Progressive Breakfast: Detroit Downshifts

That didn't take long. It may not be the most short-lived business secret in recent memory, but GM's sale of one popular brand was something of jaw-dropper.

Yesterday afternoon, the New York Times reported that GM was selling its Hummer brand to a secret buyer. Less than 24 hours later, that secret buyer was revealed to be China. BBC [1]:

General Motors is to sell its Hummer brand to China's Sichuan Tengzhong Heavy Industrial Machinery for an undisclosed amount.

It is part of GM's plan to reinvent itself by concentrating on fewer brands following Monday's bankruptcy filing.

GM says it hopes the deal will save about 3,000 jobs in the US. Hummer will remain based in the US.

According to BusinessWeek [2], GM will supply Hummers to the Chinese automaker, but for how long is unclear. And what it means for the Hummer brand, as Forbes [3] says even Chinese analysts question whether the Sichuan Tengzhong can keep the brand alive and do what GM couldn't: market the brand globally.

What that means for the 3,000 American jobs supposedly saved by this deal is unclear. But 3,000 jobs saved — even with the U.S. plant that will remain open and produce compact cars — isn't enough to offset the number of jobs lost at the 14 plants GM has slated for closure [4], or then number of U.S. auto industry jobs headed to Mexico [5].

Nor can it replace the jobs cut by auto industry suppliers. NY Times [6]:

Auto suppliers, which employ more workers than the car companies themselves, have cut way back, almost hibernating, as they lay off employees earning $10 to $22 an hour, or cut back their hours...“We are estimating that 500 suppliers out of 4,000 could go out of business between now and the end of the year,” said Neil DeKoker, chief executive of the Original Equipment Suppliers Association. Billings just to the three Detroit automakers from the nation’s auto suppliers have fallen to $7 billion a month, on average, from $16 billion in January, he said.

Nor does it alleviate the damage layoffs will do to Michigan's housing recovery [7], or job losses at dealerships, as the auto industry's trouble ripples far beyond Detroit: CNNMoney.Com. [6].

If there are any "winners" in the auto industry bailout, count Ford among them as its market share inevitably goes up, with its two major competitors out of the picture: Washington Post [8]. And add foreign-owned southern auto plants [9] to the list, as they appear to have survived the downturn that sunk their northern counterparts. Reuters [9]:

But in the last decade, car manufacturers have selected southern states for new plants due to lower labor and energy costs, cheaper land, state subsidies, a lower tax burden and -- significantly -- the absence of unionized labor.

Like other southern states, Alabama is a so-called right-to-work state where employees are not required to join unions. Wages tend to be lower than in union plants, though Swann argued living costs were also lower.

There are eight major assembly plants operated by foreign-owned auto companies in six southern states, and while U.S. auto companies cut back in Detroit, companies from abroad are expanding in the U.S. South.

So, GM survives by building fewer cars in the U.S., foreign automakers will expand in areas where labor is cheap and non-unionized, while American auto-workers — and workers in industries that rely on the auto industry need jobs, and then some.

Middle (Class) Lane Closed?

It brings to mind what Robert Reich [10] had to say about the auto bailout earlier this week.

Middle-class taxpayers worry they cannot afford to bail out companies like GM. Yet they worry they cannot afford to lose their jobs. Wilson’s edict, too, has been turned upside down: in many ways, what has been bad for GM has been bad for much of America. The answer is not to bail out GM. It is to smooth the way to a new, post-manufacturing economy.

And John Nichols [11]:

Courage involves breaking pattern and doing something bold, like recognizing that the United States needs a manufacturing sector and making a commitment to modernizing basic industries and keeping skilled workers on the job. This is not a rejection of globalization; rather, it is an embrace of the future that says the US chooses to compete rather than give up.

An investment of $50 billion in federal money to close 20 major factories and shed 21,000 jobs is not a plan to "save," let alone revitalize, manufacturing in this country. It is an abandonment workers and communities that speeds up the de-industrialization of the United States.

And DMI's Amy Traub [12]

Today, the biggest employer is low-wage, meager benefit Wal-Mart, squeezing its supply chain to provide similarly inadequate jobs. As GM and other islands of blue-collar prosperity succumb to the economic tide, we are left with a model that does not support a mass middle class.

Yet it is unacceptable to give up on the idea of job stability, health coverage, retirement security and wages that can support a family for the majority of Americans. So, after the dramatic retrenchment of the American auto industry, how do millions of Americans get to the middle class? And what policies can we pursue to help them get there?

It’s hard to see any single sector of the economy offering a way forward in the long term. Green jobs are great, but they alone won’t be enough to sustain a mass middle class. Jobs for college-educated workers are already amongst the highest quality positions out there. But no matter how accessible we make higher education, there is no future scenario in which every job in America requires a college degree. No matter what, we are left with those burger-flipping, shelf-stocking, grass-cutting, retail-counter positions in the service industry. Except that those jobs don’t have to be the low-wage, low benefits positions that make up today’s Wal-Mart economy. Just as it was unions that made the original GM jobs into what is today the last faltering bastion of the middle class, unionization could also make the service industry into another viable path to a middle-class standard of living.

Unionization may be the answer, but the UAW may be caught up in the auto industry's makeover: Newsweek's Daniel Gross [13].

Health Care Update

On the same day he declared health care reform an economic necessity [14], the President affirmed his support for a public plan option as an important part of reform. The New York Times: [15]

In response to a question from Senator Jeff Bingaman, Democrat of New Mexico, Mr. Obama said that it was important to include a public plan option and that such a plan could help control health costs.

Senator Sheldon Whitehouse of Rhode Island, one of two dozen Democratic senators who met with Mr. Obama, said the president “spoke very enthusiastically about a public plan” that would compete directly with private insurers. The president’s words were comforting to Democrats like Senator Sherrod Brown of Ohio.

“The sentiment in the room, with the president and the rest of us, was that a public plan option will keep the insurance industry honest, will give people more choices in their health care and can save significant amounts of money,” Mr. Brown said.

Meanwhile, at their annual meeting, health insurers discussed ways to cut costs: CNNMoney.Com [16] However, they've balked at changes aimed at helping small businesses — whose uninsured workers might benefit most from a public plan option. The New York Times [17]:

The insurance industry says it wholeheartedly embraces a health care overhaul, promising Congress and the president that it will make it much easier for individuals to buy insurance on their own.

But so far, the industry has made no such promises about another segment of the health insurance market, one responsible for many people being uninsured in the first place: the market for small employers. By some estimates, about half of the nation’s uninsured are people who are self-employed or work for a small business.

In other words, policy analysts and others say, unless the insurance industry is willing to give some of the same ground to small businesses that they have ceded to individual policy holders, a big part of what is wrong with the nation’s health care system may not get fixed.

More than 40 percent of the private American labor force works for companies with fewer than 100 workers. Leaving small businesses out of the federal effort to overhaul health care would be “a big hole in any reform proposal,” said Karen Davis, president of the Commonwealth Fund, a nonprofit health care research group that advocates significant changes to the current system.

Bill Scher is away.