Sunday, June 12, 2005
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Who wins from GM's misfortunes
The announcement by General Motors that it planned to 25,000 or more assembly-line jobs over the next few years would seem to advance the hypothesis that the United States suffers from expanding international trade.
Gregg Easterbrook does a nice job of pointing out why that's not true in the New York Times today:
[Yeah, but life is still bad for workers in the auto indistry, right?--ed.] Well, that depends on where you live. Easterbrook points out some other employment trends in the automobile sector beyond General Motors:
AIAM's press release about that report also mentions, "When the number of jobs created by the new American automakers is combined with related new vehicle dealership employment, this sector of the industry has generated 1.8 million jobs in the U.S. economy."posted by Dan on 06.12.05 at 03:00 PM
"Today just under 50 percent of the "foreign" cars sold in America are made here"...careful with that word "made"...final assembly is only the last step in the production process. The engines for the BMWs built in South Carolia, for example, come from Europe (Austria, IIRC) I'm not sure what proportion of the labor value in a car comes from final assembly, but it's probably significantly less than half.
Also, I question the meaningfulness of "related new vehicle dealership employment"...to the extent that there are more dealer employees because of more total car sales, it would happen regardless of who made them; to the extent it's due to brand proliferation, one could argue that it represents a productivity decrease in the sales channel.
The overall point is still a good one, though.posted by: David Foster on 06.12.05 at 03:00 PM [permalink]
Toyota has been using local parts by local suppliers as much as possible for as long as I can remember. It is a non-trivial effort to create the kind of relationships with local suppliers that can ensure a reliable supply chain, which is probably why this doesn't happen immediately.
In some cases it goes further than local supply: certain products from Toyota are actually designed in the US.posted by: Nicholas on 06.12.05 at 03:00 PM [permalink]
Do not make a big deal of parts being foreign sourced as GM and Ford out source many of their components to Canada and other countries as well.
You noticed a couple of months ago that the imports numbers were weak because of a drop in auto imports. It was Ford & GM cutting back imports from Canada to get their inventories in line.
The primary reason Ford and GM find it cheaper to manufacture in Canada rather then the US is because they do not have to for pay health insurance in Canada.posted by: spencer on 06.12.05 at 03:00 PM [permalink]
So why is the labor market so sick and so slack 3 1/2 years after the end of the recession?
Oh, I forgot, politicians, lobbyists, economists, lawyers and professors all have good jobs, so nothing else matters (?).posted by: save_the_rustbelt on 06.12.05 at 03:00 PM [permalink]
I can buy that (I tend to have a blind faith in experts) but the laid-off GM employee in Michigan who had 10 years on the job and dependents is being matched by a new worker in Alabama who may be just out of school.
Because our federal system mostly ties the safety-net benefits to states, labor isn't nearly as mobile (no pun intended) as jobs. And talking of "jobs" instead of people hides the pain that is endangering CAFTA.posted by: BillH on 06.12.05 at 03:00 PM [permalink]
The press release to which you link actually says those 55,000 American jobs with foreign-based auto companies were created over the past two DECADES, not the past two years, as Easterbrook reported in his piece. I agree with his overall point, but if that is the study he is talking about, he has made an unfortunate error.posted by: Dan Weintraub on 06.12.05 at 03:00 PM [permalink]
The GM-equivalent workers at other plants (beside Ford and Chrysler) earn less than the 'Big Three' workers. Even Saturn workers, a GM subsidiary, earn about 2/3 of their brethren.
The jobs being created aren't the equivalent lost at GM.posted by: EG on 06.12.05 at 03:00 PM [permalink]
The discussion of relative wages and benefits is interesting, but incomplete without full understanding of the context, including most especially GM's badly mistaken business strategy.
GM has improved quality from the very low levels it had reached by the early 1980s. It has not, however, overtaken Japanese manufacturers, especially the two largest, Toyota and Honda. The J. D. Power rankings evaluate initial defects, not reliability over a period of years, and it is the latter criterion that most people value most highly when they think about product quality.
Moreover GM, like Ford, has placed a lot of its eggs on high-margin SUVs and pickup trucks, gambling that fuel prices would stay low enough for these vehicles to remain attractive. The operative word here is "gambling": there was never any good reason to believe that gas prices would remain low indefinitely, and by following the business path of least resistance GM has backed itself into a corner, though it did very well initially.
A company with a poor business strategy is unlikely to save itself by reducing production costs no matter how this is done. Government is not going to be able to save it either.posted by: Zathras on 06.12.05 at 03:00 PM [permalink]
In the longer term, the logic of capitalism will result in there being only one single car manufacturer for the entire world . Maybe two if
The global monopolist will then sit back and enjoy the rents of monopoly --the spoils of war.
If that global monopolist is not US based, it will be beyond the reach of US laws and US consumers will have to pay what it charges and suffer whatever product it chooses to deliver.
Why is it that Drezner's posts --and the articles of globalization's advocates in general -- all have a dominant theme:
A monolith that is making us slaves.
A monolith that requires a subsidy from US citizens of $500 billion/year --not counting the cost in the blood of our soldiers.
Is it because Ivy League education at Williams,etc is a trap? That after running up
Well, that is an education -- of a sort. But it would have been far cheaper to simply have read David Maurer's book "The Big Con".
Is US academia becoming like those suave Church of England clergymen --whose luxurious living was based on a willingness to plant their lips firmly on the buttocks of English aristocracy? To defend any crime and overlook any sin.posted by: Don the Greater on 06.12.05 at 03:00 PM [permalink]
Regarding the "new" jobs in auto dealerships: This might be accurate if there were more new cars sold per capita. I don't know the answer, but I do know that the average car in the US is getting older every year because people are keeping them longer, so it seem unlikely. So what we have are more salespeople chasing fewer customers for smaller commissions. Better service for the client: maybe. Jobs growth: I don't think so.posted by: Larry on 06.12.05 at 03:00 PM [permalink]
Several years ago, when it was time to buy the minivan (second kid was on the way), the choice came down to the Ford Windstar or the Toyota Sienna. Granted, there were a lot of factors that led to us buying the Toyota, but the thing I found most amusing was that the Toyota was assembled in some southern state (can't remember - my other car (a Nissan) was also assembled in the south, so I don't want to make the wrong guess), while the Ford was assembled in Canada. There is no such thing as a strictly one-nation car manufacturer - it is not possible to "buy American" per the classic definition. And I agree, that's not a bad thing.posted by: eric on 06.12.05 at 03:00 PM [permalink]
This post reminds me of something I've thought for a while: that the most rabidly anti-free-market forces out there are large corporations. Isn't the goal (even if it's almost impossible to achieve) of any business to capture 100% of the market share? Wouldn't reaching that finish line sort of stifle competition? By extension, since the free market is essentially a consumer experience, could it be said that in many cases "pro-business" legislation is in fact "anti-free-market?"posted by: Horatio on 06.12.05 at 03:00 PM [permalink]
> GM has improved quality from the very low levels
GM cars have also been flat-out ugly and disfunctional since 1976, with by far the worst interiors in the industry. Lutz might be helping a bit here, but it may be that the inability to produce anything not mediocre is so deeply ingrained in the culture that it can't be fixed.
Crankyposted by: Cranky Observer on 06.12.05 at 03:00 PM [permalink]
Could it be that GM has ignored the competition for too long?
Haven't they noticed that the Japanese cars have been rapidly eating holes in their market for years?
Why do they continually create some of the ugliest cars on the market, that have either no style at all or have a style that is over in 12 months - or less.
Now they will have their ugly cars built in cheap markets.
I think they've forgotten what they started out to do. Their all-american cars for all-americans will be all-chinese for all-americans.
Somehow, I don't think its going to work out.
posted by: NewsBlaze on 06.12.05 at 03:00 PM [permalink]
Yes, Toyota and Honda assemble cars in the US. But no one denies that overall the US has far fewer manufacturing jobs than 20 years ago. And yes, people are employed selling Toyotas and Hondas, but at the same time, fewer people are employed selling GMs and Fords. And yes, competition has brought lower car prices and better quality, but fewer people earn enough money to buy them because the lost manufacturing jobs are replaced with sales and service jobs, which can never provide the same income.
If you don't see where this trend will lead us, take a look at any developing country: cheap prices on all types of products, plenty of low-wage service jobs, and with only a lucky few at the top living well. The only way to address this issue is to make US workers more competitive.posted by: Larry on 06.12.05 at 03:00 PM [permalink]
"Yeah, but life is still bad for workers in the auto indistry, right?--ed."
GM went from being the biggest company in the world to junk bond status because it vastly overpays for labor. The health care costs of GM are equal to the labor costs--they're paying TWICE what the labor is actually worth! That's why consumers see better prices on foreign cars and why foreign workers get American jobs. Anybody up for blaming the unions for pricing American workers out of the market?
As for the monopolist nonsense--what are you talking about? American companies went from a dominating 90% of the market down to less than 50. So the American companies that had a virtual monopoly couldn't even hold its own domestic market despite the head start, a big pile of money, generations of brand loyalty in place, and all those Michigan Dems in the Congress? Where there is money to be made, competition will arise. "Witness Microsoft." Yeah, a company that got sued by the government for GIVING AWAY FREE PRODUCT! I guess I'm a big dummy, but I just don't feel like consumers have suffered under the thumb of Microsoft!posted by: spliff on 06.12.05 at 03:00 PM [permalink]
Re spliff's comment:
Competition certainly didn't arise WITHIN the system dominated by the GM/Ford monopoly -- for decades, NO American company arose as competitor to GM/Ford because any potential investors in such a competitor KNEW that GM/Ford would drive the startup into bankruptcy with price wars before it had a chance. It took companies from OUTSIDE the US -- Japanese companies with a critical mass /economy of scale based on an existing customer base within JAPAN --to challenge GM.
Unless aliens from Alpha Centuria set up shop, there will be NO ONE able to break the stranglehold of the multinational monopolies that are being created today by globalization.
Re spliff's comment:
Microsoft's huge pile of cash also allows it to employ hundreds of lawyers to patent everything up to the
Of course, innovations in software has dropped in the past few years -- investors have finally realized that Microsoft will take anything their startups produce after the startups finish the expensive,risky task of product development.
The heavy hand of Microsoft will ensure that software development will become a sleepy, unchanging industry like electric utilities and the railroads.
Monopolists have no incentive to innovate. The LACK of new, high value creations is one of the costs monopolists impose on the public.
Finally , I have to pay roughly $200 plus yearly subscriptions to Norton for their anti-virus and firewalls. That's because Microsoft's shitty Windows software lets teenage hackers invade my computer at will and destroy data,
In a brilliant display of arrogance, Microsoft is now planning to sell anti-virus/firewall software.
I thought only defense contractors could make fortunes fixing trainwrecks they've caused, but I guess I was mistaken.
Of course, we live in a great democracy so I can always complain to my Republican Congressman about Microsoft. If I write him a $50,000 campaign donation, he might even listen. He won't do anything, of course.
DtG, Thanks for saying what I was thinking about the "Big 3" blowing their huge inital advantage and about MSFT. But you forgot to mention that MSFT got its start by purchasing MSDOS for peanuts, cleverly marketing it to IBM, then milking it for billions over the next 10 years without making a single improvement. And don't get me started about Windows!
Ditto the unions helping to drag the "Big 3" down the toilet. But the problem is now much bigger than that. Thanks to low transportation costs, the internet, and free trade, all of us except for politicians and professors must compete for our jobs with lower-cost competitors overseas. Even our universities are starting to feel the effects of asian and european students chosing to go elsewhere for their advanced degrees. Someday, even Daniel's job may be threatened by an Indian. Maybe then he'll understand what we've all been trying to tell him.posted by: Larry on 06.12.05 at 03:00 PM [permalink]
"GM went from being the biggest company in the world to junk bond status because it vastly overpays for labor. The health care costs of GM are equal to the labor costs--they're paying TWICE what the labor is actually worth! That's why consumers see better prices on foreign cars and why foreign workers get American jobs. Anybody up for blaming the unions for pricing American workers out of the market?"
I don't know whether the labor costs are doubled by health care costs but GM's CEO claims that the cost of every automobile has an embedded health care cost of $1500. This is his #1 reason for the employee reduction. He fails to mention that Ford's and Chrylser's health care costs are on par with GM's but they are not shrinking. He also forgets that the rebates and dealer incentives are probably more than $1500 per car.
And what GM's solution to their slumbering sales? Build more full-size SUVs and trucks. Their response to rising gas prices? Companies have to buy trucks, no matter what the price of gas.
And to add to GM's woes: suppliers mistrust.
"Eighty-five percent of the suppliers questioned who work with GM reported a poor working relationship, and just 3% said they have a good or very good relationship. Fifty-three percent of suppliers said they prefer not to work with GM, saying the automaker has little regard for suppliers' financial stability." - Detroit Free Press, 5/31/2005.posted by: EG on 06.12.05 at 03:00 PM [permalink]
"It took companies from OUTSIDE the US -- Japanese companies with a critical mass /economy of scale based on an existing customer base within JAPAN --to challenge GM."
There's still plenty of outside-the-US out there the last time I checked. If you think the company that dominates Europe will also dominate China, India, USA, and South America, I think you're either simply mistaken or a thousand years ahead of your time! Globalism is going to take a long time to shake out into the type of scenario you're pimping.
"Microsoft's giving away a free product --in the short term -- in order to destroy Netscape shows how a monopolist uses its superior wealth to destroy infant challengers."
How effective is that superior wealth when I can use that free product as a means to get its competition? If GM gave away free cars can't I drive my GM car to the Toyota dealership and get a new car I like better? Perhaps in the short run the bulk of people will be too lazy, ignorant, whatever, to use something other than Explorer. But in the long run customers will see how easy it is to experiment with different brands, services, extras, etc., and Microsoft will have a whole new generation of competition.
Can I imagine a world filled with monopolies? Sure. But that'll only come about when innovation no longer becomes profitable or culturally primary--and by then this economy will be obsolete meaning even the monopolies won't be making money. Globalism is going to provide more competition than we consumers ever conceived of. Bring it on.
And if you don't like Windows don't use it! There are plenty of options out there. And if you demand more then there will be more! The consumers have all the power, they're the ones with the money and the demand. Producers only produce what consumers demand. Demand better and they'll produce better.
Re spliff's comment:
Maybe spliff would like to examine the Court's "Findings of Fact" in US vs Microsoft.
There are things that can be done to lower the cost of American labor. A big one would be to replace payroll taxes with consumption taxes. There is no reason why companies should pay unemployment insurance premiums. Unemployment insurance premiums should be paid for by the consumer who chooses to buy from a non-domestic source and puts a domestic worker out of a job. Medicare taxes should be paid by everyone, not just workers and companies, and should definitely include elderly people, who have paid very little into the system in the past to justify benefits they demand. The biggest payroll tax, social security taxes increase the cost of American labor, and increase the attractiveness of foreign sourced products and parts. It's too late to wish that the decades of excess SS taxes had been invested back into the companies or invested into private accounts by inviduals, but if we were to shift the taxes to the consumption side, companies like GM would have additional income to deal with pension issues and business investment. And consumers wouldn't end up inadvertantly undermining the SS system that many are counting on. And domestically made goods would be more competitive here and abroad.posted by: ATM on 06.12.05 at 03:00 PM [permalink]
Re Spliff's comment: "Can I imagine a world filled with monopolies? Sure. But that'll only come about when innovation no longer becomes profitable or culturally primary--and by then this economy will be obsolete meaning even the monopolies won't be making money"
Actually, if you look at Fortune's annual listing of the 500 largest US firms, you will notice that almost every business sector is dominated by one or two large firms. The few exceptions --e.g, banking -- are artifacts from federal Depression-era laws that prohibited consolidation of banking because of the massive risk that such failures of such monoliths poses to the economy (a hard-earned lesson from the bank failures of the 1930s)
Such consolidation will not take a thousand years. We see it occurring on a global basis today. Contrary to Drezner's claims, today's cars are not necessarily superior to those of 20 years ago. I have a 1986 Volvo 240 DL that has outlasted two pieces of crap (Ford Tauruses) that I made the mistake of buying from Ford. I recently went to the Volvo dealer and was dismayed at the new models. That's when I discovered that Ford bought Volvo a few years ago. Not --in opinion -- to learn how to build a better car but to eliminate a competitor buying a good car so that FORD (Fix or Repair Daily) could continue its business strategy of churning out pieces of crap that have to be replaced after three years.posted by: Don the Greater on 06.12.05 at 03:00 PM [permalink]
GM made something like 15 grand in profit per SUV sold. If they start heavily promoting say, hybrids, that's going to send a signal to customers that cheap gas is no longer guaranteed and SUV sales will be replaced by cars with lower profit margins. GM's shareholders will be very unhappy, very quickly.
Secondly, as a big company, finds it helpful to have officials in Washington who like them. The Republican party's position is that there's plenty of oil out there. "Peak oil" is junk science just like global warming. Calling the President a liar is not a way to make friends.posted by: art hackett on 06.12.05 at 03:00 PM [permalink]
Hey Don the Greater,
The dissident unions' proposals represent a blue-print with at least the potential to bring real change to the AFL-CIO, a federation in deep need of it. It’s a shame that a leader like John Wilhelm won’t get a shot at implementing it within the AFL-CIO structure, at least for now. Hopefully, even now that he’s secured the votes to guarantee re-election, John Sweeney will continue to feel and respond to the pressure to build a federation which leads its member unions to revived power by prioritizing aggressive organizing facilitating effective cooperation, and encouraging tactics which work.
The AFL-CIO, unfortunately, has not been working for a long time, in part because too often its approach has looked more like the narrow approach of the old AFL than the agressive broad-based approach of the CIO. There’s plenty to fear about a potential breakaway from the federation. The kind of union raiding which the reformers have identified as a challenge to labor’s effectiveness could become uglier were some or all of these unions to move outside of the structure of the AFL-CIO. And the red-baiting and purging of early post-war period can be pinned in part on the division between the AFL and the CIO. But that said, the same competition between the federations also sparked a great deal of tremendous organizing which, if not for the CIO’s existence as an independent organization, might very well never have taken place. Unions like SEIU and UNITE HERE have a model which is working, though certainly imperfectly, and it’s a model which has has achieved some impressive successes despite the failure of the federation to effectively serve the functions they’ve rightfully called for it to execute. If pulling out means a renewed ability to marshall resources for maximum efficacy in organizing, to build stronger coalitions with other progressive organizations with shared worldview, to more effectively hold politicians accountable (good cop, bad cop, et al), and to press the AFL-CIO from the outside to reform, it could be more than worthwhile.
The narrow lense through which this has all been read in the Times and Post and such, unfortunately, is “Labor = Democratic Turnout Machine” and ergo “Division in labor = peril for Democrats.” This slant is both short-sighted and wrong-headed. What the Democratic party needs, and should be doing much more to foster, is a reversal of the decline in American union membership. Any change that leads to more effective organizing broadens the Democratic constituency. Internal debate about how to make that happen is certainly healthy; if a split is effective in making union membership a reality for the millions of Americans who want it, then that spells great things for the Democratic party. If it can’t accomplish that, then it’s already a terrible move. But there’s no reason to assume that two federations would be fatally less effective at political turnout than one. The Democratic politicians who really have a reason to be afraid are the ones coasting on their partisan affiliation without keeping promises to American workers. If these newspapers are committed to assessing what a split would mean for the Democratic party, first they’ll need to engage the conversation on what it means for the labor movement.posted by: Josh on 06.12.05 at 03:00 PM [permalink]
1. Your focus on American union membership overlooks the salient fact that the decline in union membership is primarily due to the loss of union jobs to asian competitors. Why not oranganize the workers over there who truely need the unions' help? Doing so would not only serve the unions' stated goals, but help level the playing field, thereby strengthening the hand of the American labor movement.
2. You assume that the fortunes of the unions and the Democratic Party are joined at the hip. Duh? Most Republican congressmen have figured out that 90% of what's good for business is good for labor and vice versa. Maybe the unions haven't figured that out yet. You can use it.posted by: Larry on 06.12.05 at 03:00 PM [permalink]
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