U. affiliates weigh in on auto industry, government relationship

In hopes of reigniting the sputtering auto industry while holding the companies accountable, President Barack Obama announced March 30 that he will give General Motors 60 additional days to try to restructure their company and prove their viability.
University professors and students expressed varying views on the Obama administration’s latest effort to put the ailing auto industry on the road to renewal.
University Clinical Associate Professor of Finance and Economics John Longo said the recent resignation of G.M. Chairman and Chief Executive Richard Wagoner at the behest of the White House was largely symbolic, since another long-term G.M. executive was appointed to replace Wagoner.
“I believe the move was to signal to the outside markets and the American people that change was needed and will occur at G.M.,” Longo said. “G.M. stock went down on the news, since it showed the government was willing to play hardball and that there is an increased chance that G.M. will declare bankruptcy.”
G.M. is at the brink of bankruptcy and stock price has declined 95 percent, according to the financialpost.com. G.M.’s survival now hinges on an expanded bailout from the U.S. government.
Students like Rutgers College senior Jacob Petterchak applauded the removal of Wagoner.
“Any CEO that’s seen their company lose 95 percent of their stock value probably needs to go,” Petterchak said.
But Rutgers College junior Brian Canares said he disapproved of the resignation.
“This idea that Obama can layoff whoever he wants sort of turns G.M. into a government company,” Canares said.
Nancy DiTomaso, chair of the Department of Management and Global Business of Rutgers – Newark, said it was extremely significant that the auto industry has become so humbled that the U.S. president can fire the G.M. CEO.
“Not long ago the general wisdom in Washington and from the auto industry was ‘What’s good for G.M. is good for the country,’” DiTomaso said.
Canares said the auto industries’ heavy reliance on SUV sales was an example of the industry’s poor management.
“When people started wanting more fuel efficient cars, the auto industry hadn’t foreseen the shift, and they didn’t adapt to it well either,” Canares said.
Longo said the auto industry’s cost structure due to high wages and historical pension and health benefits are out of line with its foreign competitors.
“The quality gap has closed measurably in recent years, but the cost structure gap cannot go away, unless bankruptcy is declared and new contracts are renegotiated,” Longo said.
The government has large stakes in private companies, and large leverage over private companies is a unique situation that has not happened very often in American history, said Stuart Shapiro, an assistant professor of public policy at the Edward J. Bloustein School of Planning and Public Policy.
During the Great Depression, the New Deal government rarely intervened in the business matters of industrial corporations, said Norman Markowitz, a University associate professor who researches 20th century U.S. political history.
“A better example would be WWII, when the government directly funded corporate expansion through government contracts [and] government planning, and large numbers of executives went to Washington to work inside the planning agencies,” Markowitz said. “The government even built thousands of new plants and leased them to the corporations, and the corporations had to recognize unions and pay decent wages in order to get the contracts.”
The auto industry and its entire supply chain provides many jobs and is an important part of the U.S. manufacturing sector, Longo said.
“Our economy cannot be solely based on services. Autos are an important part of the American culture and it would be disappointing to see the American auto companies vanish,” he said.
G.M. employs 252,000 people around the world, according to a company press release from January.
DiTomaso said the auto industry is tied through forward and backward linkages to about a third of the American economy, including steel, rubber, plastic, electronics, glass, insurance, health care and other services.
“Anything that affects that much of the economy will have a dramatic effect in N.J. as well,” she said. “Furthermore, if the rest of the country is not doing well, then they cannot provide markets for anything that NJ produces, like vacations among other things.”
Petterchak supports the auto industry bailouts.
“Better to fix things now than to have half a million people on welfare or unemployed,” he said.