Honda, General Motors: Global Crisis and the Car Industry

Honda, General Motors: Global Crisis and the Car Industry

Two articles on the recent developments in the US and UK automotive industry.

Trump and the Crisis of General Motors

The urban myth Donald Trump peddled during the election campaign was that the USA would be the first country to get out of the crisis: soon the economy would be steaming ahead and multiple new jobs would be created.

Not a word of this is true. In a vain attempt to get out of the crisis the USA was the first to adopt Quantitative Easing (QE) with a $12,000 billion financial bail-out, equivalent to 60% of GDP. Then the US off-loaded its own toxic financial 'assets' onto the world financial markets (including European markets), thus pushing a considerable share of the crisis onto the rest of the world and creating an economic disaster whose fall-out is still being felt today. Despite this, the US economy has not recovered and a prime example is the bankruptcy of General Motors.

A good 14,700 jobs will be lost as a result of the 'sudden' decision to close five General Motors factories in north America: one in Canada and four in Ohio and Michigan. For 6,000 workers the lay-offs are immediate, without any consultation with the unions, which are useless anyway, and 8,100 more will be laid off in September. In addition, GM has asked 18,000 workers to take early retirement with a pension reduction of around 30%.

The situation of GM is not an isolated case. It is the reflection of a dire crisis which has been affecting the whole auto sector for years. Remember that when the financial crash first broke in 2008, General Motors was one of the firms that had to be bailed out by the State, or else it would have been shut down ten years ago.

How is it then that, under the leadership of the tycoon, instead of experiencing gigantic growth and creating millions of new jobs, the American economy has turned into a joke? The GM plants are mainly in the two states, Ohio and Michigan, that Trump won over from the Democrats with the promise of relaunching the auto industry. Yet the new jobs created throughout the whole of the USA amount to a few hundred thousand, precarious, short-term - even a few days - underpaid and without any kind of insurance.

The entire US economy is literally drowning in debt. Between them, public and private debts amount to 247 thousand billion dollars, of which a good 8 thousand billion is in the industrial sphere. This is only possible thanks to the strength of the dollar and the force of US arms which are ready to act whenever there is the minimum danger to the feeble American economy. Like an arrogant cowboy, President Trump has his own response to the situation. He has reneged on the Paris climate accord, deserted international courts, refused to meet Putin or engage in any kind of talks on the crisis in Ukraine, thus worsening the situation. To compensate, he has his own troops scattered throughout the world, from Libya to Syria, from Yemen to central Africa, with the usual imperialist aim of getting hands on strategic raw materials, imposing the dollar as the universal financial medium and in so doing destroying in order to rebuild in a barbaric mindset which is not only a reflection of the American economic crisis but of capitalism as a whole which is unable to get out of this crisis. And all this leads to the thought that another, even deeper, stage of the crisis is about to open with a corresponding widening of the war fronts and their terrible toll of misery and death.

FD
from Battaglia Comunista, Jan-Feb 2019

Honda Factory Closure – Another Symptom of Capitalism’s Crisis

The announcement that Honda is to close the Swindon plant in 2021, comes on the heels of the announcement from Nissan that they are not going to produce the new X-Trail crossover vehicle at their plant in Sunderland. The Honda closure will lead directly to the loss of approximately 7,000 jobs, 3,500 at the plant itself and another 3,500 amongst the plant’s suppliers. Further job losses in the service sector in the area are also likely follow.

The management has blamed the closure on specific problems of the global vehicle industry, such as the decline in the market for diesel engines, the need to produce electric vehicles and the need for economies of scale in the competitive world of today. The last of these reasons gives a hint of the real problem Honda faces. Competition is becoming ever more intense as rates of profit decline and massive amounts of fresh capital are required to meet either new emission standards or the conversion to electric vehicle production.

The financial crisis of 2008 has heaped fresh pressure on Honda’s UK operations. In 2008, before the financial crisis, 230,000 vehicles were produced, but after the crisis one of the two production lines was closed and production had reduced to 161,000 vehicles by 2018. The plant needs to produce 250,000 vehicles annually to achieve economies of scale and be competitive.1 The closure of the plant is thus primarily an expression of capitalism’s long term crisis of profitability and the immediate financial crisis of 2008.

The departure of Honda marks another turning point in UK car manufacture. The Japanese and German car manufacturers revived the British car industry in the 80s and 90s. Honda arrived in 1979, Nissan in 1986 and Toyota in 1992. BMW followed in their footsteps in 1994.

Revival of the UK Car Industry

In the 1950s the UK was the world’s second largest vehicle producer after the USA. This was largely because the continental and Japanese producers had had their plants and infrastructure destroyed in the war and production had to be re-started with new capital equipment. The UK had run down most plants during the war but they were not destroyed, so production resumed with run down capital plants. In the decades which followed there was insufficient capital investment which led to a steady decline in UK vehicle competitiveness while continental and Japanese production recovered. This led to crisis and nationalisations in the 70s followed by privatisation in the 80s. The revival of the industry was achieved by Japanese investment and production methods which led to massive increases in productivity and exploitation of the workforce.

The new mini plant of the early 80s, which was at the time hailed as a massive advance for the UK motor industry, produced approximately 25 cars per worker annually. Japanese and German production, through massively increased capital equipment, particularly the use of robots, flexible working, single union and the famous “just in time” delivery systems increased productivity by a factor of 4. Nissan today annually produces 99 cars per worker, Toyota 88 and Honda 82.2

It is a measure of the decreased profitability of global capitalism that today, despite productivity gains on such an enormous scale as this, gains which bourgeois economists assure us are the only route to profitability, Honda finds its plant unprofitable. Marx maintained that increases in productivity tend to reduce the rate of profit. They may initially result in increased profitability for the unit which first increases productivity, but once these productivity gains are applied generally they reduce the rate of profit. There are two reason for this. Firstly productivity increases always involve expelling workers from the production process and as workers are the only source of surplus value the total surplus value produced is reduced. Since surplus value is the basis of profit, profit is reduced. Secondly they generally entail vast increases in fixed capital equipment such as machinery (robots), control systems etc. This means the rate of profit, which is ratio of profit to capital laid out on machinery and raw materials and wages, decreases. All this has been vehemently denied by bourgeois economists, branded as against common sense and equivalent to heresy. However, the developments at Honda, illustrate, once again, that Marx was right.

Leave Means Sayonara?

A further factor which must have influenced Honda’s decision, and indeed Nissan’s, was the trade deal between the EU and Japan which was signed this month. Under this deal, which the Japanese insisted should come into force this year, car tariffs which are at present 10% will be gradually reduced to zero by 2027. Production in the UK was always about getting tariff free entry to the EU since most of Japanese production is exported to Europe, and the new trade deal makes the UK plant less important as the years go by.

Of course this is not the story that dominates the capitalist media. Honda management were very keen not to link the collapse to Brexit but were equally coy about mentioning the fact that with the new Japanese-EU deal they don’t need to invest in Europe at all. This has not stopped the usual fissures of the British ruling class from making Brexit the only debating issue.

One of the leading economic advocates of Brexit, Professor Patrick Minford of Cardiff Applied Business School, is quite happy to see the car industry and much of manufacturing destroyed by Brexit:

“You are going to have to run it (i.e. vehicle manufacture — CWO) down … in the same way we ran down the coal industry and the steel industry.”3

The Professor, as a disciple of Milton Friedman and the Chicago school of economists, advocated the poll tax and opposed quantitative easing, and wants a return to “classical capitalist economics” in which the state played little role. These neo-liberal kamikaze capitalists have never been able to win that argument since it is the state which has repeatedly protected the system as a whole from the inner laws of capitalist accumulation. All they have been able to do is come up with policies which have made the lot of the working class worse.

True to form, the Financial Times, which defends the overall economic interest of Britain plc against all the little Englanders, was quick to take up the fight.

“Only a fool would deny the impact of Brexit and the threat to the pan-European supply chains on which manufacturers such as Honda, Nissan and Toyota have relied.” (John Gapper)4

Gapper’s case is that, today UK vehicle manufacture employs 850,000 people directly or indirectly5, and exports 80% of its production. For Honda 90% production is exported to the EU and US. 75% of the parts going into a Honda vehicle come from the EU or Japan. Honda holds parts for production in its warehouses, which, though enormous (300,000m2 or 42 football pitches), hold only enough for 36 hours of production. Because of the customs union parts ordered from EU arrive between 5 & 24 hours after ordering. Outside of the customs union delivery is likely to be between 3 and 9 days. It is estimated Honda would have to provide extra warehouses and fill in 60,000 extra customs forms annually.

One can understand why Ian Howells, the senior vice president of Honda Europe, said in 2018:

“Our Japanese colleagues can manage exchange fluctuations but they don’t know how to manage Brexit.”6

The situation is similar for German producers. 90% of parts assembled at BMW’s factories come from Europe. Stephan Freismuth a director of BMW said:

“If the supply chains end at the border we can’t produce in the UK.”7

Since the Brexit vote investment in the UK motor industry has declined from £5.8bn in 2013 to £588m in 2017, a decline of almost 90% but, as we pointed out above, there are other factors at play here, including the overall crisis of the car industriy. With the EU/Japan trade deal in place, moving production back to Japan makes economic sense.

That the whole Brexit saga could possibly end in something like this is a further indication of the depth of the economic crisis our rulers face and their loss of control of the situation. Utterly divided they abandoned their normal parliamentary facade to allow a referendum to become binding for the first time in UK history and have shot themselves in the foot with Brexit. Even now they do not even know how to implement it and are staggering about unsure what to do next. One thing is clear: whether we remain in the EU or leave, UK workers will have greater austerity loaded on their shoulders.

Conclusion

Most of the job losses at Honda will be skilled workers and these workers are likely to find only precarious employment as the UK’s industrial sector is further run down. Many Honda workers have expressed a sense of betrayal since they have struggled to make the plant profitable by submitting to management demands such as flexible working techniques and a single union. The union “Unite” says it will “shame” the management into keeping the plant open and working.8 This is a confession of impotence which shows the union is quite unable to protect its members. Only a massive government grant, an end to political uncertainty and further sacrifices by Honda’s workers could keep the plant working. Even this may be too little too late. The closure of Honda’s plant is an expression of how capitalism works and how it is supposed to work. Production is not a team project between capital and workers. It is a system where workers are exploited by capital to produce profit, and they are simply “redundant” if profit cannot be produced. This wasteful logic has made 7,000 skilled workers surplus to requirements.

Globally all this illustrates again the stupidity of the capitalist system. We don’t need to produce ever increasing numbers of cars and there are, in fact, too many car plants to produce those we do need. The raw materials required to produce the vehicles contribute to a general trashing of the planet and are increasingly unsustainable. Capitalism is using up the resources of the global ecosystem 1.7 times faster than the eco-systems can replace them. By early August each year we have used up everything which can be naturally replaced in one year. After that we use up earth’s reserves. Cars are also a major contributor to both carbon dioxide and other forms of pollution of the atmosphere (as revealed by “Dieselgate”) contributing to global warming.9 Humanity desperately needs to plan its use of the earth’s resources in relation to real human needs. It needs to start producing for human needs not profit but this can only come about by overthrowing the capitalism system itself.

CP

  • 1. Capital markets investment group CLSA figure quoted in Financial Times 23/2/19
  • 2. See Telegraph 25/2/19 World Market research.
  • 3. See twitter.com
  • 4. John Gapper “Brexit betrays Thatcher’s car industry legacy.” Financial Times 21/2/19
  • 5. Financial Times 21/2/19
  • 6. Quoted in Financial Times 27/6/18
  • 7. BMW’s Stephan Freismuth, quoted in Financial Times 27/6/18
  • 8. See swindonadvertiser.co.uk
  • 9. Vehicle emissions account for 20% of total CO2 emissions. en.wikipedia.org