What American Company Will The Chinese Destroy Next?

You still have no answers. And automation still works for some industries.

=20 Dan

No it's not, Dan. They say they're going to save $72 million in labor costs:

$25 million comes from the "Tier 2" program agreed to with the UAW. Those are entry-level workers with the same skills as GM's regular assembly-line workers. They are not "lower skilled." They're just lower-paid, starting at a much lower wage ($33/hr. with benefits, versus $57/hr.). GM is making a systematic reduction in its wage structure and these are the first generation of them. This is just lower pay for the same work.

$18 million comes from using fewer skilled-trade workers, maintenance people and such, made possible by newer machiners and, probably, by wringing the shit out of the ones that are left.

$19 million comes from having the workers of outside vendors, who are not protected by the GM contract, do the work in-house at GM. This is sometimes called "in-sourcing." Those guys will be paid $20/hr., including benefits. They are the entire group of the lower-skilled workers you're talking about. In the past, these folks worked at Tier

1 and Tier 2 vendors, and GM didn't count their wages at all. Those wages appeared as "component costs" on the P&L sheets.

$10 million comes from savings in transportation costs, the direct result of the in-sourcing.

That wasn't happening to begin with. The only lower-skilled workers they're talking about are component assemblers, who used to work for the vendors.

ALL of the Tier 2 assembly employees are taking a huge cut from the standard UAW contract. They're being hired at MUCH lower wages than those who are already in place under older UAW contracts. They just had unfortunate timing.

Neither do you, and if anyone else does, they're sure keeping quiet about it. I've spend most of my working life with people whose job it is to find these things out.

Yup. For some industries. About half of my income comes from writing sales material for the companies who are selling higher productivity, mostly in the form of automation. The other half comes from writing about successful productivity improvements, including automation.

If you have any fresh ideas, I'm all ears. To say that "automation works for some industries" is the story I've been writing since 1974.

I'd rather leave Lee Majors out of this...

;-)

Along these lines, Caterpillar Tractors established a manufacturing plant in Indonesia; mainly because of import regulations that forbid the import of items also manufactured in Indonesia. I was talking to the plant manager one day and he told me that a D-6 tractor manufactured in Japan cost the company less then one made in Indonesia. Mainly due to differences in labor effectiveness.

However, While the same problem, existed in Thailand during the early days of car making there it is no longer true. It is likely that while the U.S. might well improve their efficiency 50% during the next decade those horrible Chinese will likely be doing the same thing.

Another point is the cost of doing business. A recent issue of the Economist states that the cost of complying with U.S. Securities Regulations increased from 1.1m per company to 2.8m mainly due to the Dodd-Frank financial regulations of 2010.

-- Cheers,

John B.

As I see it , if GM can hire Tier 2 people to work at $33 / hr with the same skill set as the Tier 1 group paid $57 an hour, then it is pretty obvious that the Tier 1 group is over paid. And GM had better get labor costs under control, or we the tax payers will be out a bunch of money.

Are you referring to wringing the shit out of the machines that are left or wringing the shit out of the maintenance people?

Exp/ain huge cut. The Tier 2 employees never got the higher wages , so they did not take a huge cut. They could have not taken the jobs.

Dan

=A0 =A0 =A0 =A0 =A0 =A0 =A0 =A0 =A0 =A0 =A0 =A0 =A0 Dan

Right. I don't know if this is still true, but in 2003, an Accord cost Honda less to make in Japan than in China, for the same reason. The Chinese government would not allow Honda to import finished Accords.

Oh, much more than the US. They have much more room left for improved productivity. The closer you get to the limit (we're at around 10% in metalworking manufacturing), the more expensive and difficult it is to make further productivity improvements.

Well, there are many "costs of doing business" that apply in the developed countries that just don't apply in China. In some cases, for example, you don't have to build your own plant in China. If they want it badly enough, they'll build it for you and hand you the keys.

In the GM plant Dan is talking about, they're cutting the number of robots roughly in half, and the number of repairmen in half, too.

Note that is the *number* of repairmen. They aren't actually cutting the repairmen in half, although I don't doubt that was suggested in board meetings. d8-)

That raises an interesting question: Will we let global competition determine what proper pay levels must be?

Multinational corporations say "yes." If the Chinese workers are making an average of $1.81/hour (last time I looked; it's $2.85 in the cities), then that's the proper, competitive pay level for anyone who wants to compete.

Great argument. That's the "race to the bottom."

Or see my friend Alan Tonelson's book by the same title.

(For what little it's worth, I only agree with Alan about half of the time.)

I'm glad you asked. Actually, I was thinking about the maintenance people when I wrote it; re-read what I wrote and realized it was ambiguous; decided that either one worked; and left it alone, thinking I'd leave it up to you. d8-)

Huge cut is $57/hr. to $33/hr. The first is what they would have been paid if GM and the other US car builders hadn't screwed up and allowed foreign competition to gut the lower end of the market 40 years ago.

The question is "in what market do you wish to compete?" If the international market then either you need to pay internationally competitive wages or you need to discover some other method of being competitive.

The alternate is, of course, the protected market where only you can compete. High import duties to balance out inequities in costs is the time honored method.

The problem with arguing costs/wages is that a high wage in an economy where people talk about $100 as pocket money (mentioned on this site) is quite a different subject then in an economy where $100 a month is an unimaginable sum.

The basic question is, I believe, whether a society that has achieved a level where a man can no longer support his family can possibly be competitive with the rest of the world.

Cheers,

John B.

Those continue to be vey tough questions, as they have been for us since the 1970s. The old Milton Friedman free-trade theories, obviously, are in the crapper, and no one knows what to do about it.

Friedman's theories look good on paper and probably hold pretty well under the economic dynamics of his heyday (1960s). But now the elements that he said would stabilize trade have changed. Free currency exchange does not automatically adjust currency values to reflect a country's output and trade balance; central banks of large countries easily manipulate them. Manufacturing juggernauts, first Japan and now China, play a strategic game to dominate markets with absolute advantage, leaving comparative advantage as a backstory, a stage in the process of capturing a dominant efficiency and market position for every product category they can.

And technology has become a commodity that can move almost instantly between countries. Free capital markets and the commodization of manufacturing technology permit such things as GM's packaging of an engine plant and sending it to Shanghai in shipping containers. That's how we got the engine that powers Chevy's Equinox -- or did. I don't know what engine they're using now. Complete engines were built in their Shanghai greenfield plant, which rose from the ground and started shipping engines in just a couple of years.

Now we have limited options and another potential threat: a hollowing of our manufacturing base, as a result of the prolonged trade imbalance and slow growth, that sets back our potential for future growth. Economists are yakking about this a lot these days.

No country has left itself so exposed in trade as we are. Our government, both Dems and Republicans, really bought into old Milton's ideas -- not that they weren't good and probably accurate ones for their time. But now we're hung up with old ideas that don't apply and no new ones to replace them.

The latest thinking, BTW, is that innovation won't do it, at least not by itself. The hot topic is entrepreneurship. It's getting those innovations to market that matters, say the latest economic pundits.

Anyway, end of rant. d8-)

I've been pressured to get the new product out of R&D and into production to beat the competition since the 1970's. They claimed a 6 month lead was enough to establish the product's name and reputation. well enough that profits didn't have to be wasted on advertizing.

The unanswerable question was always if we were certain enough that it was ready, and wouldn't suffer a humiliating recall. It's very difficult for technically trained people to imagine all possible dumb/clumsy mistakes, like stomping on the gas instead of the brake.

Sometimes you don't realize there is already a different existing standard, like the front brake on bicycles and motorcycles. When I was working on an electric motorcycle it came out that the sets of their adult riders barely overlap, and the prototype was given the bicycle control locations.

jsw

I think that Friedman is closer to being right than anyone. The only problem is that he is too optimistic about the U.S. being able to remain out in front. He says that education will make everything all better, but in fact the world is flat and education is improving everywhere. But the U.S. education is regressing to the norm. That is it is not staying better than elsewhere.

Yes the world is flat.

But replace them with what? The fact seems to be that the U.S is not superior to other countries at least in manufacturing. And we are still telling our children that they are special, when we should be saying "life is tough, get use to it. Now go do your homework "

The U.S. car builders did not screw up so much as the foreign competition out worked them. And if the U.S. car companies were to continue to pay $57 /hr to all employees, they would go out of business and there would be no one making $57/ hr. Labor unions can not distort wages over the long haul. It worked when the world was not flat, but that day is gone.

Dan

Very good points -- its a shame this is on AMC/RCM and not national media as this is a, if not the, key policy issue.

-The U.S. car builders did not screw up so much as the foreign

-competition out worked them. ...

-Dan

In the 1970's small imports were insignificant when they held less than 20% of the market, yet a crisis that demanded Congressional intervention when they reached 22%.

jsw

Yeah, but they were policy decisions, too. Henry Ford II: "Small cars equal small profits," etc. GM was doing the same thing. The Corvair debacle didn't help, of course.

The handwriting was on the wall. The US builders just ignored it until the first oil crisis, when they suddenly looked around and asked where their market went.

So they never developed nor competed seriously in that market. Now, in order to do so, they have to run a low-wage plant or nothing. The UAW said they're rather have low-wage than no-wage, so here we are, in a race to the bottom.

Let's hope it isn't a trend. It probably isn't. This plant may be an outlier.

=======================

What is not at all clear is why, if a 42% wage cut for the people that are actually making the cars is good for the company and the economy, a 42% wage cut for the management and directors would not also be good for the company and economy...

It would upset God's natural order of authority and supremacy. Jesus and his sidekick, Ronald Reagan, made them do it.

Jeez, George, we know they're squeezing the hell out of workers. Some of it is deserved. Much of it is not. All of it is bad for the GINI coefficient and a healthy middle class.

I wish I could just research all of the financials involved. It probaby would take years. But then I'd be sure of what was going on.

======================== A followup to my own post...

A case on point about the gross excess automotive production capacity just popped up on Bloomberg.

Volkswagen AG (VOW), Daimler AG (DAI) and Bayerische Motoren Werke AG (BMW) are resisting calls by Fiat SpA (F) Chief Executive Officer Sergio Marchionne to form a united front to push for European Union support to reduce overcapacity in the region. A meeting today between auto executives and the EU in Brussels did not advance efforts to shut unprofitable factories.