Who wins from GM’s misfortunes

The announcement by General Motors that it planned to 25,000 or more assembly-line jobs over the next few years would seem to advance the hypothesis that the United States suffers from expanding international trade. Gregg Easterbrook does a nice job of pointing out why that’s not true in the New York Times today:

The announcement last week that General Motors would cut 25,000 jobs and close several factories is yet another blow to the Goliath of automakers and its workers. But only if you work for G.M. is the company’s decline a worry. For consumers, the decline can be seen as a symbol of healthy competition…. In the 1950’s, General Motors had 46 percent of the American auto market, Ford and Chrysler 44 percent, and everyone else combined just 10 percent. Today, G.M. sells 27 percent of the cars bought in America, Ford and DaimlerChrysler combined sell 32 percent, and other automakers add up to 41 percent. This means that the international competition, once trivial compared with General Motors, is now bigger than General Motors. Intense competition within the auto industry has resulted in steady improvements in the workmanship, performance, safety and design of cars, while holding down prices. That’s the ideal outcome for consumers but not for General Motors, which, as the largest automaker, had the most to lose…. General Motors also declined because of poor quality. But in this spring’s influential J. D. Power & Associates automotive workmanship rankings, General Motors rose to No. 2, trailing only Toyota for overall quality. The Buick and Cadillac divisions ranked ahead of Mercedes. Yet even if a new generation is drawn to G.M.’s products, recovery of its former position seems unlikely. Other brands have improved, too: J. D. Power estimates that for the auto industry overall, manufacturing defects declined 32 percent since 1998 alone. There is also great pressure to hold prices down, which is bad for companies like G.M. with vast amounts of overhead. According to the consumer price index, new cars and light trucks today cost less in real-dollar terms than in 1982, despite having air bags, antilock brakes, CD players, power windows and other features either unavailable or considered luxury options back then. This means that during the very period that General Motors has declined, American car buyers have become better off. Competition can have the effect of “creative destruction,” in the economist Joseph Schumpeter’s famous term, harming workers in some places, while everyone else comes out ahead.

[Yeah, but life is still bad for workers in the auto indistry, right?–ed.] Well, that depends on where you live. Easterbrook points out some other employment trends in the automobile sector beyond General Motors:

[T]he same week that G.M.’s cut made the front pages, DaimlerChrysler announced it would invest $40 billion in North American operations over the next five years, including building a new assembly plant in Illinois and expanding factories in Ohio and Michigan. According to a study by the Association of International Automobile Manufacturers, non-Detroit automakers have in the last two years created 55,000 new factory jobs in the United States. Today just under 50 percent of the “foreign” cars sold in America are made here, with BMW, Honda, Nissan, Toyota and others operating large factories in Alabama, California, Indiana, Kentucky, Mississippi, Ohio and Tennessee. About 800,000 passenger vehicles are expected to be manufactured this year in Alabama, all for global brands; cars have become to the state’s economy what cotton once was.

AIAM’s press release about that report also mentions, “When the number of jobs created by the new American automakers is combined with related new vehicle dealership employment, this sector of the industry has generated 1.8 million jobs in the U.S. economy.”