The Fate of 'Made in the USA'
-- The question posed by the bankruptcy filing of Delphi Corp.
-- the largest U.S. auto parts company -- is whether manufacturing
in America has a future. Or is it sliding toward extinction? Viewed
historically, the question is misleading. It's true that manufacturing
employment now accounts for only one in nine jobs, down from one
in three in 1950. But the decline mostly reflects higher efficiency.
Americans make more things with fewer people. From 1990 to 2000,
for example, manufacturing output rose 61 percent while employment
fell 2 percent, reports economist David Huether of the National
Association of Manufacturers. This is generally a good thing.
It frees more workers to produce services (software, education,
health care) that Americans want.
however, the news about manufacturing has seemed particularly
dismal. Since mid-2000, 3 million jobs have vanished. Though overall
corporate profitability has been strong, manufacturing has until
recently been a conspicuous exception. From 2000 to 2004, the
sector's profits averaged only 60 percent of their 1999 peak.
It's retailing, finance (banks, stockbrokers) and real estate
that account for big profit gains. Finally, imports represent
a growing share of Americans' consumption of manufactured goods.
bankruptcy suggests that the whole auto-industrial complex faces
another wrenching shakeout. Delphi, once the auto parts subsidiary
of General Motors, was spun off in 1999. The idea was to reduce
GM's costs by forcing Delphi to compete for its contracts and
to sell to other companies. Since then, Delphi's dependence on
GM has dropped from about 80 percent of sales to 50 percent.
is that Delphi isn't profitable. The entire industry is caught
in a cost-price squeeze. It needs price discounts (aka ``incentives'')
to sell vehicles. In 2004, GM's average selling price of $26,479
was $435 lower than in 2002, reports the consulting firm JD Power
and Associates. Unfortunately, the resulting revenues pinch profits
or push high-cost producers, like GM and Ford, into the red. True,
GM's distress (and hence Delphi's) stems partly from unappealing
vehicles that don't sell well even at lower prices. Since 1999,
GM's U.S. market share has dropped from 29.6 percent to 26.4 percent.
But high labor costs are also a huge problem. GM's and Delphi's
hourly wages average about $27 under similar contracts with the
United Auto Workers (UAW). Counting fringe benefits and retiree
costs (health care and pensions), these soar to $65 for Delphi
and $74 for GM.
the UAW and GM, Ford and Chrysler have crafted contracts that
turned the companies into mini-welfare states, providing above-average
hourly wages (today's average for all manufacturing: $16.60),
rich fringe benefits and strong job security. For example, laid-off
UAW workers essentially get full salary and benefits indefinitely.
With limited competition, companies could pass along common labor
costs to consumers and compete on styling and performance. No
more. The protected market has given way to imports and foreign
firms with non-unionized U.S. plants.
the reckoning. The market and the welfare state collide. According
to the UAW, Delphi is seeking deep cuts in both wages (to about
$10 to $12 an hour) and total labor costs including fringes (to
$20 to $25 an hour).
``If we do
this right, Delphi will remain one of the world's leading global
automotive suppliers,'' said chief executive Steve Miller. ``Yes,
with a smaller U.S. manufacturing footprint. And with a more focused
approach to selected product lines where we can be the technology
leaders. ... If we do it badly, Delphi may be broken up into small
pieces, and America will have lost some of its precious industrial
treasures.'' GM, Ford and Chrysler are also headed toward bankruptcy
unless they curb labor and ``legacy'' costs, he predicted. GM
already has 2.5 retirees for every active U.S. worker. Just this
week, it tentatively agreed with the UAW to trim retiree health
costs by a claimed 25 percent.
of American manufacturing lies largely in American hands. Of course,
some labor-intensive production will go abroad. But in many industries,
job losses and cost cutting -- though devastating to individuals
-- can sustain production and restore profitability. The American
steel industry now produces more than in the 1980s, though it
has lost two-thirds of its jobs. Elsewhere, innovation and high-valued
manufacturing should create jobs.
giant unknown clouds everything: China. Until now, its booming
U.S. exports have mostly displaced exports from other countries.
As China modernizes -- moves into more advanced industries --
this could change dramatically. The combination of low wages,
a huge market and an artificially low currency confers staggering
competitive advantages. They attract foreign investment in factories,
whose output can be exported. Unless the currency rises substantially,
the United States could lose many industries that, by all other
economic logic, it shouldn't. Therein lies the real threat of
extinction or something close to it.
2005, Washington Post Writers Group
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