Originally created 06/13/05

Genuine GM disaster



Stockholders may be a little happy with the news that General Motors is cutting 25,000 jobs by 2008, but the rest of us should be very worried.

Soaring gas prices have taken a toll on the world's largest automaker, leaving popular trucks and sport-utility vehicles idling. The company lost a titanic $1.1 billion in the first quarter, and its North American market share is down to 25.4 percent. And GM is buckling further under the high cost of providing health care for its workers.

Add to that the growing consumer demand for foreign products; the rising costs of raw materials; the lure of cheaper production overseas; and a national shift to a high-tech, service-based economy. We could well be looking at a permanent decline of American automaking in particular, and American manufacturing in general.

Don't believe it? When was the last time you saw an American-made television? Probably about 1993, when Zenith, the last U.S. maker of televisions, finished moving its production to Mexico. And a quick tag check of the clothes on your back likely will reveal that you're wearing at least one import from China. The list of products goes on, but it's reflective of this fact: Foreign automakers have a bigger share of the market than GM - in GM's own backyard - and that's bad.

But that's not to say foreign automakers aren't worried about GM, too. Toyota's CEO, Hiroshi Okuda, fears the decay of U.S. industrial icons such as GM might "fan nationalistic sentiment" that could manifest itself in many ways, including "policy decisions" - read: tariffs and unfavorable trade restrictions.

Lately, Americans have displayed less of a preference toward buying manufactured goods - for example, GM trucks - and more of a preference toward buying services - for example, paying people to wash and wax their new Toyotas.

This reflects a study released in 2004 by a pair of psychologists who concluded that people derive more satisfaction from buying services than goods. Maybe that's a symptom of U.S. prosperity. Maybe it's a harbinger that the U.S. beast is about to eat itself. But an economy needs a sensible mix of goods and services to thrive.

U.S. manufacturers need to keep developing technology to improve efficiency and production; if not, they'll just end up having to import that technology just to stay competitive.

A decentralized approach to jump-starting manufacturing is another good idea. Let groups on the state and local levels try out their own ideas, tailored to their respective communities, to see what approaches and incentives work best to attract and foster industry.

What's happening to GM must never happen to the rest of America's manufacturing base.