General Motors' Problems Send Broader Message
Well it's old news now that GM is cutting 25,000 jobs over the next 2 years. This is obviously going to hit many areas very hard - primarily in Michigan and Indiana. It comes as no surprise that GM (and other US automakers) are having problems. Just like in the 1970s gas hike, they did not respond to consumer demand for more fuel efficient cars. However, what is interesting is what CEO Rick Wagoner had to say to shareholders about the problems.
Wagoner, detailed a number of issues in his report to stockholders. The most interesting to me was in his conclusion (emphases mine):
"Such factors (for planning) include, among others, the following: changes in economic conditions, currency exchange rates or political stability; shortages of and price increases for fuel; labor strikes or work stoppages; health care costs; market acceptance of the corporation's new products; pace of product introductions; significant changes in the competitive environment; changes in laws, regulations and tax rates; and, the ability of the corporation to achieve reductions in cost and employment levels to realize production efficiencies and implement capital expenditures at levels and times planned by management."
If you look at the highlighted issues, they throw red flags all over the place. First,"fuel price increases and shortages". In other words, they are expecting peak oil issues to continue and perhaps worsen, and their vehicles are not set to sell in an oil shortage market. Of course if it gets really bad, then no one's cars are going to be selling.
Next is "change in currency rates." This could refer to the ongoing argument with China about the valuation of their currency - important because of both production and US import issues, but also because of the tremendous amount of US paper that China is carrying. However, it also has to refer to the stability of the dollar due to the tremendous debt the US has, with no policy to slow down its accumulation - much less reduce the debt. This has led to speculation by in many countries - including Australia - to switch to the Euro as the standard. Such a move would be catastrophic for the US, and for the cost of oil in the US.
Political stability is on the list. This is truly ambiguous. Whose political stability? Is Wagoner referring to the Middle East, or to the US, or both? The answer may well be "both." If (when) oil prices head back up, shortages occur, and the dollar crashes, we may well see an "uprising" in the United States. However, there is tremendous instability around the world which could dramatically effect the US. That instability might be in the form of either military engagement, or dropping the dollar for the Euro.
On the "hopeful" side (one presumes) is what Wagoner
seems to be asking Washington (Bush) to do. Those are "laws, regulations,
and tax reductions." One might wonder if things such as changing laws about
corporate responsibility for pensions and health care costs might be in mind. Or
if decreasing emission standards, worker safety, or wage regulations might come
into play. Or perhaps more corporate welfare in the form of either corporate tax
cuts, or increasing consumer tax credits for large vehicles might be on the way.
Remember, GM is not just an automaker - it is a major military contractor. We
could see the Chrysler bail out all over again.
Rowan Wolf is a columnist for Project for the Old American Century,
and the editor of Uncommon Thought Journal.
Her email is [email protected]
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