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GM in Trouble I. THE VEGA

I

On September 10, four days before the United Automobile Workers struck General Motors, Chevrolet started selling a small and inexpensive car. The car had been the subject of the longest prenatal advertising campaign ever provided for an American commodity. In April, 1970, it was baptized in sky-writing over downtown Detroit: “Chevrolet Names It Vega 2300.” Its engine was displayed on a velvet-covered pillar at the 1970 New York International Automobile Show. Advertisements for the Vega began to appear in the spring—“Coming Soon: the Little Car that Does Everything Well. Everything? Everything…. Bear With Us. Read Our Future Ads.” “By the time it actually goes on sale,” Chevrolet announced, “we want this totally new car to be as familiar to Americans as a member of their own family.”

The basic Vega sells for $2,091, without optional equipment. It cost General Motors between $100 and $200 million to develop. The Vega project was first described in 1968, by James M. Roche, chairman of GM: the new car would be “GM’s positive answer to the demonstrated need for a small, economical, durable, safe, comfortable and well-styled car built in America to American tastes.” Chevrolet and the Fisher Body Division of General Motors built a new factory for the new car, at a deserted crossroads in Lordstown, Ohio. The Lordstown complex of plants cost $100 million. The Vega engines are cast at a new foundry in Massena, New York, and assembled at a new plant in Tonawanda, New York. Retooling for the Vega is the most expensive investment project GM, or any other corporation, has ever undertaken.

During the ten-week strike by the UAW, General Motors confined its advertising effort to severe statements of the benefits of working on a GM assembly line. The Vega plants in Lordstown, Tonawanda, and Massena were closed. Meanwhile a yellow Vega coupe was shipped to Europe for exhibition at the Paris, London, and Turin motor shows. On November 19 a new local contract was agreed upon at the main Vega factory in Lordstown. In the last week of November, GM started producing Vegas, at a rate of 1,600 a week, and GM recently initiated a new introductory campaign to relaunch the Vega. Now, Chevrolet makes about 6,200 Vegas a week, and has scheduled Saturday overtime at Lordstown.

II

Nineteen seventy was a dismal year for General Motors; the American automobile industry looks forward to a dismal decade. The UAW strike, and the deterioration of GM labor relations, are consequences rather than causes of GM’s difficulties. The Vega project is an attempt to solve these difficulties. GM’s margin of profit on sales was lower before the recent strike than it had been since 1946: 4.7 percent in the first three quarters of 1970 (which included two weeks of the strike), having fallen steadily from 7.0 percent in 1969, or $1.7 billion after tax, 7.6 percent in 1968, 8.1 percent in 1967, and 10.3 percent in 1965. Private car sales before the strike were the lowest since the 1961 recession. Foreign car sales amounted to more than 13 percent of the total car market. Early this year, GM started to lay off white-collar workers, including one hundred “creative personnel” at Chevrolet’s advertising agency. GM production worker employment was sharply reduced. At the beginning of the year, GM workers earned $175 a week, down from $190 a week at the beginning of 1969; earnings per hour had increased, but there were fewer hours to work each week.

GM executives publicly attribute their afflictions to worker degeneracy, to the national recession, and to the competitive advances of foreign cars. The 1970 GM “Annual Report” contains a Letter to Shareholders from Edward N. Cole (president) and James M. Roche (chairman). Cole and Roche exhort their readers, colleagues, and employees to “redouble our efforts to increase the productivity of the country.” The present inflationary recession has intensified the problems of the automobile business: in a recession consumers put off buying expensive manufactured goods like cars. But the American automobile industry also faces a long-term crisis of insufficient demand and stagnating productivity. The success of imported cars in the US is a symptom of the industry’s general crisis.

In the last twenty years, the world market for American cars has grown increasingly slowly. The early expansion of the American automobile industry depended upon the development of a mass domestic market for automobiles. The selling of American cars, and specifically of GM cars, became a model for consumer goods industries all over the world, showing them how to create and nourish demand. But the US car business has been unable to maintain the rate of growth of demand it generated in the first decades of its expansion. From 1919 to 1941, the number of cars and trucks produced annually in the US increased more than two and a half times. The real value of the output of vehicles increased more than three times. The number of vehicles produced by General Motors increased almost six times. Nineteen forty-one was the last year of peacetime production. In 1948, US vehicle production passed its prewar level. From 1949 to 1969 annual US car and truck production increased by only three-fifths. The real value of output increased less than twice. Annual General Motors production increased one and three-quarters times.

The American demand for automobiles rose more and more slowly because America was saturated with automobiles. The limits of the car market had collided with the limits of human irrationality. In the 1950s American car production increased three times as fast as the human population of the United States; in the 1960s twice as fast. There is now one passenger car for every 2.5 Americans. According to the 1970 “Automotive News Almanac,” published by Automotive News of Detroit, “the Newspaper of the Industry,” the only places which come fairly near to the US in density of cars are the Principality of Monaco, the US Virgin Islands, and, if we count military vehicles as passenger cars, the Panama Canal Zone.

From 1920 to 1950, the American automobile industry expanded on an ecstatic spiral of demand and supply. The demand for cars grew; the output of cars grew; the automobile manufacturers invested more capital in the production process; the productivity of labor grew as car factories became more mechanized and more “rationalized” in the organization of work. By the 1950s, the automobile industry enjoyed an extraordinarily high level of profits. Witnesses at the 1958 Kefauver Commission Auto Industry Hearings testified that between 1947 and 1956 the automobile industry’s “Big Three” corporations had provided a rate of return on stockholders’ investments which was twice as great as the average for all manufacturing companies.

The present crisis of the American automobile business has been intensified by the industry’s insistence on a high and constant level of profit. To maintain a rapid growth of productivity—i.e., to rapidly increase the output maintained by one worker in one hour—an industry, or a corporation, must maintain a high level of investment on labor-saving machinery. But when demand, and output, is growing only slowly, the corporation must accept a falling rate of profit in order to maintain such a level of investment. In 1919, GM’s pre-tax rate of profit on sales was 17.6 percent; in the 1960s the average rate was still 17 percent. Since the 1920s, General Motors has made approximately the same pre-tax profit on sales, and it has invested approximately the same proportion of its income each year. Investment has grown only as fast as sales. But, as we have seen, GM and the American automobile industry are now in a spiral of stagnation: demand grows slowly; profits grow slowly; investment grows slowly; the rate of technological improvement grows only as fast as the flow of new capital equipment; productivity is low.

While US production of cars has stagnated, world production has increased rapidly. In 1955 the US produced 72 percent of all passenger cars, in 1959, 52 percent, and in 1969, 36 percent. Automobile manufacturers in Europe and Japan have recently experienced the spiraling expansion characteristic of the American industry before World War II. The Japanese automobile industry, for example, produced 110 cars in 1947, 79,000 cars in 1959, and 2.6 million cars in 1969. European car production has increased less dramatically, but much faster than American production. One result of the changing pattern of world car production has been a reduction in American productive superiority: American car manufacturers have a smaller and smaller advantage of productivity over their foreign competitors.

The American automobile industry has enjoyed a historically high level of productivity because it has invested large amounts of capital for every worker it employs, and because it has systematically organized the work of each employee. US automobile corporations still own more capital per employee than their foreign competitors: GM world-wide has $14,000 invested per employee, Vauxhall, GM’s British subsidiary, $8,500 per employee, the British-owned British Leyland $5,000, and Nissan Motors (Datsun) $2,300. But the capital advantage of American manufacturers is shrinking as foreign producers acquire new capital faster than American corporations. In 1969 GM spent the equivalent of 4.3 percent of its turnover on capital equipment; Volkswagen spent 9 percent and Toyota spent 13 percent. When capital expenditure is high, the rate of technological advance is also high, because technical innovations yield a profit only when they are applied to new capital equipment. The expensive new Vega factories in Lordstown use the latest advances of GM’s cost-cutting and labor-saving technology.

As American auto manufacturers lose their productive and technological superiority, they lose their ability to produce cars more cheaply than foreign manufacturers. The Chevrolet Vega is advertised by GM as the American equivalent of a Volkswagen Beetle: “More power than the leading foreign import.” It is similar in size and convenience both to the VW and to the Toyota, the second most successful imported car. The Vega sells for $2,091, the VW for $1,780, and the Toyota Corolla for $1,798. GM executives attribute the lower prices of imported cars to the “growing dollar differential between US and foreign wages.” Workers and employers are assumed to have common interests in the face of underpaid foreign competition. But comparative wage rates alone do not account for the low prices and low costs of foreign manufacturers.

The president of Ford International has said in an interview in Autocar that “hourly wages don’t make the difference any more between manufacturers in different countries. The difference lies in techniques and production volume.” He claims that “there are no more than nine or ten hours of manual labor left in the assembly of an automobile. If you add up all the elements of a car, from tires to engine, glass, seats, etc. (without counting raw materials), the total number of working hours embodied in a car is between 65 and 70,” for all major manufacturers. If these figures are correct, the labor cost of producing a small GM car such as the Vega is $300.1 GM generally refers to foreign competitors as having “labor costs one half to one quarter as much as ours.” So competitors, presumably German, who pay their employees only half American wage rates, spend $150 on the labor to make a car. Competitors who pay one quarter of American wage rates, presumably Japanese, spend $75. In fact, Toyota workers make one-third as much as GM workers, so the labor cost of producing a Toyota is $100.2

  1. 1

    In 1970 before the recent strike, GM paid its US workers an average of $4.65 an hour.

  2. 2

    Automotive News, May 18, 1970.

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