Posts Tagged ‘General Motors’

Stockholders gain at the expense of the rest of us

March 13, 2015
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Unemployment is now officially below 6%, but the point is still valid.

Large businesses such as General Motors earmark less money for workers’ pay and for investment, research and technology compared to earlier eras.

They do this in order to be able to hand over more money to stockholders in the form of dividends and stock buybacks.

The reason is that stockholders have leverage and workers don’t, and stockholders no longer take the long view. In 1960, the average stockholder owned a stock for eight years, Harold Meyerson reported in the Washington Post.  Now they sell their stocks after four months, and, when high-frequency trading is factored in, it’s 22 seconds.[1]

Passive, short-term stockholders, unlike the original investors, contribute little or nothing to the value of a company.  Why should their interests be paramount?

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General Motors pivots toward China

March 6, 2014

This video, which has been making the rounds of the Internet for nearly two years, is deeply flawed, as well as possibly out of date.  But the producer, whoever he is, makes a good point.  The managements of General Motors and other big corporations headquartered in the United States are not especially American in their orientation.  They go wherever profit takes them.

I remember reading about some Silicon Valley entrepreneurs, fantasizing about the possibility of creating their own nation on an uninhabited island, free of annoyance by the pesky U.S. government and American public.

This is not the case with the management of Chinese corporations.  They are closely aligned with the Chinese government and the goal of making China a rich and powerful nation.  This makes for an unbalanced relationship.

There are many economic reasons, including cheap labor, for U.S. companies to manufacture in China.  One of the reasons is that China is now the world’s largest market for automobiles, and no car manufacturer can afford to ignore the Chinese market.  And the Chinese government, like the governments of many other countries, does not allow foreign companies to sell products in their country unless they have local manufacturing content, and, more importantly, they share their manufacturing know-how.

When I reported on Eastman Kodak Co. and Xerox Corp. for the Rochester, N.Y., newspaper in the 1980s and 1990s, corporate executives explained that this was the reason they set up manufacturing plants in Mexico, Japan and other countries.

The government of the United States, which is the OPEC of consumption, was in a better position than any other to impose such requirements.  But this was not done.

The U.S. government operated under the theory that unrestricted free trade was best for everybody, and if other governments were so foolish as to hurt themselves by restricting trade, that was a problem for them, not for us.

The problem with such arguments is that when manufacturing goes away, the skills and knowledge needed to make things – the so-called human capital – goes away with them.

Instead of the U.S. government imposing domestic content requirements on foreign manufacturers, some of our state governments offer them economic incentives, tax abatements and an anti-union legislation.

To be clear, I don’t think government policy is the only reason, or even the main reason, why auto companies operate where they do, or whether they succeed or fail.  But it is a fact that the governments of most other industrial countries are pro-active in promoting domestic industry.  The U.S. government doesn’t take an interest in the success of its manufacturers until they are on the verge of bankruptcy.

Hat tip to Don Montana for the video.

Winter, my wonderful car and globalization

February 26, 2010

Nine inches of snow fell overnight here in Rochester, N.Y., and I had to get out and about this morning before the snowplow crews had time to clear my street.  I thought about my car and how it compared to the first cars I owned back in the 1960s.

Back then, you had to think about whether your car would start on a cold winter morning. To be safe, you had to run your car in neutral the night before for 10 or 15 minutes to charge the battery, and then again in the morning. I never even think about it now.  I just turn the ignition in my 2006 Saturn Ion-2, which of course has an alternator, and I take it for granted that it starts.

When I first moved to Rochester in the mid-1970s, rustproofing your car was a big deal.  I unfortunately made the choice of an inexpensive undercoating job rather than a premium service, and lived to regret it. Now, with my plastic card, rust is not something I have to think about.

Under conditions I drove in this morning, I would have expected to get stuck several times.  I was in fact on the verge of getting stuck a couple of times, but my car had good enough traction to keep going.

Compared to the first cars I owned, my present car is like something out of science fiction.  I won’t even mention the Global Positioning System and the other technological bells and whistles I don’t care about.

General Motors Corp., the maker of my car, is losing money and has divested the Saturn brand. Yet back in the 1960s and 1970s, when quality wasn’t nearly as good as it is today, GM was making money hand over first.  That is what it is to compete in a global economy.

When I was a high school student, I got straight As without having to work hard.  When I sent to college, I found I had many classmates who had straight As in high school.  I studied harder and learned more in college than I ever did in high school, but my grades were not as good.

Likewise with the United States in the world economy.  Our industries have to do better just to hold their own than they once did to reign supreme. But that doesn’t mean we can’t hold our own.