Leading article: A tale of bad faith and bailouts in the car industry

General Motors' U-turn could create a political struggle over jobs

Share
Related Topics

One almost has to admire the chutzpah of General Motors. Earlier this year the hobbled US car manufacturer accepted a bridging loan from the German state on the understanding that it would sell off its European operation, which includes the Vauxhall and Opel marques.

But since then, the economic picture has brightened for GM, and this week it decided it would rather hold on to its European arm. The deal with Berlin has been unceremoniously ditched and, unsurprisingly, the German government is feeling aggrieved. Berlin assumed that the party paying the piper would call the tune. Not so, it seems.

To grasp the true nature of this squabble, some wider context is necessary. In the past year, motor firms from Detroit to Tokyo, like the banks, have been bailed out by governments. Soft loans and scrappage schemes have shielded car-makers from the harsh winds of recession. Yet this assistance has also stopped the industry from confronting its deep-set and long-standing problems. Even before the financial crisis broke, there was considerable overcapacity in global motor manufacturing. Too many cars were being made for too few customers. Of late, this oversupply has been disguised by the success of government trade-in schemes. But it still exists and it will become steadily more apparent as those schemes wind down.

This industry needs to restructure. Unproductive plants will need to shut and, regrettably, workers will need to be laid off. Yet, on account of their efforts to prop up the car industry over the past year, governments have become important players in this drama. The necessary process of shrinking capacity has thus taken on a political dimension.

The fallout from GM's reversal illustrates this well. The German manufacturing unions are up in arms about the collapse of the sale of GM Europe to the Canadian manufacturer Magna because they believed that deal would have been beneficial to them. Vauxhall workers in Britain, by contrast, are pleased because they feel their interests are better served by GM ownership. Rightly or wrongly, there was a general perception that the German government had done a deal with Magna that would see German jobs protected above others.

That deal might have been scuppered. But the political wrangling is not over. GM has plans of its own to shrink its European business. Some 10,000 jobs are to go, and national governments are coming under increasing pressure to use their political clout to protect employment in their own countries. With GM now majority-owned by US taxpayers, the White House will find itself lobbied on this. Important restructuring decisions in the global motor industry seem likely to be made for political, rather than economic, reasons. As history has shown, that is a recipe for inefficiency and long-term stagnation.

The scale of last year's panic was such that governments were justified in intervening aggressively in private markets. The meltdown of several giant car manufacturers could have helped to turn a severe global recession into a depression. Yet a new challenge is emerging for politicians; a challenge just as daunting as averting a slump. Having intervened in the private sector, they must now extricate themselves and let the market do its brutal, but necessary, work of clearing the road for sustainable growth – in the motor industry and beyond.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Senior Digital Marketing Consultant

£28000 - £45000 per annum: Recruitment Genius: A Senior Digital Marketing Cons...

Recruitment Genius: Assistant Stores Keeper

£16640 - £18500 per annum: Recruitment Genius: An Assistant Stores Keeper is r...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Software Developer - C# / ASP.NET / SQL

£17000 - £30000 per annum: Recruitment Genius: Developer required to join a bu...

Day In a Page

Read Next
Mosul falls: Talk of Iraq retaking the town, held by IS since June, is unconvincing  

Isis on the run? The US portrayal is very far from the truth

Patrick Cockburn
 

General Election 2015: You’re welcome to join us on the campaign's final straight

Lisa Markwell
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk