GM’s Plans to Offshore – Patriotism Vs Profitability

When times are good, it’s easy for Americans to love the global economy. Prices for consumer goods drop when companies move manufacturing overseas, which increases spending power. If companies can reduce operational expenses by offshoring, their stock prices rise, which boosts the value of 401ks and other investments. But globalization looks a lot less appealing with the economy on a downward slide. Multinational companies trying to meet earnings targets are cutting jobs in the U.S., not in lower-cost overseas markets.

This is certainly true now, with the U.S. jobless rate at a 26-year high. In particular, many folks have problems with companies continuing to offshore while accepting federal funds to improve their economic prospects. Such political considerations recently led student loan company Sallie Mae to announce it will move 2,000 offshore jobs back to the U.S., in a move observers say is designed to win favor with the Obama administration. Obama positioned his own move to end tax breaks for U.S. multinationals as an incentive for companies to keep jobs in the U.S.

If a Washington Post report is true, the Obama administration may find itself trying to walk a fine line between patriotism and protectionism. The Post reports that General Motors, in a 12-page report it presented to legislators, outlined plans to increase the proportion of cars it manufactures overseas and sells in the U.S. from the current 15 percent to 23 percent. The Obama administration apparently will face a tough choice: Let GM move more jobs overseas to lower its costs and (hopefully) return to profitability, or make it harder for GM to dig itself out of its current financial hole by requiring the company to keep jobs in the U.S.

Former labor secretary Robert B. Reich, now a professor at the University of California-Berkeley, calls it “an almost impossible dilemma,” noting that bailing out a global company like GM doesn’t necessarily help American workers. And, he said:

“More significantly, it raises fundamental questions about the purpose of bailing out these big companies. If GM is going to do more of its production overseas, then why exactly are we saving GM?”

Of course, one can make the case that it’s better to preserve some of GM’s U.S. automaking jobs rather than lose them all, which would then lead to huge financial repercussions. (The more former auto workers who end up unemployed, the less they have to spend, creating a negative impact on many, many other industries.) But unless GM can further reduce the cost of employing workers in the U.S., chances are it’ll find it needs to boost its overseas production even more.

The issue will be a flashpoint in GM’s negotiations with the United Auto Workers. In any case, GM’s plan is apparently not set in stone. CEO Fritz Henderson assured legislators that the company hopes to win further financial concessions from the UAW. This story makes me wonder: Is it a coincidence that Toyota, Honda and other Japanese automakers, who at this point are in better shape than their U.S. competitors, have located their U.S. manufacturing facilities in non-union states?