U.S. rolling despite GM strikes

Journal Record, The (Oklahoma City), Jul 6, 1998 by Gerard Meuchner Bloomberg News

DETROIT -- What's good for General Motors is good for the country, GM executive Charles Wilson said 45 years ago.

That may still be true. But what's bad for GM isn't necessarily bad for the country anymore.

GM is mired in a 27-day strike by the United Auto Workers that has closed most of the company's U.S. plants and cut second quarter profit by $1.18 billion. Even so, the U.S. economy and financial markets are rolling.

By comparison, a 67-day strike at the world's biggest automaker in 1970 tipped the U.S. economy into recession. But that was before U.S. consumers began flocking to cars made by Japanese and other non-U.S. companies, reducing GM's market share in North America to 30 percent from 50 percent in 1970.

The whole U.S. auto industry is no longer the employment giant it once was for the economy. The industry's share of the nation's payroll has dropped to 0.8 percent from 1.8 percent in 1950 and 1.2 percent in 1970.

"GM's share of the auto industry has shrunk, and the auto industry's share of the economy has shrunk," said Robert Solow, professor emeritus at the Massachusetts Institute of Technology and winner of the 1987 Nobel Prize in economic science.

The GM strike will trim gross domestic product in the second quarter by as much as three-fourths of a percentage point, said First Chicago-NBD economist Diane Swonk. Yet Swonk isn't changing her forecast that the economy will grow 3.8 percent this year, betting that lost production of Chevrolets, Oldsmobiles, Buicks and other GM cars and trucks will be made up later.

"In the aggregate, it doesn't change much," Swonk said.

Certainly not in the U.S. stock market. The Dow Jones industrial average rose 1.4 percent since the end of May, for an annualized equivalent of 18.7 percent.

When economists talk of GM's labor troubles and the economy, they talk of the 67-day strike in 1970. The economy contracted 3.9 percent in the fourth quarter that year.

"It was enough to push the economy over the precipice," said William T. Wilson, an economist at Comerica, the Detroit-based bank holding company.

But services now account for about two-thirds of the economy, having claimed the lion's share of output in the 1970s and 1980s, said First Chicago-NBD's Swonk. GM employed about 223,000 at the end of last year, compared to 520,000 hourly employees in the United States in 1978, the most recent year for which GM has figures.

"GM is a much smaller company and in that sense, it has a much smaller impact on the economy," said Brett Smith, a researcher at the University of Michigan's Office for the Study of Automotive Transportation.

For Detroit-based GM, the 1998 strike over job security may have a profound effect. "If we start to lose retail customers, the business will just get smaller and we will lose jobs," Ronald Zarrella, GM's vice president for retail operations, said Wednesday.

The history of auto strikes and the economy suggests any loss of production in one quarter will be made up in others, Swonk said. In the first quarter of 1971, for example, the economy expanded 11.3 percent.

Today's strike "is exponentially worse for GM than for the U.S. economy," Swonk said.

The strikes at two parts plants have closed 26 of the automaker's 29 North American assembly plants, idling more than 162,000 workers. The company has said it lost production of 227,000 vehicles in the second quarter.

With the strike-related losses, GM is poised to earn less than Ford and Chrysler for the first time since the first quarter of 1996, when profits were reduced by another GM strike, analysts have said.

America barely seems to have noticed. The Labor Department Thursday said the U.S. economy added 205,000 jobs in June. The government also revised May's job gain to 309,000, stronger than the initial estimate of 296,000.

It's a far cry from 1953, when GM's Wilson told Congress that "what was good for the country was good for General Motors and vice versa."

"No one would think to say that anymore," said MIT's Solow.