By James Rogan
Once upon a time, what was good for General Motors was good for the nation. In 1955, GM was the largest employer in the United States. GM employed almost 600,000 people. Today in the U.S., the company employs just 53,000 people. In 1955, GM had a 70% market share. In 2023, that share had fallen to 16.9%. In the late 1950s, GM, Ford, and Chrysler (Chrysler is now owned by Stellantis) had a 96% market share.
Unfortunately, for shareholders of the Detroit Three and for the country, the future is very dark for the domestic vehicle companies.
GM, Ford, and Stellantis exist to make profits for their owners, the shareholders. The economic system of the United States is premised on free market capitalism. Profits drive investment, productivity, and shared prosperity. The U.S. is not about statism, pursuing political goals, and, in the case of the Big Three, providing “well-paying” jobs for the factory workers. The purpose of the vehicle industry is not to address climate change. The companies exist to make money.
Under the Biden administration, good, well-paying jobs for manufacturing workers is a primary goal. But that goal is receding from view and will never be realized. Manufacturing as a job creator is a dead end. A government policy goal of wages above the clearing price will destroy jobs and the employers.
That matters in the sense that the United Auto Workers union is a monopoly with monopoly power. It extracts wages above the market clearing price. The historical data is clear that the UAW is a job destroyer. The UAW is dooming the Big Three. The recent UAW wage agreements between the Detroit Three and the UAW added up to $900 in costs for each vehicle sold.
Domestic nonunion plants owned by European manufacturers have a decided cost advantage. Equally important, vehicles imported from Mexico, where labor costs are almost 90% below U.S. levels, have a major cost advantage. Investment is going south of the border. The U.S. auto industry is highly cyclical. Today, the domestic vehicle market is seeing relatively strong demand, but recessions are inevitable. When the next recession occurs, the Detroit Three will hemorrhage red ink.
The fortunes of the domestic vehicle industry are clouded because of costs associated with the government-mandated transition to electric vehicles, which the public, at least for the moment, is hesitant to embrace because of cost, range anxiety, and low trade-in value.
Autonomous driving is the future; it is safer. The Detroit Three will lose that battle. Tesla just received approval from the Chinese government to roll out automated driving nationwide. Tesla will be building an unprecedented database for safe autonomous driving. Tesla has the balance sheet to purchase 50,000 H-100 accelerated computing chips from Nvidia. Each chip costs upward of $40,000. The Detroit Three cannot afford that.
Tesla is making money by selling EVs. GM and Ford are losing large sums for each EV sold. Tesla races ahead. GM and Ford are falling way behind. High-cost union labor, enormous losses from each EV sold, and capital destructive investment in government-mandated climate change initiatives are making it impossible for the Detroit Three to compete against Tesla, European companies with nonunion U.S. operations, and Chinese vehicle manufacturers that will build plants in Mexico and circumvent U.S. tariff regulations.
Unionization and the Biden administration’s embrace of statist economic policies are destroying the Detroit Three, shareholders and workers both. The UAW and Biden are harming the nation.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note.