The Financial Crisis and the Auto Sector Written by Joel Bergman Tuesday, 06 January 2009 The crisis in the auto industry has reached huge proportions and is now affecting nearly every country. Demand for vehicles has fallen sharply all over the globe, with sales reaching lows not seen for three decades. This is an extremely pressing issue. If the main auto manufacturing companies go under, there will be millions of jobs lost and a massive blow to the rest of the economy, which would have a disastrous effect on the living conditions of millions of workers around the globe. It is estimated that there are over seven jobs created for every job in manufacturing and that one in ten jobs in the United States is either directly or indirectly connected to auto manufacturing. This means that entire communities are at stake. Ordinary people all around the world are seriously questioning what is going on. What is happening? How can we save our jobs and our communities?
Automobile sales have taken a sharp fall. Of the top six automakers in the US, Chrysler will see the biggest decline, with sales down 45.6% compared to December 2007. Nissan's sales are down 42.1%, GM's sales nearly 40%, Toyota's 38.8%, Honda's 37.7%, and Ford’s sales will be down 33.8% when compared to December 2007. But this crisis is not only relegated to North America. In Germany, BMW’s global sales slid 25% in November 2008 compared with November 2007. Daimler’s global car sales also fell 25%. The Chinese state media says car sales in the world's second-largest auto market fell 10%. In Japan, the third largest domestic market for automobiles after the US and China, it is expected that demand for new cars, trucks and buses will fall below 5 million for the first time in 31 years. In Mexico, auto sales are also down. Mexico’s new-car sales slipped 17.8% compared with November 2007, while light-truck demand slid 22.0%. In India, truck and buses sales in November were down by almost 50 per cent. Medium and heavy commercial vehicle sales fell by 62 per cent. Even light commercial vehicle sales, which were growing until recently, have posted a 33% fall in sales.
The auto manufacturers, forced to increase production to maintain profits, could not simultaneously create a market that could keep up with these production levels. During this period, wages have stagnated or fell while manufacturers have massively overproduced cars, trucks, SUVs and minivans that no one could buy. People were forced to take out low-interest mortgages, second mortgages, extra credit cards and car loans in order to maintain the same standard of living they enjoyed in the past. As explained in the IMT world perspectives document of 2008, “The boom in the USA has largely been a consumer boom, fed by credit. As Marx explains, credit is a way of expanding the market beyond its natural confines. But this has its limits and these have now been reached. If the capitalists cannot find markets for their commodities, no surplus value will be realized and a crisis of overproduction will ensue.” Credit was increased by an unprecedented amount at all levels. People were unable to pay off their debts as banks foreclosed on their mortgages, forcing them to go bankrupt and even live on the street.
As always this crisis is being shoved onto the backs of the workers. Already, hundreds of thousands of decent-paying union jobs won from the hard-fought struggles of the past have been turfed, and huge concessions have been squeezed out of the autoworkers’ unions. In the US, 533,000 jobs were axed in November, which is the biggest one-month loss since 1974. In Canada, the losses relative to population were even larger, with Statistics Canada reporting that close to 71,000 jobs were lost in November, the biggest one-month loss in 50 years. This is still far from the end. Auto manufacturers all over the globe are idling or closing plants, slowing production and laying off workers. Chrysler has now stated that all of its 30 manufacturing plants in North America, “will be idled at the end of the shift Friday, December 19, and impacted employees will not return to work any sooner than Monday, January 19, 2009.” Ford has also stated that it will idle most of its factories for the first week of January, while they wait, hopefully for a government bailout. GM, which has already idled five factories this year, is temporarily closing 21 North American factories. In Mexico, auto parts manufacturing company Alfa, based in Monterrey, said its Nemak auto parts division will shut the plants in the northern Mexican states of Nuevo Leon and Coahuila between Dec. 22 and Jan. 4 as orders slump from crippled Detroit car companies. However, it is also not just “The Big Three” (GM, Chrysler and Ford) that are affected. In the words of Tsuyoshi Mochimaru, an analyst for Barclays Capital in Tokyo, "There is absolutely no way in my view that the Big Three's woes can work as a plus for the Japanese automakers. So what if there might be a market-share increase some years ahead? The pie itself is shrinking." As has been shown, sales from all major auto-manufacturing companies have been shrinking. Toyota has just announced its first loss in over 70 years, a loss upwards of $1.7 billion this fiscal year. Toyota has suspended production at several North American plants in recent months. It has delayed indefinitely the start of production at a plant in Blue Springs, Mississippi, which was to have begun making the Prius in 2010.
The truly global nature of this disaster completely refutes the claims at the beginning of the economic crisis that western economies had somehow magically “delinked.” Bourgeois economists insist that instead of the globalized world market that they promised would eliminate the boom-bust cycle, there are countries with separate economies that will somehow buoy up the world market. These childish fantasies have been shattered as the financial crisis is now definitely global and the auto crisis is affecting nearly every country in a shockingly similar manner.
$73 per hour?
Over the past few decades, there has been an unprecedented increase in investment and innovation, combined with massive profits and production climbing to seemingly never-ending heights. Now with the crisis, people are looking for somewhere to place the blame. If our society has been producing more and corporations have been making more profits, then why are we being asked to sacrifice our meager gains? Bourgeois pressures in our society have placed the blame squarely on the backs of the workers. Apparently the “greedy” autoworkers are making between $70 and $73 dollars per hour. This is the picture you’d get if you’ve been reading the bourgeois press and listening to the industry “experts.” This is a bold-faced lie. The average GM worker makes $28 USD an hour, which is virtually identical to the wages paid by most foreign car companies. Also, with the erosion of these “cushy” union jobs, the general wage level in manufacturing will fall, as non-unionized plants will no longer have to offer higher wages to compete for the best labourers. As Marx proved, the average wage, left solely up to the market to decide, tends toward the minimum required for subsistence of the worker. The so-called American Dream would be dissolved. This claim of $73 per hour leads us to believe that somehow auto manufacturers have been paying these workers over $42 in health benefits and pension plan contributions. This is not the case. There are, of course, small amounts that are paid into health insurance premiums to ensure the protection of the workers. There are also small amounts from each pay cheque paid into pension plans that are matched by the employer. However, adding these benefits to the hourly wage still does not add up to the outlandish $73 per hour. So where does this $73 figure come from? The only way that it is possible to come up with this inflated number is if you add the financial obligations paid to more than 700,000 workers, retired workers and surviving spouses and you divide it by the actual hours worked by about 180,000 GM workers on the job today. This is taking pension plans that are largely made up of contributions from the workers themselves and claiming it as an expense and then using it against them. These benefits have been acquired through past collective agreements that have been signed by the union and the corporations.
However, in the end it is not a question of which workers are costing which companies more money. Even if the workers at UAW and CAW plants are costing the companies more in total expenses than the workers at non-unionized companies, there is no justification for squeezing concessions out of these workers. If the system cannot sustain our current standard of living then it must go! No one has been seriously demanding concessions out of the millionaire CEOs. In fact, they are handing these people millions of dollars. Less than a week after the US government bailed out American International Group Inc. to the tune of $85 billion, the company sent executives on a $440,000 retreat to a posh California resort. The tab included $23,380 worth of spa treatments for AIG CEOs. This is standard practice in any major capitalist corporation. In a report put out by the Associated Press it was found that the records for 116 banks that have received $188 billion in bailout funding show that the average top exec received $2.6 million in salary, bonuses and benefits last year. It was also found that the total amount showered on the execs would cover the banks' bailout costs! Who needs to take a pay cut? It seems as though our governments are rewarding extreme stupidity and greed, while punishing actual value-creating hard work.
When we take a glance at the numbers, wages in North America only make up six to seven per cent of the cost to build a vehicle. These workers could work for free all year and it still wouldn't save the auto industry. The productivity of these factories has never been in question until now. CAW/UAW employees operate nine out of the top ten most productive auto manufacturing factories. But now apparently these unionized workers are all unskilled, greedy, and lazy and they aren’t even worth a poverty wage. The bailout cannot save the auto industry. As has been stated, the current crisis is (as is every capitalist crisis) a crisis of overproduction. Simply put, there are just too many vehicles being produced and the market for these vehicles cannot keep up to production. In the United States there are now 981 cars for every 1,000 people of driving age. Capitalist production for profit instead of a socialized plan of production for need has led us into a blind alley. The call for concessions from the workers does not increase the demand for vehicles but decreases it. Therefore the blame for this crisis lies directly in the lap of the capitalist system itself.
This question of saving jobs in the face of the economic crisis is one of utmost importance. If “The Big Three” go under, it is estimated that over 3 million jobs will be lost in the US alone, with millions more that will be indirectly affected in the US, Canada and all over the world. In Canada, it is estimated that over 580,000 jobs will be gutted out of the manufacturing heartland of Ontario. This is in addition to the hundreds of thousands that have been cut from Ontario and Quebec manufacturing due to the rising cost of the Canadian dollar against the greenback. These jobs have been the basis of what is commonly known as the “middle class” in North America. The destruction of these jobs is shaking the working class to the core. This process is playing itself out throughout the labour movement in North America. These jobs were created by a massive trade union struggle in the late 1930s through the 1940s that unionized the entire manufacturing sector. This resulted in an increase in the standard of living, wrested from the hands of the capitalists during the post war boom. This forced non-unionized companies to raise wages to compete for the best, most qualified workers. The result of this movement was the creation of the United Auto Workers (UAW) and their Canadian counterpart, the Canadian Auto Workers (CAW).
The workers were prepared to use militant methods such as sit-down strikes to win the day. Workers occupied the plants and factories until their modest demands were met. Surprisingly enough to some, these militant traditions still remain with the autoworkers. The series of sit-down strikes and occupations in Ontario and Quebec over the past few years prove that militancy comes not from “radicals” within the movement but from material conditions that push workers in the direction of radical solutions. Both the UAW and the CAW have strong militant traditions and have been the backbone of the labour movement. This is especially true concerning the CAW in Canada. If manufacturing dies, so does the CAW and this therefore deals a lethal blow to the Canadian labour movement. Therefore, the demand to save these jobs is ultimately the demand to save these unions and to save the Canadian labour movement.
Is The Corporate Bailout a Solution?
For decades the main ideologues of capitalism have been churning out the gospel of the “free-market” as our one and only guarantor of a better world for all. So what solution is being conjured up for us now by these wizards of the market? Anyone who has been paying attention to the economic dialogue for the past couple of decades must be scratching their heads in confusion. The main solution unanimously accepted by all major capitalist governments is the exact opposite of everything they’ve been saying for decades. This solution is *gasp* state intervention in the economy!
This has manifested itself in the form of the auto bailout. In Canada, Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty engineered a $4 billion CAD bailout which they call a “short-term repayable loan” for the struggling auto manufacturers in Ontario. However, this is unlikely to be the end of it in Canada. The Canadian Council of Chief Executives (i.e. the Canadian oligarchy) has just sent the Prime Minister a “submission” (i.e. his orders), in which they outlined the need for a further 15 billion dollars in stimulus to boost the economy. Harper has not ruled out more aid for struggling corporations and has already stated that he is expecting a deficit in the range of $20-30 billion next year. This is up from past predictions of $5 billion, which leaves us to believe there is probably more public money earmarked for corporate welfare. In the US, George Bush has approved a $17.4 billion USD bailout aimed mainly at GM and Chrysler to keep them operating. In the UK, British auto manufacturers are begging for a billion dollar bailout package from Prime Minister Gordon Brown's government. This came after a report revealed that car production in the UK slumped by a third in November. There are over 800,000 jobs at risk in Britain if the auto industry falls. In Germany, GM Europe officials have met with German Chancellor Angela Merkel to ask for loan guarantees. In Sweden, a $3.6 billion aid package has been approved to help prevent the country's auto industry from completely collapsing. French president Nicolas Sarkozy granted a $36 billion bailout for the struggling car and construction industries in France.
For any socialist or any trade union activist, or any worker who has been paying attention to the political dialogue for the last few decades, this is all extremely hypocritical. Whenever we (the workers) ask for a better-funded healthcare system (or the mere existence of one in some countries), universal public day care, lower tuition fees or an increase in the minimum wage, we are constantly told, “there is not enough money.” We are constantly told that, in spite of the fact that production and profits have increased by large margins in the past 30 years, there is simply not enough cash to fund our “utopian ideals.”
Now, at the drop of a hat, governments all over the globe are granting - in the words of US treasury secretary Henry Paulson - “unlimited liquidity” to virtually any corporation that comes begging to their door. This strips bare all the rhetoric about the free market and all of its wonders. The truth is that capitalists actually only care about the market when it makes them money. As soon as there is a downturn and they are hit with tough times, they drop everything they believed in and become adherents to a new breed of socialism, that is, socialism for the rich. They are completely fine with state intervention as long as it is in favor of their profits. This is the real content of the bailout packages. Behind all the talk about a bailout to “save jobs” lies the bloodthirsty greed of the capitalist class, while they try to maintain their friendly face.
So where is this bailout money coming from? Capitalist governments are normally scared to death of going into debt or even running a deficit. However, governments now find it necessary to dig deep into deficit financing to prop up failing corporations. In order to reverse the resulting national debt, we will experience huge cuts to all our social services, healthcare and education along with the privatization of crown corporations, most likely starting with Canada Post. This is the basis of the bailout solution to the crisis of capitalism.
For a Socialist Solution!
There is no band-aid solution to all of these problems. There is no solution that can save both the capitalist system and our standard of living. The capitalist system has miraculously failed. With unparalleled advances in technology and science, there opens up the possibility for the liberation of the entire planet from poverty, hunger, illness and deprivation. The demands of the system now stand in bare, glaring contradiction to material conditions. Workers all over the world are now being asked to take a hit because somehow this magic force of “the free market” demands it. The auto crisis is just the latest example of this.
Capitalism is destroying our jobs and our communities. It is immoral and insane. It is shutting down the most productive auto manufacturing plants on the face of the planet. If these factories are allowed to be shut down, whole communities will be destroyed, families torn apart and millions of people forced into poverty. This would be a mortal blow to the CAW/UAW and the trade union movement as a whole in North America. The CAW workers have already shown the way forward with their actions in occupying factories being shut down. These disconnected, instinctual efforts of the workers must be brought together with a clear national trade union leadership. Any productive factory that is shut down must be occupied to save jobs. We must demand that any occupied factory, must then be nationalized and all nationalized plants be brought together in a socialized plan of production. Nationalization is part and parcel with worker’s democracy. In the words of Leon Trotsky, "Democracy is to socialism, as oxygen is to the human body." We demand that the nationalization of these factories must come with the direct control and democratic planning by the workers and society as a whole.
But even a nationalized factory or a whole nationalized industry cannot continue to produce for a non-existent capitalist market. The solution is not to try and re-establish the equilibrium of the past and build more cars. The only solution lies with the socialization of transportation as a whole. Capitalism is utterly incapable of organizing transportation. Any logical society wouldn’t place such reliance on private automobiles, but would rely mainly on a massive public transit system. In any major city, the majority of people using private vehicles are all going to the same places. There are thousands of kilometers of roads and billions of dollars worth of vehicles, most of which are sitting idle for the majority of the day. We must grasp the massive capabilities present in our society and organize a socialist plan of production and transportation. All of these factories being shut down should be re-opened and converted into public production facilities for subway systems, environmentally friendly buses, tram lines and trains.
The nationalization and planning of transportation and production goes hand in hand with the nationalization of the whole capitalist economy. We must end this anarchic system once and for all and use our vast knowledge and resources to organize our society along rational, socialist lines. Treating the transportation of workers to their jobs as an integral part of the productive process is a socialist solution that can save our jobs, communities and the environment from capitalist destruction.