Closure of General Motors’ Lordstown plant was not inevitable. It resulted from GM’s own mismanagement and flawed public policies

An American flag drapes the hood of the last Chevrolet Cruze Wednesday as it comes off the assembly line at General Motors' Lordstown plant, where 1,700 hourly positions are being eliminated, perhaps for good. The factory near Youngstown is the first of five North American auto plants that GM plans to shut down by next year.

 

CLEVELAND -- On Wednesday, the General Motors Corp. Lordstown plant closed its doors after producing its last Chevy Cruze. This closure was part of GM’s plan to lay off 14,000 blue- and white-collar workers. Many experts called the decision unfortunate but natural: The cars made in these plants aren’t selling well, and GM needs money to invest in electric vehicles and cars of the future.

 

The Lordstown closure was not inevitable. It was the product of GM mismanagement and poor public policies. The result – disastrous for communities and thousands of employees – may not even be salutary for GM.

The idling of the Lordstown plant that assembles the compact Cruze comes a decade after GM shuttered another assembly plant outside Dayton. Back then, the SUVs GM made there were not selling amidst high gas prices — the opposite situation of today. However advantageous the abandonment of U.S. small-car production may seem right now, it is concerning that GM is losing the ability to make a whole class of vehicles.

 

Similarly, the layoff of thousands of white-collar staff, many of them powertrain engineers, could prove misguided. Might it be smarter to retrain some of them instead of competing with Google and Apple to hire new electrical engineers? As Tesla’s troubles producing electric cars show, Detroit auto companies know something about making cars. But instead of building on its strengths, GM has frequently chased the next shiny thing, from automation in the 1980s to e-commerce in the early 2000s.

 

Moreover, GM has failed to make its plants as flexible as other automakers that can produce different models on the same assembly lines, thus avoiding hundreds of millions of dollars in retooling costs when market demands change.

 

Nor would GM be in such need of funds to invest in vehicles of the future if it were not spending $14 billion on stock buybacks. At one time, such buybacks would have been illegal. Their proliferation is a failure of public policy.

GM has provided middle-class jobs to tens of thousands, and has produced path-breaking green cars like the Bolt and Volt.

 

However, these positive efforts are complicated not only by management missteps, but also by poor public policies. U.S. trade policy encourages companies to compete by relying on $3- to $5-an-hour wages in Mexico, where GM is now the largest carmaker. Instead, the United States should support trade agreements that allow workers to organize freely and raise wages in Mexico. The recently renegotiated NAFTA (now called the United States-Mexico-Canada Agreement) does not accomplish that goal.

 

The Trump administration also has proposed stepping away from effective fuel economy and vehicle greenhouse gas standards — further encouraging the current automaker retreat from a decade of investment in advanced technology manufacturing in the United States.

 

States compete for auto plants and other big investments by offering huge incentive packages. This undercuts competitors, weakens public finances, and does nothing to boost the overall national economy. Talk has already turned to using such incentives to lure another manufacturer to the Lordstown plant. Workers there, including management, average annual earnings of more than $75,000 with overtime. That’s a good salary for the four-county Youngstown-Warren area where the median wage is $34,000, but pales in comparison to the $21.96 million GM CEO Mary Barra took home in 2017. The Mahoning Valley desperately needs good jobs. If another employer uses the facility, it should adhere to the standards in GM’s contract with the UAW.

 

Perhaps the biggest policy failure is the unwillingness of U.S. political leaders to tackle climate change. In addition to dragging us down in the global race to build cleaner and more efficient vehicles, persistent low gas prices have social costs – among them, pollution, climate-altering greenhouse gases, and the giant cost of U.S. military involvement in the Middle East to secure its oil.

A gradual but substantial increase in the gas tax could make it more profitable for GM to make small cars in Lordstown even as it advances the future of electric vehicles. The proceeds could be used to reduce payroll taxes, so the new tax wouldn’t fall too heavily on low-income drivers. It could also provide badly needed funds for public transit, and technical support for small manufacturers in clean energy supply chains. Green jobs must be good jobs, like those that General Motors is proposing to eliminate.

 

We can’t easily cure GM’s mismanagement and its undervaluing of its own people. But we can adopt public policies that lead in a different direction.

 

Susan Helper is the Carlton Professor of Economics at the Weatherhead School of Management at Case Western Reserve University and the happy owner of a Chevrolet Volt. She was formerly chief economist at the U.S. Department of Commerce.

 

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