The Many Factors Driving GM's Cuts

The bailed-out company is encumbered by union costs and products people don't want.

Nate Jackson · Nov. 27, 2018

Taxpayers spent nearly $50 billion bailing out General Motors in 2008 and lost more than $11 billion. We argued at the time that the auto giant had been hampered for years by overburdensome union contracts and subpar craftsmanship. Ten years later, that’s still true (albeit to a lesser degree), and now the bailed-out company is laying off 14,000 workers in North America, including eliminating more than 8,000 white-collar jobs and closing five plants (four in the U.S.).

Cue the media outrage … at President Donald Trump.

No doubt GM’s announcement does hurt Trump. After all, two of the plant closures and much of the job loss will occur in states he won — Ohio and Michigan. His campaign was and is centered on bringing jobs back to the U.S and restoring downtrodden towns in Middle America; GM is doing the opposite.

Democrats were quick to blame Republican tax reform. Sen. Sherrod Brown (D-OH) said in a statement, “GM received record tax breaks as a result of the GOP’s tax bill last year, and has eliminated jobs instead of using that tax windfall to invest in American workers.” That ignores the forest to focus on one tree, but it’ll swing some votes thanks to amplification by the Democrats’ Leftmedia super PAC. We’d like to say that every instance of a corporation paying less in taxes ($157 million less in GM’s case) led to more jobs, but that’s not always the case due to other considerations.

GM itself fairly laid some of the blame on Trump’s tariffs on steel and aluminum, which the company says cost $1 billion over a full year — dwarfing its corporate-tax savings. Tariffs are no doubt a factor in GM’s decision. Tariffs are taxes, of course, and companies pay for them by cutting costs elsewhere; GM’s cutting took the form of 14,000 jobs. It’s going to take more than Trump threatening GM CEO Mary Barra that the company “better damn well open a new plant [in Ohio] pretty quickly” to get those jobs back.

We’re struck by the near-total lack of any media mention of the massive bailout of GM or of the role unions have played in driving up production costs. But another major factor here is what products GM chose to make. GM builds its popular SUV models in other countries, while it struggles to sell the sedans and compact cars it makes in the U.S.

By the way, the Chevy Volt is on the chopping block. Making that car was not a market-driven decision but a political one, hence the massive taxpayer-subsidized rebates for it. Poor sales are now costing jobs. “When I’m not president anymore, I’ll buy one and drive it myself,” Barack Obama promised in 2012. We suppose his dream Obama Car will never become reality now. Likewise for the Chevy Cruze, which he literally signed the hood of as he dubbed it “the car of the future.” That model too was axed.

From a big-picture standpoint, this doesn’t bode well for Americans’ already declining view of capitalism, either. As Main Street workers lose their jobs, GM’s Wall Street stock went up. Now, cronyism isn’t capitalism, and as we’ve already explained above, this is a complicated story. But the socialism captivating so many Democrats these days is much worse. The free market is still the best economic system ever devised, even if there are painful cuts along the way.