Necessary Lessons for Motor City

In his second-to-last State of the Union Address, President Ronald Reagan spoke about how Washington, D.C. desperately needed to “show a little humility,” that “[t]here are a thousand sparks of genius in 50 states and a thousand communities around the nation.”

“It is time,” President Reagan said, “to nurture them and see which ones can catch fire and become guiding lights.”

When I think of that portion of his speech, it always reminds me that genius and potential may be inherent, but success is learned. I think of those words when I advocate for the dismantling of the U.S. Department of Education–our kids are better served when local governments and school districts can create a curriculum tailor-made to their particular students rather than trying to fit the proverbial square peg of cookie-cutter approaches into their own circular void–and I think it really applies to the fate of the U.S. automakers as well.

I’ve read that the overseas divisions of General Motors and Ford are actually doing fairly well, while the domestic operations of foreign automakers on American soil are doing well also. Still, the “Big Three” just cannot seem to make it work here.

This article does a nice job of describing why. It’s not that American automakers produce vehicles that nobody wants. In fact, I’ve seen some pretty gorgeous cars from Ford and GM recently — a buddy of mine bought a Cadillac CTS that just elicits an emotional response from the driver. It’s that American automakers are so encumbered by big labor that they are no longer automobile companies with benefit and pension plans, but rather a benefit and pension plan company which also makes automobiles.

Nothing will change in Detroit, just like nothing will change in Philadelphia or in Washington, D.C., or anywhere else for that matter, unless lessons are learned, unless troubled entities adapt. Merely coming to D.C. with open hands, touting a perceived “too big to fail” status, should not be enough.

Something, indeed, needs to change in Detroit. And, while there may not be thousands of sparks of genius, there are certainly a good number of organizations providing a daily how-to lesson in manufacturing vehicles and profiting while doing so.

Read the piece, and enjoy.

– Jeff


America’s Other Auto Industry
(FROM: The Wall Street Journal)

The men from Detroit will jet into Washington tomorrow — presumably going commercial this time — to make another pitch for a taxpayer rescue. Meanwhile, in the other American auto industry you rarely read about, car makers are gaining market share and adjusting amid the sales slump, without seeking a cent from the government.

Some car makers in America still have reason to celebrate.

These are the 12 “foreign,” or so-called transplant, producers making cars across America’s South and Midwest. Toyota, BMW, Kia and others now make 54% of the cars Americans buy. The internationals also employ some 113,000 Americans, compared with 239,000 at U.S.-owned carmakers, and several times that number indirectly.

The international car makers aren’t cheering for Detroit’s collapse. Their own production would be hit if such large suppliers as the automotive interior maker Lear were to go down with a GM or Chrysler. They fear, as well, a protectionist backlash. But by the same token, a government lifeline for Detroit punishes these other companies and their American employees for making better business decisions.

The root of this other industry’s success is no secret. In fact, Detroit has already adopted some of its efficiency and employment strategies, though not yet enough. To put it concisely, the transplants operate under conditions imposed by the free market. Detroit lives on Fantasy Island.

Consider labor costs. Take-home wages at the U.S. car makers average $28.42 an hour, according to the Center for Automotive Research. That’s on par with $26 at Toyota, $24 at Honda and $21 at Hyundai. But include benefits, and the picture changes. Hourly labor costs are $44.20 on average for the non-Detroit producers, in line with most manufacturing jobs, but are $73.21 for Detroit.

This $29 cost gap reflects the way Big Three management and unions have conspired to make themselves uncompetitive — increasingly so as their market share has collapsed (see the nearby chart). Over the decades the United Auto Workers won pension and health-care benefits far more generous than in almost any other American industry. As a result, for every UAW member working at a U.S. car maker today, three retirees collect benefits; at GM, the ratio is 4.6 to one.

The international producers’ relatively recent arrival has spared them these legacy burdens. But they also made sure not to get saddled with them in the first place. One way was to locate in investment-friendly states. The South proved especially attractive, offering tax breaks and a low-cost, nonunion labor pool. Mississippi, Alabama, Tennessee and South Carolina — which accounted for a quarter of U.S. car production last year — are “right-to-work” states where employees can’t be forced to join a union.

The absence of the UAW also gives car producers the flexibility to deploy employees as needed. Work rules vary across company and plant, but foreign rules are generally less restrictive. At Detroit’s plants, electricians or mechanics tend to perform certain narrow tasks and often sit idle. That rarely happens outside Michigan. In the nonunionized plants, temporary workers can also be hired, and let go, as market conditions dictate.

All the same, Mitsubishi Eclipses and Toyota Corollas are made by UAW workers at plants in Illinois and California. In each case, unions have made concessions to ensure the jobs stay put. Honda makes the Civic and Accord in two plants in Ohio, which isn’t a right-to-work state. But attempts to unionize foreign-owned factories have generally been unsuccessful, most recently at Nissan; their workers know too well what that has meant for their UAW peers. Since 1992, the Big Three’s labor force declined 4.5% on average every year; the international grew 4.3%. According to the Center for Automotive Research, for every job created by the transplant producers, Detroit shed 6.1 jobs in the U.S., 2.8 of them in Michigan.

Another transplant advantage: Their factories are newer and production process simpler. As a result, they can switch their assembly lines to different models in minutes. In response to the economic downturn, Hyundai decided to make more fuel-efficient Sonata sedans and fewer of the larger Santa Fe model at its Montgomery, Alabama plant, sparing steeper production cuts. Such a change would take weeks at UAW plants.

It’s true that at the foreign companies, strategic decisions are taken and much of the value-added design and engineering is done back home. But both U.S. and the Japanese and European companies have tended to move operations closer to large markets. The expansion of manufacturing in the U.S. has brought research and development. Honda stands out for designing some cars from the ground up in the U.S. The foreigners account for a small but growing chunk of the $18 billion in yearly development spending. And while headquartered overseas, the companies have millions of American shareholders — either directly or through pension funds. Is Honda a Japanese or an American company nowadays? It really is both.

As GM CEO Rick Wagoner recently wrote on these pages, the Detroit companies have finally begun to adapt to this real economic world. Last year Detroit struck a deal with the unions to unload retiree health obligations by 2010 to a trust fund set up by the UAW. The trio’s productivity has improved as well. In 1995, a GM car took 46 hours to make, Chrysler 43 and Toyota 29.4. By 2006, according to Harbour Consulting, GM had moved it to 32.4 hours per vehicle and Chrysler 32.9. Toyota stayed at 29.9.

Yet these moves born of desperation have come so late that the companies are still in jeopardy. Both management and unions chose to sign contracts that let them live better and work less efficiently in the short-term while condemning the companies to their current pass over time. It is deeply unfair for government now to ask taxpayers who have never earned such wages or benefits to shield the UAW and Detroit from the consequences of those contracts.

There’s no natural law that America must have a Detroit automotive industry, any more than steel had to be made for all time in Bethlehem, Pennsylvania or textiles in New England. Britain sold off all its car plants to foreigners and was no less an advanced economy as a result, though it was a healthier one. Detroit may yet adjust to avoid destruction in the best spirit of American capitalism. The other American car industry is a model for how to do it.

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Comments

  1. RatTrader says:

    It is official. The Full page add is on page 21 of the Chicago Tribune. Just picked up a copy and thought I would share. The letter can be found in PDF format at http://www.WeThePeopleFoundation.org

    This is really good news. We will see how Barack squirrels his way around this one.

  2. Anonymous says:

    Guess you heard that Leo Donofrio requested time last night on Plains Radio for an announcement.
    What I got from the show – the South Carolina Board of Elections has sent a letter to their electors instructing them to definitively verify the eligibility of Obama PRIOR to their electoral college vote. Plus, Tennessee is having a conference call with all their electors for this as well.
    As one goes, others will follow, so it looks like Obama WILL be required to prove his eligibility and that he is a natural born citizen to the Electoral College.
    As you know, this is potentially huge! The show will be available today at the Plains Radio archives.

  3. John Galt says:

    When the Detroit labor contracts that initiated the huge fringe benefits given to the hourly workers were initially agreed to at the barginning table there was no real competition in America for the Detroit auto industry.

    There were bascially 4, anyone here besides me old enough to remember American Motors which was actually based in Wisconsin, major auto makers in America. The U.S. auto industry was in effect a heavily unionized oligopoly.

    This led to American made cars being overpriced but since there was no competition Detroit could make a nice profit during the good economic times.

    The Japanese saw this distorted pricing in the U.S. auto industry and once they were able to build cars that were comfortable and reliable enough for the American consumer they started to eat into the U.S. Auto industry sales pie.

    The rest is history.

  4. Anonymous says:

    One thing the article doesn’t even touch on is the relative quality between the Big 3 vs. foreign-made cars.

    Given that I’ve owned just three foreign-made cars in 30 years speaks for itself. I’ve never broken down and have never had a serious problem with any one of them. Our “newest” car (c. 1997) still seems to be in her infancy.

    The Big 3 have dug their own graves and life support will only prolong the agony of their vegetative state. Eventually the plug will have to be pulled.

  5. For the Pie says:

    I bought a brand new 2007 GMC Sierra. It only had 300 miles on it, was the new body style and I got it for a great price. I think it’s very sharp looking and the interior is very good, even though I bought the work truck package with carpet upgrade.

    I don’t want to see GM fail but I have an extended warranty to cushion that blow. I hope.

    But, Something drastic has to happen to change the culture at the big three.

    Oh and by the way, my American Truck, was assembled in Canada.

  6. let us move forward says:

    Jeff, I know of no other way to contact you. Leo may be interested in these postings buried deep in Obamacrimes comments and maybe you can email it to him.

    Good luck on your finals.

    some history — or Obama’s parentage is no big deal
    written by 2burmdad, December 01, 2008
    Only six other U.S. presidents had a foreign-born parent. Mr. Obama will be the first in nearly ninety years, since President Herbert Hoover was inaugurated in 1929.
    Obama’s parentage is no big deal, it’s just the first time in 90 years that we have had a President who had one or more foreign born parents, who might have held citizenship from another country at the President’s birth date.

    Andrew Jackson (1829-1837) is the only president born of two immigrants, both Irish. Presidents with one immigrant parent are Thomas Jefferson (1801-1809), whose mother was born in England, James Buchanan (1857-1861) and Chester Arthur (1881-1885), both of whom had Irish fathers, and Woodrow Wilson (1913-1921) and Herbert Hoover (1929-1933), whose mothers were born respectively in England and Canada.

    Jackson and Jefferson were born before the Constitution was written, and therefore the provisions grandfather them.

    So, did any of the remaining four have parents who held foreign citizenship at the dates of their births in 1791 (Buchanan), 1830 (Arthur), 1856 (Wilson), and 1874 (Hoover)?

    This is an interesting research question, which I’m sure than Donofrio has not addressed. We can be rather certain that the mothers of Wilson and Hoover were not naturalized citizens, since women did not have the right to vote until about 1920, and there was little reason for women to be naturalized. Although I am an experienced genealogical researcher, I have not taken the time to look to the fathers of Buchanan and Arthur.

    Perhaps Donofrio’s questions were addressed 90 or more years ago, but again, Obama is “natural born” and the parentage really is not relevant.

    Ah, another week or so for this nonsense. The Writs will be Denied.

    p.s. Whoever seeks to low rate, and therefore attempt to censor my informative postings, just because it presents facts contrary to dreams, really should not talk about upholding the Constitution, because they are seeking to supress speech.

    My reply
    I found the piece by 2burmdad interesting.

    The 14th amendment was ratified in 1868, after the birthdates of all but Hoover. Was there a formal procedure for naturalization before the 14th amendment? Was there a formal procedure after? Was naturalization like common law marriage? If you present yourself as a citizen and have lived in the United States for say 7 years did you become a citizen? Paperwork in the hinterlands was pretty loose back then and ideas were quite different. In early Texas, you had to be given a gun when you were released from prison.

    Suffrage for women was ratified in 1920 after Hoover’s birth. Before 1920, what was the citizenship status of a women who married a United States citizen? Unfortunately, women have not always the rights and status that they have today. Their primary purpose was to bear children and take care of the household. Many were lost in childbirth and in old England the choice for saving the life of the fetus or the mother went to the fetus. For years, a woman’s property passed to her husband when she married. Once a respectable woman married, she stayed with the same husband until death. Would she have taken the husband’s citizenship at marriage? Today it is easy to get a green card if you marry a US citizen. Is this a formalization of an older tradition?

    A tradition concerning naturalized citizenship may have not been written down like English common law. References would have to be found in the writings of the day.

  7. Anonymous says:

    Just heard a caller raise the birth certificate on the Rush Limbaugh show. It was about 35 minutes before the end of the program. Rush has a guest host today (Mark?) but he was saying there is a < 0% chance of any of these cases winning b/c of the standing issue. There is no law that anyone has to prove natural born citizenship. Whaaaaaat?

    So why does the Constitution even mention it if there is no teeth in it? It seems like someone needs to be held accountable for this. Is it the DNC? The Secretaries of State? I am appalled that there are so many "Americans" that think it is OK to circumvent and trample the Constitution.

    This is unfortunately so typical of where we are today. Abosolutely no accountability. No personal responsibility. America may be the best place to live comparatively speaking but there is a faction that seems bent on making us a third world nation. It makes me sick.

  8. Anonymous says:

    Hello,

    This is an email I got from my Senator (Florida) in regards to Obama’s citizenship:

    Thank you for contacting me regarding President-Elect Obama’s citizenship. I appreciate hearing from you and would like to respond to your concerns.

    Like you, I believe that our federal government has the responsibility to make certain that the Constitution of the United States is not compromised. We must fight to uphold our Constitution through our courts and political processes.

    Article II of the Constitution provides that “no Person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President.” The Constitution, however, does not specify how that qualification for office is to be enforced. As you may know, a voter recently raised this issue before a federal court in Pennsylvania. On October 24, 2008, the United States District Court for the Eastern District of Pennsylvania released an order in the case of Berg v.Obama.In that case, the plaintiff, Phillip Berg, raised the same issue that your letter raises regarding proof of the President-Elect’s birthplace. Through his lawsuit, Mr. Berg sought to compel President-Elect Obama to produce a certified copy of his birth certificate.

    The District Court dismissed Mr. Berg’s suit and held that the question of Obama’s citizenship is not a matter for a court to decide. The court further noted that voters, not courts, should decide whether a particular presidential candidate is qualified to hold office.

    Presidential candidates are vetted by voters at least twice – first in the primary elections and again in the general election. President-Elect Obama won the Democratic Party’s nomination after one of the most fiercely contested presidential primaries in American history. And, he has now been duly elected by the majority of voters in the United States. Throughout both the primary and general election, concerns about Mr. Obama’s birthplace were raised. The voters have made clear their view that Mr. Obama meets the qualifications to hold the office of President.

    After he is sworn into office, Mr. Obama will be our nation’s President and I intend to bestow upon him the honor and respect due any man who holds that Office. Yet, I am certain that there will be times when I will disagree and oppose President Obama’s policies. When that happens, you can be assured that I will pursue vigorously what I believe to be in the best interest of Florida and the nation.

    I thank you for sharing your views with me and will keep your concerns in mind. If you have additional questions or comments, please contact me. For more information about issues and activities important to Florida, please sign up for my weekly newsletter at http://martinez.senate.gov.

    Sincerely,

    Mel Martinez
    United States Senator

  9. let us move forward says:

    more on foreign born parents

    Citizenship of Parents
    written by 2burmdad, December 01, 2008
    Hi, and thanks for the nice words — I try to make the postings interesting.

    Yes, in doing a bit more research today, I have found that

    The act of February 10, 1855, was designed to benefit immigrant women. Under that act, “[a]ny woman who is now or may hereafter be married to a citizen of the United States, and who might herself be lawfully naturalized, shall be deemed a citizen.” Thus alien women generally became U.S. citizens by marriage to a U.S. citizen or through an alien husband’s naturalization.

    This may or may not have covered Hoover, but almost surely covered Wilson. But, Buchanan and Arthur were children of foreign born fathers, just like Obama.

    Is there some really old litigation, constitutional treatise, etc out there on point. Just because Buchanan and Arthur were not challenged doesn’t mean that somebody else can’t be, but they, and Obama (until O’s birth is proved differently) were all natural born, meaning on US soil.

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