The U.S. auto industry, dominated for decades by the massive monopolies known as the Big Three—General Motors, Chrysler and Ford—may be on the verge of further consolidation as a potential merger between GM and Chrysler plays out.
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After peaking at 17.4 million in 2000, U.S. auto sales in 2008 are expected to be as low as 13.6 million. Next year, they are predicted to decline by another half a million vehicles. (Wall Street Journal Oct. 27) GM alone posted a $15.5 billion loss for the second quarter this year and has continued to bleed about $1 billion per month. (Washington Post, Oct. 18)
“While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse,” said Jeff Schuster, executive director of automotive forecasting for J.D. Power. (Reuters Oct. 9)
Chrysler CEO Robert Nardelli has said the environment is ripe for consolidation. In times of economic slowdown, giant monopolies with the available capital to withstand the crisis absorb their smaller, more vulnerable competitors. Gerald Meyers, former auto executive and management professor at the University of Michigan, said, “[The financial crisis] complicates things a lot, but at the same time it lubricates things. What would probably take 10 to 20 years can probably be done in a couple years now.” (Washington Post, Oct. 18)
Auto industry: a history of consolidation
Mergers and acquisitions during times of economic crisis are nothing new. The auto industry’s entire history has been one of growing concentration. At one time there were as many as 300 auto producers in the United States. Now, the remaining three may soon reduce to two.
In 1908, when GM was first established, the company absorbed Buick as well as more than20 auto parts and accessories companies, and just narrowly missed out on acquiring Ford. By the mid 1920s, GM had absorbed Chevrolet, United Motors and Fisher Body Corporation, and it had asserted its control over 42.5 percent of the market. (Sidney Fine, Sit-down, 1969)
As the tentacles of the Big Three stretched across the U.S. auto market, they also began to expand into foreign markets. The massive auto monopolies began not only to sell cars overseas but also to export capital in the form of factories.
The Big Three soon began to grow at a much faster rate in foreign markets than in the United States. From 1957 to 1966, Ford’s domestic production and sales grew from just above 2.2 million vehicles to more than 3 million, an increase of roughly 30 percent, yet overseas markets expanded from over 380,000 to more than 1.1 million in the same period—an astounding increase of more than 200 percent.
By the 1960s, the vast majority of the Big Three’s U.S. and international competitors had been eliminated. By 1968, the Big Three dominated more than 50 percent of the auto market in England.
Marxist author Vincent Copeland explains that the drive to expand is not motivated by the greed of individual capitalists, but instead by the innate laws of capitalism—expand or die:
“Just as the laws of competition compel [the bosses] to try to keep wages below a certain maximum and get a certain minimum of work from their laborers, so the forces of the market and the capitalist system of production compel them to expand into foreign countries.” (Vincent Copeland, Expanding Empire, 1968)
Bankruptcy, bailouts and unemployment
Most recently, signs of potential bankruptcy for GM and Chrysler have pushed merger discussions ahead at an even faster, more urgent rate.
“Without external intervention, from consolidation or government assistance, we expect GM to reach its minimum cash position in under 12 months,” wrote Deutsch Bank auto analyst Ron Lache. “We believe Chrysler is in the same position.” (Wall Street Journal, Oct. 27)
This comes despite the passage of $25 billion in low-interest loan guarantees approved by Congress in September. It is expected that the industry will get yet another $25 billion in 2009 as sales drop even further. (U.S. News and World Report, Sept. 24)
Both the U.S. Treasury and Energy Departments have discussed a series of $5 billion dollar injections into the two ailing auto giants, with money coming from the $25 billion approved by Congress. (Reuters, Oct. 27)
According to David Cole, chairman of the Center for Automotive Research, potential bankruptcy for the Big Three could threaten as many as 2 million jobs. The ripple effect would impact parts suppliers, dealers and other related companies.
GM and Chrysler combined employ an estimated 166,000 workers at more than 110 plants in North America and pay pensions to an additional 600,000 retirees (Wall Street Journal, Oct. 27).
If the two companies do merge, executives are certain to slash jobs. One internal estimate said that a merger could cost as many as 40,000 additional jobs. Already, more than 100,000 jobs industry-wide have been slashed since 2006. (New York Times, Oct. 11) Chrysler just announced it will shed 5,000 more jobs. (domain.com, Oct. 27)
As an indication of the level of desperation, both GM and Chrysler have sought other options in case the merger fails to go through. Cerberus Capital Management, the private equity firm that owns 81 percent of Chrysler, has already been in discussions with Renault-Nissan, Fiat and Tata Motors. (CNN Money, Oct. 15) GM proposed a potential merger with Ford this July, but the deal failed to go through. (New York Times, Oct. 11)
Whether through liquidation following bankruptcy or a preemptive merger, eventual consolidation is inescapable. The incessant capitalist drive to outproduce and outsell each other must sooner or later hit a wall when production outpaces the market’s capacity to enable sales of the products at prices that will yield profits. The corporate giants that manage to remain absorb whatever is left of the weaker players.
Millions of workers stand to lose their jobs as capitalism follows its natural course. In the age of corporate monopolies, the shockwaves of capitalist collapse have only increased in magnitude as they tear apart the lives of working-class people. The defenders of capitalist interests in the federal government handed over billions to the auto industry without hesitation, but it will take a determined struggle to ensure that the livelihoods of workers and their families are protected as yet another episode of the present economic crisis plays out.
