What American Company Will The Chinese Destroy Next?

On Mon, 04 Jun 2012 08:42:30 -0700, George Plimpton


=====================================The problem is that when capital is free to move between countries, there is no national comparative advantage, only national absolute advantage.
http://www.econ.tcu.edu/harvey/5443/prasch.pdf
There is also the question of national defense and domestic employment. It is pointless to tell people "get a job" if there are no jobs...
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Unka' George

"Gold is the money of kings,
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On Tue, 5 Jun 2012 07:12:37 -0400, "Stormin Mormon"

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-)
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Ed Huntress

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On Wed, 06 Jun 2012 14:53:21 -0500, F. George McDuffee
<snip>

<snip> =======================A followup to my own post...
A case on point about the gross excess automotive production capacity just popped up on Bloomberg.
http://www.bloomberg.com/news/2012-06-05/german-resistance-thwarts-marchionne-s-call-for-unity.html <snip> 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. <snip>
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On Wed, 06 Jun 2012 15:48:24 -0500, F. George McDuffee

You realize that the overcapacity was the result of a consolidation dynamic going on among car makers since the '70s, when the Japanese tried to flood international markets and built up very large volumes.
The idea was that only a few (estimates were around seven) car makers, worldwide, would be standing by 1990 or so. Thus, everyone who could do so went on a buying spree, eating up weaker car makers.
They all knew there was excess capacity but the hope was that they could begger the other guy into insolvency and eat him up. They had to push for maximum volume in the meantime to keep the financials strong and to strive for market domination.
It didn't work out as planned, but the overhang of capacity is still there.
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On Wed, 06 Jun 2012 17:25:55 -0400, Ed Huntress

================And the overhang capacity continues to increase.
http://www.bloomberg.com/news/2012-06-07/audi-unprecedented-plant-expansion-tests-quality-standards-cars.html <snip> The Volkswagen AG (VOW) unit is planning to add new plants at an unprecedented pace to chase luxury auto leader BMW. Until three years ago Audi produced 75 percent of its vehicles in the German cities of Ingolstadt and Neckarsulm, focusing largely on increasing quality and expanding its model lineup. <snip> ----------------------- What are these people smoking?????
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On Sun, 03 Jun 2012 21:24:27 -0400, Ed Huntress

One way is to do it in a country where a bowl of noodles costs $0.10 :-)

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wrote:

Read the article Dan linked to. It will make your skin crawl.
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Why does it make your skin crawl. Mass production has always been about breaking down jobs so they can be done by less skilled employees.
Dan
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On Mon, 4 Jun 2012 11:25:30 -0700 (PDT), " snipped-for-privacy@krl.org"

Because almost the entire story, even the concluding table, is about how much they've managed to squeeze out of workers' incomes to be competitive. It sounds like something out of the 1920s.
That's one way to compete in a global market -- the race to the bottom.

In this case, most of what they've done is employ vendor's employees to avoid labor costs. Most of the story is just about hiring people for less.
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The article is about using lower skilled employees to cut labor costs. Do you think they should be proud to pay $57 an hour for stock boys? None of the assembly employees had a pay cut.
Dan
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On Mon, 4 Jun 2012 12:00:36 -0700 (PDT), " snipped-for-privacy@krl.org"

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.
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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

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On Mon, 4 Jun 2012 18:58:29 -0700 (PDT), " snipped-for-privacy@krl.org"

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."
http://en.wikipedia.org/wiki/Race_to_the_bottom
Or see my friend Alan Tonelson's book by the same title.
(Amazon.com product link shortened)
(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.
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On Tue, 05 Jun 2012 10:33:52 -0400, Ed Huntress

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.
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wrote:

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-)
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Ed Huntress



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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
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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
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wrote:

-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
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On Wed, 6 Jun 2012 12:29:08 -0400, "Jim Wilkins"

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.
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On Wed, 6 Jun 2012 06:35:52 -0700 (PDT), " snipped-for-privacy@krl.org"

Well, that, plus the currency and technology-transfer dynamics that I mentioned. Under his theory (at least what I recall about it), currency adjustments would work very quickly to re-balance trade. And technology would not transfer as quickly, nor as massively, between advanced and developing countries. I think he would have been astonished at what happened with the GM-Shanghai engine plant, for example. Things just didn't happen that quickly; currency adjustments were a great buffer; and stable, balanced trade would be the result of free international markets.
It was a good idea in 1960. It just hasn't worked out, because many things have changed.

If you can answer that, there are entire countries that will build monuments to you. d8-)

We don't know what to tell them. I told my kid to go do his homework, too. But I think he has a pretty good idea. There is a lot of demand for the skills he's developing in a graduate program in applied math, backed by his economics degree.
Still, it's no guarantee.

Well, the question is, what kind of world are we building for ourselves now? One in which we have to keep beggering our incomes down to compete with the newest, cheapest global manufacturing country?
I guess if we all jump off the cliff together, we'll all hit bottom at about the same time. It just doesn't sound like fun.
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Ed Huntress

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