Archive for May, 2009

Hope, Faith and Charity

May 18, 2009

“What’s good for General Motors is good for the country.”

Charles Erwin Wilson

gm logo and flag

Charles Wilson became the president of General Motors (GM) in 1941 and during World War II was the director of America’s War Production Board.  After the war, Wilson advocated for a “permanent war economy” in the United States, ostensibly to avoid a return to the economic conditions that prevailed during the Great Depression.  He was still the head of GM in January of 1953 when President Eisenhower selected him as Secretary of Defense.

Wilson’s nomination would be controversial because of his large holdings in GM. He did not intend to sell his stock, which was valued at more than 2.5 million dollars, and this was seen by many as a potential conflict of interest. During his confirmation hearings before the Senate Armed Services Committee, when asked if he could make a decision adverse to the interests of General Motors if required, Wilson answered yes, but elaborated that he could not imagine such a situation occurring “because for years I thought what was good for the country was good for General Motors and vice versa.” Later this statement was often misquoted, suggesting that Wilson had simply said, “What’s good for General Motors is good for the country.”

It was not unreasonable to be concerned that a potential conflict of interest may arise between Wilson’s public sector responsibilities as Secretary of Defense and his private sector allegiance to General Motors.  The company had conducted more than 12 billion dollars worth of business with the American government during the war and was still a major supplier to the United States military; as Secretary of Defense Charles Wilson would be in a position to further enrich both himself and GM by awarding additional government contracts to the corporation.  A “permanent war economy” would prove to be a boon to GM’s profit margin.

Charles E. Wilson

Charles E. Wilson

Now more than fifty-five years later, another potential conflict of interest has arisen with General Motors.  Politicians are being forced to ask themselves a related question: “Is subsidizing General Motors good for our country?”  For the first time since 1910, the possibility of General Motors declaring bankruptcy is a serious consideration, and many analysts consider it as inevitable.

The last thirty years have been witness to a profound reversal in the fortunes of GM. The corporation has been losing money and market share for several years, along with Ford and Chrysler.  The “Big Three” American automakers combined are several hundreds of billions of dollars in debt.  They now appear to be casualties of globalization, unable to compete profitably even within their traditional markets of North America, and while the world’s current economic recession is not responsible for the Big Three’s competitive decline, it will be the determining factor in what the immediate future holds for North America’s auto industry.  Chrysler is now bankrupt and has joined GM in successfully soliciting various governments for tens of billions of dollars in loans and grants to remain in business.  While Ford has not asked for any immediate funding, it also doesn’t want its competition to get the upper hand thanks to their government bailouts, so instead requested that a nine billion dollar line of credit from the U.S. government be made available if required. These automakers have already been the beneficiaries of extensive public largesse for several years and observers are now questioning the efficacy of continuing financial support for what already appears to be a lost cause.

As stated in its 2008 Annual Report, GM directly employs 243,000 people around the world.  It manufactures vehicles in 34 countries, and sold about 8.4 million vehicles in 2008 – down from 9.4 million in 2007.  The bankruptcy of a company the size of GM would have a significant impact on the economies of all countries in which it operates – particularly Canada, the United States and Mexico, where approximately 173,000 people are directly employed.

While the complete disappearance of General Motors is not expected, even if or when it declares bankruptcy, analysts have estimated that a total shutdown of the top U.S. automakers would lead to nearly three million jobs lost, directly and indirectly, with the American government losing about 60 billion dollars in revenue during the first year after such an event.  In Canada, a study by the Centre for Spatial Economics estimated that the loss of the Big Three producers would cost 600,000 jobs in Canada, reduce the country’s gross domestic product by 4.4 per cent and deprive the government of $13 billion in taxes.

gm-logo

General Motors’ failure to remain profitable is no surprise.  The corporation’s history of disreputable business practices, the questionable quality of some of its products, the complacent performance of its managers and the apathy of unionized hourly wage earners have all been factors contributing to the company’s current crisis.  Yet it is the members of the United Auto Workers (UAW) who are receiving the brunt of negative media attention.  The common theme has been to blame the corporation’s insolvency on its “lack of competitiveness” caused by excessive wage and benefit packages negotiated with unionized labour.

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A December, 2008, internet article by Fox News Channel commentator Cal Thomas is a typical example of how anti-union media sources have taken advantage of this opportunity to pillory organized labour, regardless of the facts.  Thomas contends that General Motors’ insolvency “is the result of increasing UAW demands, strikes and threats of strikes unless health care and pension benefits were regularly increased”.  “According to the Wall Street Journal in September of 2006,” he stated, “on average, GM [paid] $81.18 an hour in wages and benefits to its U.S. hourly workers. Those increased costs, including the cost of health care, were passed along to consumers, adding $1,600 to the price of every vehicle GM produced.”  While Thomas acknowledged that recent concessions by auto workers had reduced that additional cost, he cites the Center for Automotive Research, a think tank that receives funding from GM, Ford and other auto sector companies, as estimating that the average wage including benefits for current GM workers had only dropped to “$78.21 an hour”.  He then adds:

“Contrast this with non-union Toyota, whose total hourly U.S. labour costs,   with benefits, are $35 per hour. Those lower labour costs mean Toyota enjoys a cost advantage over U.S. automakers of about $1,000 per vehicle. Is it any wonder that Toyota is outselling American automakers and from plants that have been built on U.S. soil? According to James Sherk of The Heritage Foundation, Japanese car companies provide their employees with good jobs at good wages: ‘The typical hourly employee at a Toyota, Honda or Nissan plant in America makes almost $100,000 a year in wages and benefits, before overtime.’”

However authoritative these statements may sound, they are misleading.  We are told that Toyota employees earn “with benefits, $35 per hour”.  In a 40-week year with 40-hour weeks, this amounts to an annual wage and benefit package totalling $56,000 per year.  James Sherk is then quoted in the same paragraph as saying that Toyota employees earn “almost $100,000 a year in wages and benefits.”  This amounts to $62.50 per hour over the same 40-week year, not $35.

gmworkersonline

As of May 03, 2009, the median hourly rate for a UAW Assembler was $26.96.  Wages vary for skilled-trade workers; the median wage for a Millwright at GM, for example, is $31.76; for an Electrician Journeyman it is $32.16.  Additionally, an employee’s years of service are also rewarded with incrementally higher wages and benefits. The “average wage, including benefits”, is not $78.21 for a UAW member working for General Motors.

The labour cost figures cited by the auto companies include overtime, shift premiums and other expenses associated with having a person on their payroll. This includes statutory costs, which employers are required to pay by law, such as federal contributions for Social Security and Medicare in the U.S., and state payments to workers’ compensation and unemployment insurance funds. It also includes the costs of negotiated benefits such as health care, pensions, education, training and prepaid legal services.

GM’s Hourly Pension Plan has been in effect since 1950 and is funded entirely by General Motors. There are no employee contributions to the Plan. As of Dec. 31, 2006, almost 357,000 hourly retirees and surviving spouses were receiving pension benefits.  Nearly 65,700 of those recipients were age 80 or older and 155 of that group were age 100 or older.

Having been the largest employer in the auto industry for so many years, these “legacy costs” as they are euphemistically called are higher for General Motors than for any other auto manufacturer, making the company’s overall labour cost per hour higher.  In this context, it is understandable how GM may have labour costs of $78 per hour and Toyota $62; Toyota’s manufacturing operations in North America are relatively new and much smaller, with no retirees to compensate (GM has been negotiating additional concessions from the UAW and legacy costs are assumed to have been reduced further at the time of this writing).

Frederick "Fritz" Henderson

Frederick "Fritz" Henderson

In the April 27, 2009, issue of The New Yorker magazine, General Motors’ new Chief Executive Officer (CEO) Fritz Henderson acknowledged how more than thirty years ago, GM began to alienate car buyers by selling “automobiles that were shoddily made and aesthetically wanting”.  “We saw some less than noble efforts,” Henderson admitted.  He also expressed his belief that today it is the burden of union legacy costs that have crippled the company’s profitability in a “shrunken marketplace” with “greater competition”.  Henderson explained: “We [have] invested more than a hundred billion dollars … to provide resources for both U.S. pension funds and U.S. post-retirement health care.  That is a staggering number and the burden of that, basically, has been borne by our balance sheet. … it means those resources weren’t invested elsewhere…or didn’t provide liquidity in the balance sheet for us to make investments or for us to withstand a moment like this.” (p.52-53)

Henderson’s statement seems rather disingenuous if one considers the recipients of this funding.  It is true that the company has been subjected to escalating pension and healthcare obligations, but this has been for all current and retired workers, salaried executives as well as UAW employees.  It is also true that management retirees are being subjected to pension rollbacks along with unionized workers.  GM announced the elimination of lifetime health care benefits for 100,000 white-collar retirees in its ongoing effort to reduce legacy costs.

Also consider that General Motors was already more than 300 billion dollars in debt by the end of 2004, with another 120 billion dollars of liabilities in the form of outstanding bonds.  The company has been losing money ever since and lost an additional 30.9 billion dollars in 2008 alone.  It is doubtful that depriving the employee pension fund of capital would have made a significant difference in helping GM remain solvent.

In fact, the Wall Street Journal reported in December of 2003 that GM was actually using its pension fund to make money: “In the third quarter, GM shovelled $13.5 billion into its pension plans, bringing its total contributions for the year to $14.4 billion. Because the company assumes that the pension assets will return 9% over the next year, the move automatically guarantees the auto maker a $1.3 billion boost to its bottom line over the next year. Not only that, but GM can deduct the entire contribution, which will shave $5 billion from its taxes. Combined, the effective guaranteed return in the first year is 44%.”  Since then, the company’s pension fund has performed so well that in April of 2007 the Washington Post reported it to be 17.1 billion dollars overfunded.

It would appear that legacy costs were not a pivotal consideration in the corporation’s daily operations until sales fell precipitously during the recent global recession and caused the company’s profitability to completely evaporate, along with the profits of every other auto manufacturer, foreign and domestic.

In March of 2009, it was revealed that Toyota, GM’s biggest rival, was trying to borrow over $2 billion from the state-backed Japan Bank for International Cooperation (JBIC).  Toyota expected to lose $3.9 billion this year and was just the latest Japanese automaker to ask for government assistance. Nissan and Mitsubishi Motors also “signalled their intent” to ask for loans from the Development Bank of Japan.  Nissan cut production in January by 60% and Honda cut production by 23% that same month.  Toyota’s losses, however, have been far worse than expected.  On May 8, Toyota President Katsuaki Watanabe announced a projected net loss of $5.5 billion for the fiscal year.  This announcement comes “despite Herculean cost-cutting efforts that could save around $8 billion.” North American sales fell by 21% in 2008 and are projected to fall and additional 20% in 2009.  An association of European automakers is also asking for $52 billion of low-interest loans and incentives from the European Union.

On July 15, 2008, GM announced plans to save 15 billion dollars annually by eliminating employees in the U.S. and Canada.  Twenty eight percent of its salaried employees, or 9,000 workers, were offered early retirement incentives. By doing so GM hopes to achieve “a 20 percent reduction in cash costs for salaried workers [that] will save $10 billion.”  In order to achieve the other $5 billion in savings, “53,000 union workers have been persuaded to accept buyouts or early retirement, and the company plans to close more than a dozen North American plants.”  It is tempting to speculate on how much more money GM might have saved if it had offered early retirement incentives to more white collar workers, and sooner.

13gmworkers GM5.jpg

Foreign investment in Mexico‘s auto industry has been increasing, averaging about $2 billion per year since the 1990s.  Mexico’s auto exports grew by almost 68 percent between 2004 and 2007, with most units going to the United States.  Yet Mexican auto workers’ wages are also being cut, with savings to corporations that are negligible.  Starting wages at some plants have been reduced to $1.50 per hour from $1.95.  General Motors said it will stop using “relatively high-wage workers” at its plant in the city of Toluca where, it is estimated, some workers earn about $6 per hour, an extremely high rate by Mexican auto industry standards.

No significant savings can be achieved by cutting already meagre Mexican wages, but given the chance manufacturers seem happy to do so just because they can.  The corporate savings is almost intangible, but the loss of income for Mexican labourers is profound.  This cynical gouging of workers’ wages and treating them as if they were disposable machine parts is reminiscent of the corporate mentality that dominated the industry early in the twentieth century and was the catalyst for the auto sector’s unionization in the U.S. to begin with.

gm mexican workers

Below is a partial list of General Motors products recalled in recent years because of manufacturing defects:

In 2001, about 156,000 passenger vehicles, light duty trucks, sport utility vehicles and mini vans were recalled due to faulty seat belt assemblies that, in the event of a vehicle crash, would not properly restrain the occupant.

In 2002, General Motors recalled approximately 570,000 pickups and sport utility vehicles.  The air bag sensing and diagnostic modules installed in these vehicles could interfere with the timing and sequence of air bag deployment signals, which could result in the non-deployment of driver and passenger side air bags during frontal collisions.

In 2003, about 1.77 million pickups, sport utility vehicles and vans were recalled in order to replace front windshield wiper circuit boards and motor covers. Vehicles repaired in an earlier wiper recall were not included in this new program.

In 2004, GM recalled about 4 million pickups worldwide to replace dangerous tailgate support cables that would corrode unnecessarily and fracture.

In 2005, GM initiated six recalls on more than two million vehicles for fuel leaks, overheating fuel pump wires, parking brake failures, brake pushrod and pedal arm failures, faulty ignition relays and seat belt anchors that did not comply with U.S and Canadian safety standards.

In 2006, 30,000 Corvettes were recalled because their roof could potentially separate from the vehicle.  900,000 pickups worldwide were also recalled in 2006 to fix tailgate cables that would corrode unnecessarily and break when loads were placed on them.

In 2007, 13,000 Acadias were recalled because the sensing and diagnostic modules of front air bags did not operate properly, possibly resulting in the non-deployment of air bags during a frontal collision.  Another 313,000 passenger cars and crossover vehicles were recalled to fix a fluid leak that could lead to the driver losing control of the vehicle.

On August 30, 2008, GM announced a recall of 944,000 sedans, sport-utility vehicles and pickup trucks worldwide because of a potential short circuit in a system that heats windshield-wiper fluid and could cause a fire. The recall affected 16 vehicle models that have the system. Of the vehicles, 857,735 were sold in the US.

Most recently and most inopportunely, on April 13, 2009, CBS announced that GM was recalling 1.5 million vehicles of various models because of possible engine fires that could be caused by leaking oil. Another 277,000 vehicles of various models had already been recalled in 2009 because of a potential defect in the shift lever that could cause a vehicle to roll away.

Could anything undermine General Motors’ credibility more than regular recalls?  In 1970, GM held 50 percent of the US auto market, 32 percent in 1995 and 25 percent in 2005. Today its share hovers at 18 percent.  Is it rational to make further investments in a company that continues to lose market share through a lack of consumer confidence while being exposed to “greater competition” within a “shrunken marketplace”?

G. Richard Wagoner

G. Richard Wagoner

In March of 2009, CEO Rick Wagoner, 30 years with GM, was forced out and replaced by Fritz Henderson. In 2008 his base salary was 2.2 million dollars.  Wagoner took with him a financial package worth an estimated $23 million.  According to GM’s latest annual report, he will also receive an additional $367,000 in stock awards and about $535,000 in deferred compensation.

As CEO, Wagoner’s focus was on achieving short-term gains through the manufacture of highly profitable, fuel-inefficient products such as sport utility vehicles (SUVs) and light trucks.  The Camaro “muscle car” was also reintroduced into GM’s 2006 product line after a four year hiatus.  Superfluous and wasteful, this machine is a stellar example of the vision leading the decisions of GM’s leadership.

2006%20Chevrolet%20Camaro%205-lg

It was Wagoner who was responsible for the cancellation of the EV1 electric car, a controversial move critics claim was done to intentionally discourage the development of alternative energy vehicles.  This allegation was explored in the 2006 documentary “Who Killed the Electric Car?”   The film examines the roles of automobile manufacturers and the oil industry in conspiring to limit the development and adoption of this new technology.

ElectricCar

The problem of escalating executive pay has been growing for the past 25 years. In the 1980s, the gap between the highest paid executive of an American company and the average worker was about 40 to 1. Today, it is 364 to 1.

Excessive financial rewards for top managers based on quarterly earnings promotes a very short-term outlook, encouraging CEOs to do whatever it takes to boost their company’s share price for the next quarter. It provides a disincentive for long-term company health.

The arrogance and sense of entitlement endemic in America’s corporate leadership was amply illustrated in November of 2008 by the spectacle of the Big Three’s CEOs flying to Washington in separate corporate jets in order to appear before Congress.  Despite their apparent desperation and the immediacy of the crisis, none among them had the foresight to even prepare a proposal for restructuring, or a simple business plan to justify their multi-billion dollar bailout request.  They were sent away with instructions to return with a plan for “viability and accountability” in order to secure future funding.

Wagoner tesifies18-11-08

Left to Right : Ford Motor company CEO Alan Mulally, Chrysler CEO Robert Nardelli GM CEO G. Richard Wagoner Jr.

After Wagoner was replaced by Henderson, President Obama was quoted in the April 13, 2009, issue of Time Magazine: “This [removal] is not meant as a condemnation of Mr. Wagoner, who has devoted his life to this company.  Rather, it’s recognition that it will take a new vision and new direction to create the GM of the future.” (p.20)

It is hard to imagine how this single change in leadership will affect that new vision, considering that executives such as Robert Lutz remain in key leadership roles. On April 1, 2009, he was named Vice Chairman and Senior Advisor.  His company biography explains that “In this capacity, he will provide strategic input into GM’s global design and key product initiatives.”  Lutz has a storied career in the auto industry, beginning his career with GM in 1963, then moving to BMW, Ford and Chrysler before rejoining General Motors in 2001 as Vice Chairman of Global Product Development.  During his career, Lutz has overseen the development of the Dodge Viper, Chevrolet Camaro and Pontiac GTO muscle cars”, as well as the Ford Explorer SUV.

Robert A. Lutz

Robert A. Lutz

During a 2008 “closed-door session” with journalists before giving a presentation to GM dealers in Dallas, Lutz candidly expressed his opinion that global warming is a “total crock of shit”, Toyota’s hybrid cars “make no economic sense” and that GM should be promoting stylish, “design-driven” vehicles such as the Cadillac CTS luxury car in order to increase its market share.  While he also expressed support for developing and marketing the Chevy Volt, at the age of 76 Lutz’s vision seems to be focused in his rear-view mirror on past achievements instead of finding that “new direction” the President spoke of.  No doubt some observers were thankful when Lutz announced that he would retire at the end of 2009.

It cannot be denied that for decades GM’s workers, white-collar and blue-collar alike, have been indulged by a corporate culture of entitlement that has fostered complacency and apathy among them. They really do seem to take for granted that what’s good for General Motors must be good for the country, since it is so large that the financial well being of its suppliers, lending institutions and the entire economies of local communities are dependant upon GM’s continuing operations.  It has been assumed that this lattice of economic interdependence makes General Motors “too big to fail”.  More to the point, it has been correctly assumed that politicians would not have the courage to allow GM to fail, presumably because they fear the political fallout that would result from a dramatic rise in unemployment and the potential for further exacerbating the current economic recession.

As of February of 2009, GM has received $13.4 billion from the U.S. government and has asked for as much as $16.6 billion more, with the final amount yet to be determined. The company’s Canadian subsidiary is seeking more than $7 billion (Canadian) from provincial and federal governments combined.

“Leaner and meaner” is the catchphrase for envisioned corporate reforms whereby tens of thousands of additional auto workers must be let go and debt worth tens of billions of dollars must be forgiven by creditors if GM is to qualify for additional government funding.  What is the point of funding General Motors if not to preserve employment and promote economic activity?  Why subsidize auto manufacturers and their employees if no one is buying their product in a depressed market, regardless of how efficiently they are produced or how cheaply they are sold?

GM EARNS

We should remind ourselves that the governments of Canada and the United States are borrowing billions of dollars to finance this bailout in the name of their taxpayers, who will be liable for this additional debt regardless of the results, without any guarantees for a return on their “investment”.  This is being done without even tacit approval from the public for such drastic measures.  In fact, most Americans oppose more auto industry bailouts, according to polls conducted by the New York Times and CBS News.  Nearly 70 percent of Americans believe “struggling automotive companies, which are seeking billions of dollars in additional loans from the government and which are shedding tens of thousands of workers, should not receive any more taxpayer money to help them survive.”  According to a recent poll in Canada, “barely 15 per cent of Canadians support government efforts to finance the North American car industry out of its predicament. In Ontario, the ground zero of the debacle, the proportion that agrees with a multi-billion dollars bailout stands at a miserly 17 per cent.”

Why not simply allow General Motors to declare bankruptcy without government interference and let it restructure in accordance with existing laws?  It is not likely that the company will disappear entirely, but it will downsize – just as it is currently downsizing under the auspices of a government funded restructuring programme.  Who benefits from the ongoing government funding of General Motors?  Certainly not wage labourers who can anticipate unemployment with or without government intervention, and certainly not the private taxpayer incurring additional personal debt against his or her professed wishes.

If the North American public does not feel that General Motors is too big to fail, then perhaps it is the corporate lobbyists and their political counterparts who do.  With bankruptcy appearing imminent, additional infusions of public money will only benefit the corporation’s shareholders and debt holders, to whom further bailout money is already being funnelled.

New York Stock Exchange

New York Stock Exchange

Michigan Representative Thaddeus McCotter has expressed his concerns regarding unethical bondholders to radio host Lou Dobbs and others.  McCotter fears that some will try to benefit twofold through GM’s bankruptcy by claiming credit-default swaps, insuring them against losses through GM’s bankruptcy.  He is urging Treasury Secretary Timothy F. Geithner to disclose which GM bondholders have default swaps from the American International Group (AIG), the insurance company that was bailed out by the government.  “It would be unconscionable to use [more] taxpayer money to help people benefit from the bankruptcy of General Motors,” McCotter said.

Time for change

“It’s time for change” was Barack Obama’s campaign platform during the 2008 presidential election.  What better time for the President to introduce dramatic reforms in the auto sector than while his party has control in both houses of Congress, the Big Three have come begging with hat-in-hand and the public is against allowing these corporations to carry on their business as usual?

Can Washington retool Detroit? The answer is resoundingly yes, but not by giving cash unconditionally to corporate executives.  The world’s recent economic crisis should be viewed as a unique opportunity for the U.S. government to overcome the atrophy of corporate leadership, starting in the auto sector.

Detroit needs to literally retool, but will not cooperate if short-term profits are sacrificed by doing so.  They cannot be allowed to maintain the status quo of their industry by continuing to produce vehicles with conventional internal combustion engines and catering to niche markets for high performance cars, rather than committing their resources and public funding to the development of zero emission vehicles.  Throwing money at the Big Three to finance their “restructuring” while the world waits anxiously for the next surge in auto sales is a formula for further disaster.

The Presidential Task Force on the Auto Industry should be laying foundations now for the future of the nation’s transportation system, public and private, rather than pandering to interest groups lobbying for concessions behind the scenes.

The Presidential Task Force on the Auto Industry

The Presidential Task Force on the Auto Industry

Government funding to the auto industry should be contingent upon their commitment to the development and production of hybrid and electric vehicles, or any vehicle powered by an acceptable zero emission energy source.

The members of NAFTA should establish a binding deadline (the sooner the better) after which all new vehicles built or sold within their jurisdictions must be hybrids, or have a zero emission energy source.

A rebate incentive should be offered to anyone modifying their older vehicles to make them more fuel efficient, furthering the cause of clean air, reducing oil consumption and creating several new cottage industries for the economy. Existing cars could be operated until they needed to be replaced, protecting the intrinsic value of the nation’s current fleet of vehicles while ensuring that existing dealership inventories would eventually be sold.

current dealer stock

Twelve million cars in North America are replaced every year according the April 13, 2009, issue of Time Magazine (p22) but in 2008 only nine million were built to replace them. In two more years 35 million cars will be at least ten years old and need replacing.  There are more than 245 million cars on the road in the U.S. today (p24). There is a market for new transportation technology.  If we act decisively, perhaps fifteen years from now the majority of cars on the road will be powered by zero emission technology, mass transit will be more accessible and the conversion process itself would have been a new source of revenue, not an added expense.

The nation’s filling stations will also require subsidies to make the infrastructure conversions necessary for “filling up” on alternative fuels as easily as getting gas is today.  A special status and funding for owner-operators of independent stations would reduce the costs for small entrepreneurs even further.

Unemployed auto workers should be retrained and given jobs at GM plants retooled to produce Light Rail Transit (LRT) systems, subsidized by the federal government as part of a larger urban renewal programme.  Rather than bailing out GM and its creditors, the federal government should be preparing plans for the long-term funding of public transportation in all of the country’s major urban centres, with the auto industry an active partner in this project.

It is a bitter irony that GM is now in a position to offer excess production capacity for the manufacture of LRT systems. During the 1920s and 1930s, General Motors helped create Greyhound bus lines, and then replaced intercity train transport with buses. GM also established subsidiary companies to buy out streetcar companies and replace the electric rail-based services of American cities with buses. This became known as The Great American streetcar scandal.  Between 1936 and 1950, more than 100 electric mass transit systems in 45 cities were bought out and shut down through illegal means. A number of prominent companies colluded with General Motors, including Firestone Tire, Standard Oil of California and Phillips Petroleum.

Junked_streetcars

Pacific Electric Railway streetcars stacked at junkyard, 1956.

These proposed regulations should not be dismissed as outrageous and unacceptable. The same debate over how independent the free market should be goes back to the automobile’s very inception.  Through several generations we have created traffic laws, established speed limits, mandated seatbelts and airbags, and instituted fuel-efficiency and emission standards for vehicles.  All of these initiatives were at one time branded as outrageous or too expensive by their opponents, until their application proved to be a benefit to our society’s long-term health and productivity.

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The contemporary automobile is an extremely wasteful product, not just in its fuel consumption but in its component parts.  Much of the product cannot be reused or recycled because these are not design considerations manufacturers are obliged to consider by law.  Tires, synthetic polymers and exotic epoxies end up in waste disposal sites, becoming health hazards when their chemical compounds break down and leach into surrounding environments and ground water.  In 1990 alone, approximately 240 million tires were discarded in the United States.  This does not include the 33.5 million tires that were retreaded. Almost 78 percent went to landfills, were stockpiled or illegally dumped.  It was also estimated in 1990 that that scrap tire stockpiles in the U.S. contained between 2.5 and 3 billion tires.  By 2002, it was estimated that over 250 million scrap tires were being disposed of in North America every year.  The automotive industry consumes about 80% of the world’s rubber production.  On a global basis between 700 million and 1 billion new tires are manufactured each year.  The total mass of tires currently being recycled is less than 7% of annual production. No one in the industry seems to be spending significant time or money on research to develop an alternative to conventional tires. No doubt a solution to this problem will also require further government regulation and funding.

Tires-People

Rubber recycling outside of fuel applications is still very low volume.  Burning of rubber for fuel (incineration) is currently the most common way to recycle rubber. Many people and companies advocate incineration as the only viable means to reduce the stockpile of scrap tires and to keep pace with the multitude of tires discarded annually – without considering the long-term air quality issues or greenhouse gas emissions that result.

Spontaneous tire fires are now common, and represent a threat more dangerous than forest fires because of the toxic fumes and chemicals released into the environment.  A single tire contains about the equivalent of two U.S. gallons of oil.

Tire fire 3

People living where consumerism has taken hold have appetites that far exceed their needs.  It seems as if hundreds of thousands of people in the Western World are driving cars every day simply because they can.  They have been conditioned through sophisticated marketing campaigns to enjoy driving for the sake of driving, with social status and speed being the integral selling points; “zoom, zoom, zoom” is Mazda Motor’s mantra for promoting its products. Many car buyers have also been enticed by easy financing terms on loans offered by auto makers, to purchase vehicles they don’t need and cannot afford.

shaquille_car

Conspicuous consumption drives our Western economies to expand with no recognition that there are limits to our growth. We cannot continue to allow the depletion of our biosphere‘s limited resources simply for the sake of self-indulgence. Governments should be implementing solutions to discourage this type of economic activity, rather than tolerating it for the sake of increasing the gross national product.

triple-axle-hummer-limo

In the preface of “Unsafe at any Speed”, a 1965 condemnation of car manufacturers by Ralph Nader, the author states: “The time has not come to discipline the automobile for safety; that time came over four decades ago. But that is not cause to delay any longer what should have been accomplished in the nineteen-twenties.”  Forty years removed from Nader’s original crusade, vested interests still delay the mass production of electric cars, vehicles whose genesis predates the first Model-T Ford of 1908 by decades.

Ralph Nader's polemic Unsafe At Any Speed

Ralph Nader's polemic Unsafe At Any Speed

At the turn of the twentieth century, President Theodore Roosevelt led the Industrial Commission in its Trust-busting efforts to end monopoly control of the nation’s railroads. The railroad owners essentially controlled the nation’s economy by controlling its largest transportation system.  In collusion with one another, they decided who they would do business with and for how much.  Roosevelt declared that “The Government must in increasing degree supervise and regulate the workings of the railways engaged in interstate commerce.” Inaction was a danger, he argued: “Such increased supervision is the only alternative to an increase of the present evils on the one hand or a still more radical policy on the other.” More than a century later, we are still trying to end the arbitrary control exercised over our economies and transportation systems by huge corporations.

Our current generation of politicians must accept their responsibility to further regulate the automobile industry.  If General Motors is too big to fail, then perhaps it has been allowed to grow too big, as were the railroad monopolies of the past century.  We cannot move forward while anxiously hoping that the business of GM may be good for the country.  We cannot continue to have faith in a corporate system that ignores the welfare of the communities in which it operates.  Most of all, we cannot continue providing charity to those who are not grateful.  What is good for the country should not depend on what is good for General Motors.

General-Motors-Corp