Michael Arrington writes:
The best way forward for the automotive industry is to rip itself apart and start doing things sensibly, like the PC industry does. It won’t make any one company more stable, of course. In fact, it means competition will regularly drive companies at every point in the process out of business. But none of those companies will be in a position to drive our economy south if they do go out of business. Someone better will just take their place.
Does this mean our cars will be built in China? Yeah, it does. There’s no avoiding that. U.S. workers are just paid too much to build cars any more. Detroit may become the center of the car design world, with highly skilled and highly paid workers designing the iPod of cars, but the parts will be built elsewhere, and assembled elsewhere.
This last paragraph doesn’t make any sense to me. Why did Toyota, et al locate so many factories here in the United States if it is so inefficient to do so? I think Arrington is committing one of the most common fallacies about outsourcing. Labor quality matters. The reason Americans and Germans, etc. get paid so much to assemble car parts into cars is that they’re really, really good at it. Lower-quality workers probably cannot make the same car at the same quality in the same number of worker hours. It can be cheaper to pay more per hour for more and better hourly work. Also, I imagine cars are a lot more expensive than laptops to ship to across oceans. I’m all for milking the most out of Ricardo, but it’s important to recognize that, when they are unsubsidized, exceptionally high wages tend to indicate exceptionally high productivity.
I think you're a bit off. It's not so much labor-quality as transport expense and inventory control. The stuff we typically build in China will fit into a small box and can be air-shipped if necessary. Can't do that with automobiles. That would be why major auto manufacturers have plants all around the world.
A few years back Tivo moved manufacturing from China to Mexico. The shortened lead times have paid for themselves many times over.
I do agree that Arrington is wrong. He is just trying to overgeneralize a specific case — the outsourced manufacturing of physically small, but complex items to China in many cases makes economic sense.
Aerospace manufacturing is greatly facilitated in Southern California by the large number of vendors that remained here long after the big airplane OEMs left. California in general, and Southern California in particular, has a government that is tax and entitlement addicted. But parts and platings in 20 minutes beats parts and platings in days.
Amplifying your point, America has manufacturing infrastructure of very high quality, on top of the quality of the labor force.
There's also the threat of retaliatory tariffs, very real in the 1980s just before plants started locating in the US. Build the cars here and a lot of the political pressure to punish Toyota, Honda, etc. for building a better mousetrap disappears.
Very good point. In fact, the computer industry is an interesting case. Most manufacturing is done in low-wage countries, but processor fabrication, the highest value-added process in computers, is invariably done in the US, the EU, or Israel.
I wonder if just-in-time imposes greater geographic constraints for cars than for other assembly processes?
There's also import quotas, and mandatory minimums for ownership/production. It is not unusual for a country to require that a certain percentage of products sold must be produced locally or that a company must have so much of its ownership within the nation of production. This explains a great deal of why some factories are open in weird places-so that they can sell more goods to the local country.
And let's not forget immigration barriers! If there were enough Chinese that wanted to, and there was no barriers to entry, and no minimum wage, labor would flow to the most optimum location for their production. In such a case, Chinese workers would come to the US to work in American factories to displace American workers.
Toyota and the other Japanese opened their American car plants after the Reagan Administration imposed import quotas on them in 1982.
I think that he's ignoring the fact that there are many auto workers in the United States who aren't part of the Big Three union – a small, simple truth. In my state, there's a Toyota plant that employs hundreds of American workers; they make livable wages, but seem not to resent the outrageous level of compensation that Detroit workers receive.
Why? Well, I suspect it's because they know their job security is much more stable. Their product is one they don't mind driving and putting their families in.
There are a lot of moderately compensated auto workers in the United States; it's just that most of them aren't from Motown. The unions have created a wage bubble for Big Three workers, and its killed the Big Three. Let's hope the American public raises heck about the notion of a flaw-enabling bailout; let's hope the Obama centrists speak more sense than the D.C. leftist illuminati; let's hope the UAW doesn't win over the Democrats who have benefited from union donations.
Toyota and the other Japanese opened their American car plants after the Reagan Administration imposed import quotas on them in 1982.
Cars, interesting stuff, personally, I wonder if we might aleviate the pressure on the situation if we lean towards decreasing the manufacturing of such gasoline powered viechles, and increasing the manufacturing of viechles that run on alternative fuel, hydrogen cells, ethanol, etc. I could be wrong.
Fascinating discussion – but since the automotive industry is so crucial, I think we have to keep doing it, especially if you consider how many different industries are interwoven – steel, parts, electronics, etc…
With the economic crisis, it most look like the production of cars is certain to slow down, General Motors are in a lot of trouble at the moment, and thousands of automotive related jobs are disappearing, its the last thing that needs to happen at this current time.
Excellent, entertaining, useful reading, Thanks !!
It's not at all a good idea to stop making cars, I would say if you have to do something just cut short the production a bit!
Japanese car companies like Toyota are profitable in spite of having manufacturing centers in high cost locations in the United States. It is simply because they can offset the costs by producing vehicles that match the demand of the time, and by improving their assembly processes. American auto industries have to learn that. Simply by outsourcing operations to other countries will not solve the problem of generating demand. They have to improve the quality too.
I don't think America will stop. They will lessen the production but not stop. So many people will lose their jobs if they stop making cars.
The unions have created a wage bubble for Big Three workers, and its killed the Big Three.
Believe me the industry will not surely die, they'll just find new ways of making things cheaper, lessen production of cars, but will stay on the market.. Anyway, people do need vehicles, and while there is a demand present the production will not stop. Also, such new things like biodiesel driven cars are being invented, I think these companies will be seriously thinking on inventing something (doesn't matter what) that makes cars cheaper to citizens.
I totally agree with the author. Good job must be paid good, and there are just people that do their job the best way, the way better than most others and there are people that are ready to pay good for nice and faster job, and although the global crisis goes worth such job will always be on demand, it's just that the quantity of such will lower.
NO I think America should not stop making cars but they should stop making expensive cars. They need to make cars that will be cheap for people to buy.
probably not a good idea. US should not stop because if they do it will give more problems. US will then import cars from other countries making their economy go down even more.
the only car america makes are fat slugish gas guzzeling giloths. we should put all us car makes to death unless they stop making cars. I have had it with the build more buy more idea most /”americans have. Use what you have and stop buying new shit.
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