Issue 57 Vol III, February 15, 2008

T H I S  O U R  N O R T H  A M E R I C A

U.S. auto giant GM in trouble
Khushwant Toor

PRIDE of America the General Motors on Feb. 11, 2008 reported a $38.7 billion loss for 2007. It is largest loss ever experienced by a U.S. automaker. To mitigate its damages and to secure the future of the company the officials also announced a new round of buyout plans for its employees. This buyout plan intends to layoff it’s more high paid permanent employees and then hire low paid new workers. It is expected that about 74,000 of its unionized employees will be effected and be eligible for its buyout program.

GM had been enjoying the luxury of being the world’s top automaker for almost 80 years but had to recently share the first place podium with the robust Japanese Automaker Toyota. Gone are the days in America when people showed loyalty to the slogan “Buy American Cars” and have started to adapt the superior/affordable technology offered by foreign auto-makers.

Although it took a long time to change the U.S. patriotic feeling; but hats off to Toyota, as it managed to persuade the hardcore American sentiments by launching a series of TV adds interpreting Toyota cars being made in U.S. based manufacturing plants and not overseas in Japan. Superior technology offered in these foreign cars also played a significant role in swaying American consumers. Big bulky Chevrolets and the Impalas type cars earlier manufactured in America which once boosted “Yes I own the road” are now turning into small/concise “We do share the road” type of cars.

It is not only the GM which is facing crisis in the U.S. the other two big automakers Ford and Chrysler have gone through a similar restructuring in the recent past. Chrysler, meanwhile, was bought by a private-equity firm. The root cause of financial trouble with the American automating companies is the labour cost and the huge perks/incentives given to its unionised employees which are way up in line with the world standards.

The steep labour bill and the benefits offered to its employees such as medical coverage etc. is what is keeping these companies from competing with the Asian manufacturers. Such buyout offers declared by GM and the last year’s revised labour agreements are the only hope for American companies to stay competitive in the world markets.

Some very conservative manufacturing comparison figures suggest that it cost only 15% of the actual cost of what it takes to manufacture in North America, if the same object is outsourced for manufacturing in Asia. Highly paid labour force in North America is the major differential. That is why the American auto industry is now worrying about the cheap Chinese cars which are supposed to be launched in future in the American markets.

As far as GM, despite the losses posted, the company's turnaround plan remained on track, with record sales in Europe, Africa and Latin America helping offset a weakening U.S. economy. GM sells 60 percent of its vehicles overseas. In addition to losses on the automotive side, the company was hurdled around by the mortgage crisis that has disrupted the global financial industry, with its GMAC financial subsidiary reporting a loss of $2.3 billion.

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Bush's Exorbitant Deficit and Cruel Debt

THE legacy which American President George W Bush leaves is not even a mixed bag of blessings and curses, but a straight text drawn from the hell. An average American would be earning less and suffering for want of adequate medicare and unemployment. Yet he leaves the rich richer and those in business or industry in the pink of health.

President Bush took office in 2001 with an advantage few presidents have enjoyed: a $236 billion budget surplus. But he quickly blew through. With his new budget, Bush is trying to create the appearance of compensating for his fiscal exuberance, terminating or reducing 151 government programmes. Nevertheless he leaves a record deficit.

Bush's budget plan has little chance of surviving in a Congress dominated by the Democrats. He is, in fact washing his hands clean of his economic misconduct, postponing decisions to cope with short- and long-term financial problems. The next presidents will have his bagful pf fiscal problems.

In 2001, Bush said his tax cuts would cost the government $1.3 trillion, but his 2009 budget -- which calls for making his signature tax cuts permanent -- indicates they would "cost the government more than $2 trillion in their second decade."

Extending the 2001 and 2003 tax cuts would give the top one percent of households more than $1.1 trillion in benefits over the next decade, according to the Center for Budget and Policy Priorities -- more than the entire amount the government spends on elementary and secondary education or veterans' medical care.

The cost of an economic rescue package will combine to produce a huge jump in the deficit to $410 billion this year and $407 billion in 2009, the White House says, just shy of the record $413 billion set four years ago.

The "budget achieves balance by 2012," Bush said . But the forecast is likely to be worse than what the White House is saying. To achieve its deficit goals, the White House predicts the economy will grow at 2.7 percent rate this year, "higher than what private sector economists" anticipate and a full point higher than the Congressional Budget Office's projections.

Moreover, billions in spending are unaccounted for in the budget. For example, Bush budgeted $70 billion for the Iraq and Afghanistan wars -- but only accounted for costs up to the first half of 2009. In reality, around $200 billion is expected to be spent. Furthermore, Bush did not take into account the costs of assuring that higher alternative minimum tax rates originally aimed at several hundred very wealthy people don't hit tens of millions of middle-income earners.

During the State of the Union address, Bush declared that he would put the nation on track to a balanced budget in 2012, claiming, "American families have to balance their budgets, and so should their Government." But under Bush's proposal, "the budget deficit would jump sharply, from $163 billion in 2007 to about $400 billion in 2008 and 2009. ... Such deficits would rival the record deficit of $412 billion of 2004." Bush's tax cuts have been the single largest contributor to the reemergence of substantial budget deficits in recent years. Though the budget includes needed increases in funding for the State Children's Health Insurance Program and the Food and Drug Administration, it also slashes over 100 domestic programs.

According to Center for American Progress, a Washington based forward looking think tank,”With the Pentagon's 2009 budget increased to $515.4 billion, "annual military spending, when adjusted for inflation, will have reached its highest level since World War II. The budget gives the Pentagon a $35 billion increase over last year, about 7 percent, with war costs additional. Since coming to office, the administration has increased baseline military spending by 30 percent over all including $600 billion already approved in supplemental budgets to pay for the wars in Iraq and Afghanistan and for counterterrorism operations. Separate from the $515.4 billion.

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