Cutback decision necessary, healthy part of business

Freedom Newspapers

One of the common responses to news that General Motors is slashing its work force by 25,000 — bringing it down to about 125,000 blue-collar and white-collar workers — is that GM is a victim of foreign competition.

Published reports suggest that Toyota, whose market share is growing rapidly even as GM’s plummets, is expecting new pushes for protectionism in the wake of the cost-cutting announcement this week by GM CEO Rick Wagoner at the annual shareholders’ meeting in Delaware.

But it’s not Toyota, Honda, Nissan or other foreign competitors who are to blame for the dismal state of affairs at GM. If anything, competitors actually might finally provide the spur necessary for the ailing corporate giant to get its act together.

Without tough competitors, GM might go on as it always has, amassing enormous pension, health care and salary costs, then passing those costs on to consumers.

The average GM car’s price includes $1,500 in health care costs, mostly for union retirees, compared to a $300 average for Toyota, according to newspaper reports. Over the years, GM officials bought labor peace by agreeing to benefits whose cost would eventually push the company toward a crisis.

That’s similar to what local and state governments have done, but in those cases taxpayers will be stuck with the bill. In the private sector, especially in a competitive market, companies — including their employees — will eventually face the day of reckoning. Well, that day is here for GM.

GM’s market share has dropped from 42 percent of the U.S. truck and auto market in 1984 to 25 percent of the market today. Ford’s market share has fallen, also, and the imports are rising. Most auto industry analysts say GM offers a convoluted and mediocre selection of cars. Its large SUVs had been selling well, but with a spike in gasoline prices and a change in trends in the fickle auto business, those sales are falling.

Ironically, the 25,000 reduction in workers is viewed by many industry analysts as a small improvement. Most of those workers’ jobs will be reduced over time by attrition and buyouts rather than through immediate layoffs, and the union still must agree to any plant closings before the end of its contract in 2007. Angry shareholders demanded more radical steps.

Overall, what’s happening at GM is how the marketplace is supposed to work.

Lackluster products lead to declining sales and market share, which leads to falling profits. External factors, such as rising gas prices, also weigh in. Excessively generous benefits paid to workers make it more difficult for a company to compete, which opens the doors to competition. The result is the public eventually gets better products at better prices, even as weaker players fall by the wayside. Imagine what the situation might be if Japanese competitors weren’t there to force GM to tighten its belt and improve its products.

As difficult as the cutbacks might be for union workers, GM’s decision is necessary and healthy. The blame rests squarely on the company’s management and union leaders who too often put their own short-term interests above those of the consumer and the health of the enterprise.