing all the way to the bank, erh, laughing while checking out his Cayman Islands accounts online from behind his walled fortress whose neighborhood is surrounded by another wall.

  • avatar

    Thanks for the hat tip, Jack.

    I’m not sure the point of the article was that business should be subservient to governments… my reading was more that voters should be aware of the markets their tax dollars support.

    Either way, getting rid of “legacy” models and “legacy” workers was the easy part of GM’s “turnaround”… moving past the company’s actual legacy is the hard part. The always-positive PR guys think “legacy” means chrome, classics and The Good Old Days Of General Motors, but let’s be real: GM’s actual legacy has been richly earned all across the country over the past 50 years, and this story is just one (relatively small) part of it.

    That GM execs are still calling critics like Jack “haters” suggest they do not fully understand the depth of this challenge. If they don’t get a handle on it soon and start really doing something about it, they might as well just sell the company to the Chinese already.

  • avatar
    highdesertcat

    Interesting commentary, mostly.

    But aren’t we overlooking one major thing? And that would be that….

    America (and Americans) always gets exactly what it deserves, because they get it the old fashioned way; they vote for it!

    To those in the minority, suck it up. This is not Burger King. If you want to have it your way, win the next election!

    {For those who don’t know, I’m against any and all bailouts handouts and nationalization for anyone, anywhere, in every aspect of the economy. That said, it is now a fact of life as we know it in America. If you don’t like it, find a way not to support it. Quit your job. Go on welfare and foodstamps. Find a way to get the majority to support YOU.}

  • avatar
    tomLU86

    Geeber has a good point–why buy the inferior product?

    My contention is simply that a 70s Japanese car might have had the benefits of Japanese govt subsidies, lower wages, and less safe working conditions.

    American companies didn’t have those advantages, so they tried to cut corners–some more successfully (Pinto) than others (Vega)

    Japanese cars had fewer things go wrong–because they had fewer things in the 1970s.

    At any rate, American workers are not longer as competitive RELATIVE to other countries, and there are a lot fewere of them in manufacturing–with real jobs paying real wages.

    I’m suspect most readers here don’t work at Wal-Mart or McDonald’s, two of America’s biggest employers today (vs say, GM and Ford in the 70s).

    Is this country better off?

    • 0 avatar
      geeber

      The book “A Savage Factory” by Robert Dewar shows what American automobile factories were like in the 1970s.

      Mr. Dewar worked as a supervisor at the Ford Sharonville transmission plant in the 1970s. He paints a very grim picture – sexual harrassment of women on the line (by other workers), workers expected to use outdated equipment, filthy air and floors covered in grease, and management that paid lip service to quality.

      This was FORD, not some small, struggling company. He said his friends at GM told similar tales, and Chrysler’s plants were generally considered to be in worse shape at that time.

      I’m having a hard time believing that the Japanese plants of that time were any worse.

      Japanese cars were not more reliable because there was less to go wrong with them. Most people bought Pintos, Gremlins and Vegas with hardly any optional equipment, or, at most, an automatic transmission and AM radio. They were still inferior in reliability and build quality to Japanese cars at that time. The Japanese cars simply boasted superior engineering and more consistent quality control. The most reliable Detroit cars of the 1970s were the big Oldsmobiles, Buicks and Cadillacs, which tended to be loaded with options.

      American workers are VERY competitive with other workers. The challenge is that, thanks to automation and improved production processes, companies need a lot less of them. Our manufacturing output is actually at record levels. The problem is that we only need to employ as many people as we did in 1941 to achieve that figure. Closing our borders isn’t going to solve that challenge.

  • avatar
    tomLU86

    I missed Geeber’s earlier post.

    Toyota was successful, yes.

    And now it has become General Motors II. GM arguably had the best styling in the 60s when it was dominant and coasted on it’s reputation peddling junk in the 80s. Toyota used to reliable, but has been coasting on the ‘perception’ of reliability for decades now. Note the sludge-failing V6s in the 90s, shackles on pick-up trucks that rust and fall off in the 2000s, sudden acceleration. Toyota got a little greedy, focus on growth and more money, and peddling generally boring cars that don’t stand out–though there remain pockets of excellence, like their excellent V6 engine, and the misnamed car they share with Subaru.

    I don’t count them out–they are relentless and will do whatever to win–nor do I consider GM or the Detroit Three paragons or virtue–they’ll sell their country out in a minute if the can profit from it.

    However, the Detroit Three, to the best of my knowledge, have and do pay US Federal income taxes (or did, until the bankruptcy and future tax credits).

    With their vast, state-subsidized US manufacturing subsidiaries, and disproportionatel percent of profits derived from US sales, how much do the Japanase carmakers pay in US income tax?

    Just looking for some balance here

    • 0 avatar
      geeber

      If Toyota consistently fumbles on quality, then it will meet the same fate as GM. It will happen faster to Toyota than it did to GM, because competition is tougher now than it was in the 1970s and 1980s, and the internet spreads the word much faster.

      Every automobile manufacturer building vehicles in this country has received state and local incentives to build plants. It’s unfair to single out GM for this, but, on the other hand, the transplant operations aren’t solely guilty of this, either.

  • avatar

    This happened here in Canada as well, probally to a lesser extent than in the USA but I see it right here in this small Township in SW Ontario we had two GM dealers selling Vehicles, one sold Buick and one Sold Chevy, both where put out of Business real quick like, both had been in business over many years, they went without a wimper!
    The World moved on, more the pity eh?

    • 0 avatar
      Dimwit

      There’s been a massive reduction of manufacturing out of Ontario. Champion Heavy Machinery, Campbell’s Soup, John Deere, Ford & GM, the list seems endless. Most have shifted production to the States or Mexico, generally on the back of the FTA and relocation subsidies of local gov’ts.

      Until the pain of moving is less than the sweetness of the subsidies this will always be a problem.

      • 0 avatar
        sco

        Agreed, it’s not just GM or even large multinational entities for that matter large. This kind of squeeze has filtered down such that virtually any company with a significant presence in any community will ask for breaks of some sort.

  • avatar
    jsal56

    I am with Obama on this one-screw the small towns, they are small towns for a reason.

  • avatar
    TW4

    A town is dying from fiscal mismanagement or natural socio-economic changes over time. The town council and state legislators attempt to buy economic activity, in other words, the government is trying to consume productivity. The deal is obviously an inequitable zero-sum game, and many towns lose badly.

    Business is to blame for the death of a town that was already going to die?

    Few things in life are more frustrating than research projects conducted by people who lack the intellectual firepower or cultural integrity to interpret their findings. Corporations are the doctors who performed unsuccessful open-heart surgery. Yes, they get paid.

    The Federal government has regulatory authority over interstate commerce. They could stop state governments from consuming productivity with direct tax incentives. States would invest funds in transit, schools, healthcare, etc. while working to keep tax rates reasonable to attract businesses.

    Is the Federal government ever going to fight the good fight? Has anyone looked at the deficit recently. DC attempts to consume productivity in ways that make small towns look fiscally responsible.

  • avatar
    jeffzekas

    After retirement, I got a job at Walmart. Everything sold at Walmart is cheap and poorly made. “You get what you pay for” is quite true.

    Walmart pays minimum wage, has no retirement, no health care for workers, and fires at-will: basically, the modern day sweat shop.

    So, foreign goods, Chinese goods, though cheap, are NOT “better” than the American products they replaced. Yes, you buy $30 Chinese boots at Walmart- and they last six months. Or, you can buy $200 American boots, and they will last six years.

    But, the fact is, the loss of MILLIONS of good paying, American factory jobs (by out-sourcing to China) HAS destroyed the U.S. middle class.

    • 0 avatar
      racer-esq.

      If it wasn’t China it would be automation. Even China is losing manufacturing jobs. China has been losing manufacturing jobs since a peak in 1996.

      http://andrewmcafee.org/2012/09/mcafee-rapid-productivity-growth-us-china/

    • 0 avatar
      highdesertcat

      jeffzekas, I think you are way too pessimistic on Wal-Mart and the other Big Box stores that act and behave like Wal-Mart.

      Those businesses provide much needed jobs to people who would otherwise be unemployed and every dollar those companies pay out in wages goes around seven times in the local economy.

      Outsourcing started long, long ago, with a place much closer to home, like Mexico, Honduras, etc. American-based factories could not turn a profit in the American economic climate du jour and took their manufacturing elsewhere, so that they could be profitable for their share holders. There was no economic or tax incentive for them to stay in the US.

      And if people don’t want to work at a place that pays minimum wage, they can always leave. It is a free country.

      Employees are just employees. They are not owners or share holders, and as such, as employees they are entitled only to a fair day’s wages for a fair day’s work. Nothing more. Nothing less.

      There are so many government mandates that employees today are pretty well protected and covered for anything and everything.

      I’ve employed many, many people over the years to help me with work, and I continue to employ people to help me repair and maintain the rentals owned by my wife’s real estate business.

      These people are hired in as jobs are available and they are not my employees, but they are individuals who are paid to perform work for an agreed-on price.

      Often that agreed-on price is close to minimum wage, but they are happy to have the work. The work gets done, I pay them in cash and everyone is a happy camper. Best of all, they got money in their pocket!

      My area would be much worse off without the Wal-Mart Supercenter and the Big K-Mart store. And the people who work at those places are happy to have a job. The community is happy to have these employers here.

      I know several old people who work at the local Wal-Mart, and they don’t have to work because they are already financially secure. But they’re grateful to have a place to go to every day and do something that allows them to interact with other people.

      And the young people who work there? They’d be unemployed if not for Wal-Mart, K-Mart, McDonald’s, Burger King, Wendy’s, Arby’s, KFC, Popeye’s, DQ, all the Pizza places and the other minimum wage employers in the area.

      I’m proud to live my life in Wal-Mart fashion, but I go to other places as well, including the minimum wage payers like the local restaurants, fast-food places, etc.

      It’s better to be working. But if not, there’s always welfare and government handouts.

      • 0 avatar
        Dimwit

        Yeah, the Wal-Martization of N. America is sad, buuuut… nobody is shoved into a Wal-Mart at gunpoint. Yes, it’s a tragedy but the public has spoken. It wants cheap sh!t.

        End of story.

      • 0 avatar
        shaker

        Edit — Short Version: Unbridled capitalism is a “pyramid scheme”, and elected government is the only counterbalance available at this time.

        When the prevailing wage is so low that you can’t raise a family on a single job, is it any wonder why so many rely on the Gov’t for help? (especially Wal-Mart employees)
        There are many small towns that used to be full of small businesses that would employ locals, with the shop owner being the top of a very small pyramid, and that owner being firmly in the “Middle Class”. Now, it would be the Wal-Mart store manager, with a hundred (or so) employees in that same position.
        The “experiment” of capitalism is nearly complete, and the results are almost in – it is a machine that funnels wealth to the top, and its gears are the unwitting workers who have to play along; Yes, they are the “gears” of the machine, but not necessarily out of choice, but maybe willful ignorance, with cheap goods being proffered to ease the transition into poverty.
        Yes, these workers have a choice, either to become “entrepreneurs” themselves (with a lower success rate than a high-school football player getting into the NFL), or to go to another low-paying job.
        The cards are stacked against income equity in a purely capitalistic system, and those who complain about “handouts” aren’t seeing the bigger picture. Efforts by the national government to reverse this inequity are seen as “communist”, but if some sort of balance isn’t brought back to the economic system, the wealthy will suffer as well. Even Andrew Carnegie and his contemporaries recognized this phenomenon, though only when guilt (and the realization that “you can’t take it with you”) brought them to the realization.
        Yes, there have to be limits to “re-distribution”, and that wealth shouldn’t be derided, but if the wealthy can’t realize that they’re at the top of an ecosystem that they are rapidly destroying, then the Government (chosen by the people) will have to awaken them to the fact.

      • 0 avatar
        rnc

        Worked for German company for while, during one visit question of why walmart failed in Germany came up – general concensus was that by shopping there you were condemning your kids to work there, made a lot of since, other than my son’s clothes, shoes (mall store shoes for $35-$40 to last 2-3 months isn’t worth it) and toys (same goods anywhere else, are made in the same places, for more), I try and stay with the local businesses (groceries, pharmacies, etc.)

      • 0 avatar
        highdesertcat

        I understand that there are strong views on Wal-Mart and its ilk, but looking at the whole picture, including low wages and lots of temporary positions without benefits, Wal-Mart and its ilk have done a lot of good for a lot of people who otherwise would not have been employed or able to afford the things they now enjoy.

        Sam Walton was a controversial individual in his day as well. I studied him in Grad School and he drove a lot of Mom&Pops out of business when he initially started his nickel&dime stores way back when.

        But through all the controversy, Sam Walton provided goods at affordable prices to a wide range of people with an even greater range of incomes than the Mom&Pops could, because Sam bought in bulk, something the Mom&Pops could not do. A decent product at a fair price. Nothing wrong with that.

        So this is the price of progress that we, as a society, pay in order that more people can enjoy more things formerly restricted to people with money; things like HDTVs and other Electronic toys, affordable shoes and clothes, medicines, foodstuffs and groceries, and the list goes on and on.

        IMO that beats Obama’s wealth redistribution where half of the population works and pays taxes to support the other half that doesn’t work and doesn’t pay taxes, so that they can live on freebies paid for by the other half.

        Those opposed to Wal-Mart and its ilk are free to shun them with disdain. No one is forcing anyone to work or shop at those stores. But let’s not condemn people who do not have a lot of money for shopping at a store where they can get more for their money so their lifestyles are better than they otherwise would have been.

        Which brings us to the fleecing of America topic because the bailouts, handouts and nationalization of failed companies at taxpayer expense relates directly to the failing of so many other businesses everywhere that did not enjoy a privileged relationship with Shrub or Obama, and were therefore left out to dry and die.

        Make no mistake, while bailing out failed financial institutions has a reasonable chance of seeing the bailout bucks paid back, bailing out the UAW, GM and Chrysler has zero chance of ever getting paid back anything. In fact, some analysts see yet another GM bailout looming in the not-so-distant future, for a variety of reasons.

        I’ve always been against bailing out anyone, anyplace and anytime in any business environment, but if Obama has chosen that course of action, then he should also bail out all those small businesses that went under because of the bailouts of the US auto industry and the UAW. And there were many!

        In the end it is up to the buying customer to vote with his or her wallet. If you support Wal-Mart and all the good it does, you shop there. If you don’t support Wal-Mart, you don’t shop there.

        More importantly, if you support unions and bailed out GM, you buy their goods. But if you don’t support that, buy something else. Ford has a good product (well, better than it used to be) and it can claim it is a US company although much of its stuff is made in Mexico and Canada.

        Fiatsler, the parent company of Chrysler is a little bit different, since they now provide jobs for Americans building cars for Americans, in America.

        So Chrysler is now just like Toyota, Honda, Nissan, Hyundai, Subaru, Mercedes, and BMW. And that isn’t all bad either — they all provide jobs to Americans in America.

      • 0 avatar
        28-Cars-Later

        Not to go off on a rant here :)

        I always saw buying Big Three automobiles as supporting an American company with impact in my nation, not supporting UAW. Even if Japan could build a pretty car (G37 is the only exception in the past ten years or so), I still think it’s a tough sell to me personally because no matter how you argue about American workers/American built, its still a foreign product. Maybe I’m a bit daft, but I find it perverse foreign brands build things in this country while now American brands are starting not too. Should I want to buy a foreign automobile I really expect it to be built by, well foreigners in some far off land… otherwise what’s the point of ‘buying an import’ (unless its imported from Detroit of course)? Its not as if automobiles are that much different these days, Toyonda doesn’t have magic unicorn dust they spray on at the factory, and GM/Ford does not. Most major automakers will put out a bland 4 cyl car (or SUV/CUV) and it will last a lengthy amount of time and somewhere in the 150-200K mileage range on average.

    • 0 avatar
      acuraandy

      @Jeff:

      Wal-Mart didn’t destroy the American middle class, organized labor run amok did. For the love of god, the Unions just killed TWINKIES!

      Full disclosure, I prefer Target, at least the profits stay in my home state…

      • 0 avatar
        jkross22

        @acuraandy,

        No, the unions in and of themselves did not kill Hostess – handing out big pay packages to execs while extracting more money from the employees set a bad tone and contributed to Hostess’ demise as well. The bigger issue was Hostess execs caving to idiotic union demands. There were no adults leading the company…. just like GM.

        How can Hostess go bk in the US? HONESTLY, we’re a country of fat idiots. Oh yeah, it was the $2 billion in pension liabilities they couldn’t pay.

      • 0 avatar
        Pch101

        “For the love of god, the Unions just killed TWINKIES!”

        It’s funny how you guys fall for this BS, time and time again.

        Hostess has been in a similar situation to GM and other failing manufacturers — they fail because they make goods that nobody wants.

        Wonder Bread is passe. Twinkies are a relic of yesteryear. Between 2006 and 2011, Hostess’s revenues fell 20%. That’s the sort of thing that happens to the revenues of companies that make stuff that people don’t want.

        Those brands could work for a larger company that could include them as one small part of a much larger baked goods distribution channel. But trying to center an entire company’s business around products like those is a recipe for bankruptcy.

      • 0 avatar
        geeber

        Pch101 got it right. Changing customer tastes killed Hostess.

        Here in Pennsylvania, there was a discussion on the message board of the local newspaper regarding the closure of Hostess. A common theme ran through the comments – people kept saying that they hadn’t bought the company’s products in years. And not because they were too expensive. I honestly can’t remember the last time I bought a Hostess snack product. Again, it wasn’t because I haven’t had enough money to do so.

        Customer tastes changed; the company didn’t.

      • 0 avatar
        silverkris

        You’ve got it exactly backwards.

        The real problem with Hostess Brands was the company being bought and sold several times and loaded up with debt at each transaction. The unions already gave a lot of concessions in the last bankruptcy a few years ago and now were asked to give even more. One of the unions (the Teamsters) agreed to concessions but the bakery workers thought hard and felt that even if they did give in the company wouldn’t last.

        Contrast that with the execs running Hostess getting a huge raise.

        As for your comment about the American middle class, organized labor has hardly run amok. In fact, the decline of the union representation has lead to more income inequality and the erosion of the middle class and wage stagnation.

  • avatar
    acuraandy

    Thank you Jack for reiterating what I’ve been saying for years about RenCen’s continued utter contempt for rural America, ironically enough the Detroit 3′s historically most loyal customer base in N.A. I must say you put it a little more succinctly than I ever have.

    If this isn’t a case for the imports to further advance into this often overlooked market and win over Small-town, USA, I DON’T KNOW WHAT IS.

    Having talked to some ‘good old boys’ (I.e. the Chevy/Mopar/FoMoCo or nothing crowd) while deer hunting in Northern MN recently, I feared rolling up to the hunting shack in my Accent, but the guys were very accepting..

    This will never happen, but if Honda made a proper BOF Ridgeline, at least among those I talked to, they’d give it a chance up in the hinterlands, seems these guys are just as sick of the General as any suburban hipster.

  • avatar
    Jimmy7

    “It’s also somewhat disturbing to see the Times suggest, even obliquely, that collusion between governments to reduce tax incentives might be desirable.”

    Absolutely, because business would never lobby collectively for tax incentives or tax breaks. I read it on the Chamber of Commerce website.


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