How GM’s bankruptcy could become a cautionary tale for small business

At the beginning of each year I publish my predictions for that year. This was one of my 2006 predictions:

“Prediction: At least one U.S. car manufacturer will file Chapter 11 bankruptcy. It will probably be GM. All three have too much 20th century employee benefits baggage to be viable in the 21st century global marketplace. The other two will follow.”

Turns out my vision was pretty good, if not my timing. After 101 years of operation – for decades the largest automobile manufacturer in the world, and one of America’s great industrial success stories – General Motors succumbed to what I believed was inevitable over three years ago and filed for Chapter 11 bankruptcy protection.

Chrysler, also once a venerable industry force, had in recent years taken a circuitous route from a publicly traded company, to being acquired by Daimler Benz, then a private equity firm, and finally, on April 30th of this year, went into Chapter 11. One of the main reasons Ford hasn’t filed for bankruptcy, nor took government assistance funds, as GM and Chrysler did, was because it raised capital from mortgaging many of the properties it owned, which old Henry had paid for decades ago.

It’s important to remember that the so-called Big Three represent the remaining American car companies, not the entire U.S. automobile industry. While the other companies, represented by foreign owned firms that have established factories and successful distribution in the U.S., are not exactly thriving in the current economy, none are in peril of failure.

So what sets the two auto industry groups apart? Primarily two things unique to the Big Three: 1) Bad management; and 2) United Auto Workers Union (UAW).

Bad management can be replaced with good management. Indeed, this has happened with the foreign companies from time to time, and could have happened in Detroit. But the one thing the Big Three couldn’t overcome was the current and residual baggage imposed by generations of unsustainable wage and benefits concessions in the UAW contracts.

At the very moment that two of the Big Three are experiencing the most ignominious circumstances for any company, bankruptcy – fully half of which blame must be laid at the feet of the UAW – there are lawmakers pushing a bill that would increase the ability of unions to organize more easily in smaller and smaller businesses. Without any sense of irony, Congress is bailing out one union-laden industry, while trying to make forming unions easier. It’s a story that would be perfect in a Bizarro World comic book.

The bill in question is called the “Employee Free Choice Act” (EFCA). This is a misleading title, because one of the markers of this bill is to remove the secret ballot provision, long required by labor laws, and replace it with the ability for a union organizer to push a ballot in front of an employee and require them to vote in front of them. There is more bad news for small businesses in this bill, but isn’t imperiling the sanctity of the secret ballot, a hallmark of America, enough to oppose this legislation?

If the Employee Free Choice Act ever becomes law, the following year I will be forced to include this in prediction: “Hundreds of thousands of small businesses will make these three unnatural management decisions in reaction to the EFCA: 1) off-shoring jobs; 2) limiting growth of the business to keep them under the number that EFCA allows; 3) and some will just close up rather than unionize, knowing that to do otherwise would merely prolong the inevitable experience of GM and Chrysler.”

Recently, on my small business radio program, The Small Business Advocate Show, I talked about the EFCA and the dangers it poses for small business. Take a few minutes to listen, and be sure to leave a comment.

2 Responses to “How GM’s bankruptcy could become a cautionary tale for small business”

  1. 2
    Zane Safrit Says:

    I’m with Anita. ( I usually am. Not because I’m smart, because she’s smarter’n I am.)

    Regardless of anyone’s view of unions and their role in an adversarial dynamic, secret ballots remain the best approach to insure accurate, fair, voting and the credible results they deliver.

    Small businesses with the opportunity remain true to their founding inspiration and purpose have been able to remain ‘uninteresting’ to union organizers. That inspiration and the close relationships with employees, the ability of all in a small biz to make a difference, to shine, to connect with that founding passion, have served to make union ‘benefits’ irrelevant and uncompetitive.

    But all those advantages can be lost with the arm-twisting, peer-pressure, environment that comes with this type of voting method. The irony of protecting workers like this would be seen when small biz no longer serves as the driver of innovation and the jobs created as a result.

    Great post.

  2. 1
    Anita Campbell Says:

    Hi Jim,

    I am not in favor of the misleadingly-named “Employee Free Choice Act” and hope it is defeated. Large business or small business — it would just be a bad law.

    Lots of ironies here, including the irony of naming something that takes away free choice as if it enables choice. There ought to be a law against that - LOL :-).

    – Anita

Leave a Reply




Warning: fsockopen() [function.fsockopen]: php_network_getaddresses: getaddrinfo failed: Temporary failure in name resolution in /var/www/wordpress/wp-includes/class-snoopy.php on line 1142

Warning: fsockopen() [function.fsockopen]: unable to connect to twitter.com:80 (Unknown error) in /var/www/wordpress/wp-includes/class-snoopy.php on line 1142