Hopefully, the UAW strike will be settled by the time this column goes to print. It is worth taking a step back and asking why General Motors, Ford and Stellantis did not just give the UAW what it wanted to avoid the strike.
The likely answer is that the 2009 bankruptcies of General Motors and Chrysler are still fresh in these executives’ minds. Chapter 7 liquidation was only prevented by an infusion of over $80 billion taxpayer dollars by the United States and Canadian governments. This bailout was not fully repaid, and the U.S. government took a $10 billion-or-so loss on it.
The bailout was politically unpopular at the time. The Bush Administration likely agreed to it because they were not facing reelection in 2008 and the Obama Administration, during the depth of the 2009 Financial Crisis, probably thought the damage of reversing course on the unpopular bailout would be too severe for the economy amid the worst recession since the Great Depression. Even in 2012 after the auto companies exited bankruptcy, the Gallup Organization found that 51% of Americans still opposed the bailout, compared to the 44% who thought it was the right decision.
Unique political and economic forces came together in 2008-09, which allowed for the bailout to occur. It is unlikely that similar events could simultaneously occur again to allow for a bailout of the auto companies if they find themselves facing bankruptcy once more, especially since the last bailout was only 14 years ago. Policymakers would likely just let the automakers be liquidated and their remnants absorbed by their competitors. I am sure that auto executives are keenly aware of this.
It is misleading to think about General Motors’ “record profits.” GM’s total revenue did jump by 23% between 2021 and 2022, but this is only because 2021 revenue was 14% below its pre-COVID peak in 2018. Adjusted for inflation, GM’s revenue was lower in 2022 than in 2018. General Motors earned $147.05 billion in total revenue in 2018 and $133.44 billion in 2022 (as measured by 2018 dollars). Rather than seeing record high revenue, GM’s 2022 revenue was 9.5% lower than in 2018.
More troubling is that General Motors continues to lose market share post-bankruptcy. The company went bankrupt with a 21% market share, as revenue was insufficient to cover cost at that market share. GM shed its legacy costs in bankruptcy, allowing the company to be profitable at a lower market share. General Motors’ market share is estimated to be only 17% as of 2022.
If GM allows legacy costs to be reinstated, such as automatic cost-of-living increases on top of a 40% pay increase, a defined benefit pension and retiree health benefits, General Motors’ profitability at this lower market share will be threatened and bankruptcy in the future becomes a possibility. If this happens, do not expect taxpayers to ride to the rescue with another bailout.
