The president has elected himself to GM’s management team.
Jawboning: “to attempt to persuade or pressure by the force of one’s position of authority.”
Lyndon Johnson did it when Bethlehem Steel raised prices. He denounced the firm’s executives as unpatriotic for feeding inflation during the Vietnam war and they rescinded the increases. Inflation rose anyhow. Richard Nixon (wage and price guidelines) and Gerald Ford (“Whip Inflation Now”, or WIN) also jawboned in an attempt to contain inflation; they didn’t. Several presidents jawboned OPEC to keep oil prices down by turning on the spigots, with varying, but never durable, success.
The current occupant of the Oval Office features a threatening combination of jawboning with incessant tweeting, a reputation for unpredictability and for avenging threats to his 2020 re-election bid, while not being overly attentive to the constitutional limits on presidential power. Last week, General Motors’ CEO, Mary Barra, nevertheless announced the closing of four U.S. auto plants, one in Lordstown, Ohio. She has to have been one of the first colonists on Mars not be aware that Trump’s successful run for the presidency was based on his promise to keep immigrants out and factory jobs in. And that his promise to revive the manufacturing sector helped him to carry Ohio with 51.7 percent of the vote cast. Ohio has famously voted for the winner in 17 of the last 18 elections, dating from 1944 (it went for Nixon over Kennedy in 1960). Worse still from Trump’s point of view, two popular Ohio politicians-Democratic senator Sherrod Brown and former Republican governor John Kasich-are considering presidential runs.
Trump needs Ohio in 2020. He has little hope of winning the national popular vote-Clinton beat his 2016 total by nearly 3 million votes-so he must concentrate on the Electoral College. Ohio is the only one of the three states hit by the four U.S. plant closures that he can reasonably expect to carry, the others being overwhelmingly Democratic. It provided about one-quarter of his 74-vote Electoral College margin in 2016.
Trump claims he has kept his promise to factory workers. The economy added 396,000 manufacturing jobs between the day he was inaugurated and September of this year, which the president finds especially satisfying because Barack Obama had announced such jobs “are just not going to come back.” Yes, the job creation was due to a host of factors over which Trump has no control. But since he would have been criticized had those new jobs not materialized, he might be forgiven that bit of boasting.
In politics, anecdotes trump dry data, and on the campaign trail 396,000 new jobs will get less play than the far less significant loss of some 12,000 good American GM jobs-1,600 in Lordstown-especially from a largely anti-Trump media, which finds it easier to interview distraught workers who have been laid off than any of the 396,000 new hires. (A fifth plant is to close in Canada, at the cost of 2,000 jobs, but Trump is leaving that problem to his new best friend and co-signatory to NAFTA 2.0, Prime Minister Justin Trudeau.) Democrats have already begun a campaign to blame the closures on Trump’s tariffs, which drive up the cost of steel, and his tax cuts, which have increased the deficit and with it interest rates facing potential vehicle purchasers.
But despite tariffs and rising interest rates, Americans continue to buy cars at a healthy rate of about 17 million annually, so the real cause of the closures lies elsewhere. Those millions of vehicles being sold, however, are not small and they are not sedans. The vehicles of choice are big or medium-size SUVs and trucks. The Chevy Cruze, assembled in Lordstown, is neither. Production at the plant fell by half last year; it is operating on a loss-making, single daily shift.
So Barra has her economics right: in a competitive market economy, a massive shift in consumer demand from small sedans to SUVs requires an equally massive shift of resources-capital and labor-to the production of stuff consumers want to buy. You don’t produce cars destined to rust on dealers’ lots. The moves will reduce GM’s annual costs by $4.5 billion, freeing resources for making SUVs and developing the electric and self-driving vehicles of the future, a future so enticing that Barra has made Dan Ammann, president of GM, CEO of Cruise, the automakers’ self-driving unit. Ammann’s financial skills were honed at Morgan Stanley and his reputation as “a car guy” earned as a “certified industry pool test driver at the Nϋrburgring Nordschleife racetrack in Germany,” according to Axios.
GM’s savings are its displaced workers’ costs. Gone will be the paychecks of the Lordstown workforce: factory workers could make more than $75,000 per year, with overtime pay. For families with two members working at Lordstown, and mortgages commensurate with their incomes, the fall is even more painful. This pain will ripple out to the town’s tax take, the amenities the government can provide to other residents, and to the owners of local restaurants and shops.
Unfortunately for Barra, a president claiming to be a deregulator is also a jawboning-interventionist par excellence. And GM’s CEO failed to weigh her shareholders’ needs against the political needs of a very tetchy American CEO. Trump says he is “Very disappointed with General Motors and their CEO, Mary Barra, for closing plants in Ohio, Michigan and Maryland. Nothing being closed in Mexico & China….I am not happy with what she did….The US saved General Motors, and this is the THANKS we get!” The GM bailout cost taxpayers $11.2 billion. More recently, the Trump tax cuts saved GM $150 million (so far this year). The president’s alleged pathological fear of germs prevents him from following a variant of Harry Truman’s advice-buy a dog if you are looking for gratitude.
Trump now threatens to derail GM’s effort to have Congress extend the about-to-expire subsidy given to purchasers of electric vehicles. Loss of the credit could increase the net price of GM’s electric Bolt by as much as 20 percent. That would make a car that has sold only 13,000 units so far this year even more difficult to flog.
Trump’s attempt to pressure Barra into rescinding the layoffs is best labeled industrial-policy light. It is not government intervention on the scale of Harry Truman’s seizure of the steel mills, but neither is it leaving the allocation of the economy’s scarce resources to consumers making their preferences clear in competitive markets. Fortunately, the Lordstown plant has been designated “Unassigned,” meaning it can be assigned new vehicles to assemble next year. And under the lash of the president’s tweets Barra says “many” of the workers will be given the opportunity to shift to plants turning out vehicles that are in demand.
She might consider being rather generous in absorbing relocation costs, and assigning a new vehicle for assembly in Lordstown. Soon. The president, who has in effect elected himself to her management team, is not known for patience, and he hears the clock ticking on a presidential race already underway.