The New GM Europe
The new General Motors is going to be a strange enough entity—a state-owned automaker with its own union and the government of Canada on board as major junior partners. But the situation in the new GM Europe, which is mostly composed of Opel, is even odder. It initially looked like Opel was going to be sold to Fiat, which is also buying Chrysler, as part of Fiat’s campaign to become a legitimate first-tier player in the auto market. But Magna, a Canadian car parts company (that’s also to some extent Austrian), was also interested in Opel. And the German government seems to have decided that a Magna-owned Opel would preserve more German jobs than a Fiat-owned Opel would. So the Germans helped stitch together a deal also involving Sberbank, a very large state-owned Russian bank.
And part of the appeal of that to the Russian government is that GAZ, Russia’s number-two car manufacturer, will now start building Opel cars on its assembly lines rather than terrible, terrible GAZ cars. Thus, jobs will also be saved in Russia.
In other words, the Russians and the Germans appear to have taken action to guarantee even more overcapacity in automobile production. And with essentially all global automakers operating with some level of government support, it’s hard to see how anyone can stay in the game without continuing government support. At some point, aren’t we going to have to start unraveling this?
18 Responses to “The New GM Europe”
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May 30th, 2009 at 10:57 am
And with essentially all global automakers operating with some level of government support, it’s hard to see how anyone can stay in the game without continuing government support. At some point, aren’t we going to have to start unraveling this?
Matthew, just about the only auto companies that have been operating without major state support, direct or indirect, over the last 20 years are Ford, GM and Chrysler.
All the Japanese companies (explicitly including Toyota) operate behind the various Japanese quasi-tariff walls, plus they have the support of MITI in terms of R&D and byond that, the Japanese will not allow industrial companies to go bankrupt (although they are often allowed to merge). Same with the Koreans. Russian companies have support from the obligarchs who run the company (but really, it seems like the Russians are more free market-y than anyone). The European companies that didn’t wind up in the hands of GM or Ford, have VAT support, partial state ownership and whatnot.
You (and everyone else in DC and NYC) seems to be operating on some weird theory where the car market is some kind of libertarian paradise, which it isn’t and hasn’t been… except in the US. Which is, coincidently (!), where the automakers have been taking it in the shorts for imports for some years.
The reason we have the large ‘unsustainable’ trade deficits is that the other rich countries know that the path to power is via industry, and they’re trying to win the game. Only the US (and Latin America, by treaty) has the semblance of free trade.
max
['That's why it's hard to decouple.']
May 30th, 2009 at 11:02 am
GAZ doesn’t make that many passenger cars these days. They make some Volgas, but not that many. Those are mostly used for Taxis and the like and are not bad for that, though they tend (like all Russian cars) to break down at a fairly high rate. What they mostly make is light trucks and vans. These are not bad. Again, they break down more than you’d like, but they are easy to repair and do well on the terrible Russian roads. They work well as private mini-buses and with the sort of distribution that most Russian stores use. Given that Russia has recently put heavy tariffs on imported cars this might be good for Russians, though it will depend heavily on the quality and price. Whether it’s successful or not will depend a lot on whether production quality can be improved to “western” standards. Ford had some success with this is St. Petersburg, but not perfect. Chevy had less success in its former partnership with Lada making Niva mini SUVs. GAZ are generally better cars than Ladas, though, so it might work.
May 30th, 2009 at 11:12 am
Surely you jest about the mighty Volga.
The Volga is GREAT. Even though it still looks like it was built 40 years ago.
By solidity, they mean rusty.
Just as long as the car isn’t moving. In case of motion, take a tranquilizer.
Efficient, possibly. Reliable? You be the judge. Just sign this death waiver first.
May 30th, 2009 at 11:13 am
It appears cars are necessities to life, sort of like food. Governments heavily subsidize food production, to support jobs and keep their population content. Why not cars, too?
Regarding overcapacity of cars,there’s an overcapacity of foood production, too. Just the distribution is screwed up.
May 30th, 2009 at 12:09 pm
I do not post often but I want to ask:
I’m a GM baby, that is raised in a family that worked for decades for the company. I escaped the dull existent of assembly lines and management and design that was frequently really bad. However, I hate that this is happening to the auto industry.
Per quote: What industry do we have left?
May 30th, 2009 at 12:41 pm
“…without continuing government support. At some point, aren’t we going to have to start unraveling this?”
No we won’t. The only way we are really going to get electric cars of light-rail or other green transportation in time for the world to survive global warming is to have the federal gov’t grab control of the essential industrial sectors (also finance & energy) and then flip them. Trying to do it on a separate track is just not affordable or fast enough.
May 30th, 2009 at 1:07 pm
Only the US (and Latin America, by treaty) has the semblance of free trade.
Latin America can suck it. Utterly reactionary and backward societies they are.
May 30th, 2009 at 1:19 pm
And with essentially all global automakers operating with some level of government support, it’s hard to see how anyone can stay in the game without continuing government support. At some point, aren’t we going to have to start unraveling this?
Well: the configuration of auto manufacturing firms that eventually emerges in North America, at least, will surely be significantly smaller than what was here in, say, 2006, right? I expect capacity reduction in North America alone will take care of much of the overcapacity issue globally, at least in the short run. I view that as largely a positive development, as the country ought not to be wasting valuable resources chasing an increasingly low margin commoditization business. (it would be a far more positive development if the US had a viable set of safety net and worker transition policies, but that’s another issue). Also I keep seeing graphs that point to a steadily growing pool of potentially massive pent up demand here in the states (wouldn’t be surprised if that’s the case in lots of other countries, too). Anyway, as someone who has reason to occasionally buy (well, actually I lease) an automobile, I’m happy to take whatever subsidy Brazil and Germany want to give me.
You (and everyone else in DC and NYC) seems to be operating on some weird theory where the car market is some kind of libertarian paradise, which it isn’t and hasn’t been… except in the US.
Max: I don’ think this is the case at all. I think most people who are leery of a large industrial policy role for the US Government are well aware that other governments have engaged is such policies for many years. They just happen to think such policies are counterproductive in terms of living standards and prosperity.
May 30th, 2009 at 1:31 pm
Per quote: What industry do we have left?
Madeline: The United States has by far the largest manufacuring sector of any rich country. It’s total manufacturing sector is second only to China’s (we’ve typically been neck and neck with the Chinese in recent years, although the fact that Chinese GDP is still growing whereas America’s has been shrinking of late surely means the PRC has nudged ahead).
Anyway, the US produces a vast quantity of economic value in such areas of manufacturing as: steel, non-ferrous metals, automobiles, aircraft, transportation equipment, machinery, chemicals, food processing, software, building materials, armaments, fuels, packaging, furniture, apparel, energy products, precision instruments, etc. High productivity means (as in other rich countries) manufacturing tends not to create the same percentage of new jobs it might have years ago, and so people talk endlessly about a “hollowed-out” industrial sector. But such talk is pure hokum. (Of course, American workers don’t enjoy the same government-sponsored economic protections as industrial workers in other developed countries, so that, too, adds to such talk).
Hate to be the lecturing pedant, but I read such non-factual observations all the time on the internets, and it drives me crazy…
May 30th, 2009 at 1:47 pm
At some point, aren’t we going to have to start unraveling this?
Who is “we”?
What the global automotive industry really needs is a summit at which the various relevant countries mutually agree to accept a certain amount of capacity reduction per country, and then of course to follow through on the terms of that deal. Unfortunately, that probably won’t happen, and I don’t really have another idea.
But knowing Matt, I assume he means the U.S. should just unilaterally sacrifice its own automotive capacity for the sake of the health of the rest of the global automotive industry. And that may well be the smart move at some point, but certainly not until we actually have an economy creating jobs.
May 30th, 2009 at 1:58 pm
Jasper points to something important – government support for industries is one thing, government support for industrial workers is another. One of the things that, at least in my opinion, needs to happen in the U.S in the next decade, is for the government to get serious about full employment and the right to a job backed by the government as employer of last resort. Because our industrial policy isn’t saving enough jobs, the labor market is getting historically slower and slower to recover from recessions, and that takes its toll on wages, which takes its toll on consumption, and so on.
Now, if announcements like this are a sign that the new GM is going to do more in-sourcing and production of fuel-efficient cars domestically, we might see a way forward where industrial policy actually creates jobs and serves public policy goals, which might provide additional justification for current policy. It’s yet to be seen whether this is something real, or just a milksop.
May 30th, 2009 at 2:03 pm
The sooneer the USG gets out of this money loosing industry (ideally never having gotten IN) the better. Too bad we weren’t able to stick Dimler with Chrysler.
May 30th, 2009 at 2:25 pm
Jasper, I think Madeline and many other folks when thinking about American industry are eliding two arguments.
The statement “We don’t manufacture much any more in such a way that manufacturing employment can be counted on to employ the lion’s share of Americans” is probably what is trying to get said.
May 30th, 2009 at 3:50 pm
MY: “At some point, aren’t we going to have to start unraveling this?”
So the Germans, the Russians, the Austrians, the Canadians, the Italians and the Americans are putting together a deal in which the Russians build German cars while the Canadians get a piece of the Germans and the Austrians get a piece of the Canadians giving them a piece of a piece of the Germans.
The Americans and the Italians are working together to defeat the Canadians and the Austrians so that they can be the first choice of the Germans. This would allow the Russians and the Canadians to buy a piece of the Americans but not the Italians because the Germans are overseeing the deal the Russians are putting together with the Americans and the Canadians.
The Austrians therefor get have a piece of a piece of a piece of the Russians thanks to the Canadians.
It is all so simple. Tranquility permeates my being when I think about it.
May 30th, 2009 at 5:08 pm
As soon as we all switch to manufacturing electric cars and trains, the agitation to privatize the newly profitable companies will be irresistable. Sadly.
May 30th, 2009 at 7:35 pm
Re: One of the things that, at least in my opinion, needs to happen in the U.S in the next decade, is for the government to get serious about full employment and the right to a job backed by the government as employer of last resort.
Do any other major countries provide public jobs (on a grand scale) for laid off workers? I don’t think so. They may provide very solid income support, and lots of retraining money, but I can’t think of any major nation that simply puts its unemployed people to work as you suggest. The US, with its huge military, may actually come closest there.
May 30th, 2009 at 10:35 pm
Governments merged with multinational corporations? Rollerball, baby, Rollerball.
May 30th, 2009 at 10:49 pm
Jon:
Sweden. Although it’s been sadly weakened after the 1997 liberalization, Sweden achieved an unemployment rate of under three percent (and usually under two) for about 60 years.
In fact, public jobs makes more sense than income support – with income support, society as a whole loses the labor power of the unemployed; with public jobs, you get a huge amount of value added to society that otherwise goes to waste.