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Eamonn Fingleton Details an Important Reason Why US Auto Fails. [Dec. 22nd, 2008|03:00 pm]
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[Current Location |Detroit, MI, USA]

Blame can be spread around, but there's an overwhelming sentiment that the US Auto is the only party to blame in their own demise.

Some might say with little an afterthought, "well, US Auto didn't exactly wow European or Asian customers with their big gas-guzzling infeasible products, so what do you expect?"

I beg to differ. For many years, US Auto was a behemoth in the nation and the world. It didn't happen overnight, and it wasn't easy to maintain. Part of what played a major share of market erosion and downfall can be blamed squarely on the farce of open markets abroad.

Trade policies deserve blame for auto industry's downfall

BY EAMONN FINGLETON • December 22, 2008 Link

No epithet these days seems too contemptuous in referring to the American auto industry's managerial competence, and no policy proposal too heartless in addressing the industry's high labor costs.

Yes, some of Detroit's injuries are self-inflicted. But no industry is perfect. Not in the United States and not anywhere else. Even the American financial services industry -- so recently held up as a poster child of supposedly world-class management -- is now seen to be less than infallible.

There was once a time -- some of us remember it well -- when Detroit led the world in both labor productivity and research and development.

What went wrong? The most important reason for Detroit's downfall has not been incompetent management -- the executives running the industry now are hewn from much the same timber as their predecessors of the 1960s. As for "greedy unions," labor seemed far more powerful in the 1960s than it does today (after all Detroit's wage rates in those days ran nearly four times those in Japan). The elephant in the room is unfair foreign trade practices.

Though you never would know it from recent reporting, for 40 years the Detroit companies have been systematically undermined by foreign competitors' predatory pricing in the U.S. market. They thereby have been starved of the adequate returns necessary to invest in new, more efficient production technologies. The Japanese, in particular, have used unfair trade practices to devastating effect. They have kept their home market as a protected sanctuary, where, operating in cartel fashion and free from effective foreign competition, they generally have garnered super-rich profits. These profits have been the ultimate source of the massive investments in both manufacturing technology and R & D that have enabled the Japanese to pull far ahead of the U.S. industry.

Meanwhile, the Japanese have kept the American competition pinned down in the American market -- at times, particularly in years past, at little more than marginal cost.

Even Korean carmakers are shut out of Japan -- although Korea and Japan do huge trade in other areas. Korea is Japan's third-largest trading partner and Japan is Korea's second. As a matter of so-called administrative convenience, industrial planners on both sides have outlawed trade in cars.

For students of Japanese protectionism, perhaps the most telling point is that while France's Renault company, through its stake in Nissan, nominally controls Japan's second-biggest showroom network, Renault has never been allowed to sell more than token numbers of its French-made products in Japan.

Of course, the American news media generally have sided with Tokyo authorities in presenting the Japanese market as basically open. Supposedly the only thing that has ever stopped the Detroit companies is their alleged perennial incompetence. In the view of some commentators, to even suggest that the Japanese market is protected is politically incorrect, if not downright racist.

Another factor that has worn Detroit down is an unrealistically high dollar. Again, the problems go back decades.

Ever since the late 1960s, when U.S. trade first showed signs of weakness, American policymakers have consistently resisted dollar devaluation until it has been too late. As far back as the early 1980s, the American car industry lost its so-called incumbent's advantage -- its historic position of productivity leadership based on being first into the business. This development resulted largely from being worn down by years of unfair trade. Thereafter the only way Detroit could hope to fight back was with lower wages than the Japanese competition (as well as, of course, a fair world market).

And the only realistic way to lower its wage costs -- and those of other deeply troubled U.S. manufacturers in everything from electronics to steel -- was through a drastic dollar devaluation. American manufacturers' pleas for a lower dollar have gone unheard, however, in part because the prevailing wisdom among American opinion makers was that manufacturing did not matter (and, even more absurdly, trade deficits did not matter).

A high dollar reduced the United States' trade deficits in the short term, because it lowered the cost of essential imports. It also pleased those in the American elite who wanted to travel abroad. The result in the long term, however, has been the desperately weakened manufacturing sector we see today.

So, yes, the U.S. car industry's fate reflects in large measure American incompetence -- but the main source of this incompetence has not been the engineers of Detroit but the opinion makers of New York and Washington.

EAMONN FINGLETON is an author based in Tokyo. Contact him via his Web site --www.unsustainable.org -- or by e-mail at efingleton@gmail.com

I propose that we fix that balance, once and for all.

Levy a mountain of new tariffs on all foreign products, while cutting local tariffs in order to allow for new infrastructure to compete with foreign trade through new American manufacturing plants in raw minerals, parts, electronics, and automobiles. It's been far too long that our country has eroded the kind of jobs that an average citizen can easily hold. Not every man or woman is cut out for a desk job with a computer. Some people are better with physical jobs, and more and more, those people are being put into poverty while the wealthiest sector reaps even greater comfort and luxury.

For me, most of all, the idea that the United States should have to rely on foreign countries for any product or service ... it remains as revolting of a notion as I first felt during high school, when I began to read about lopsided trade and the growing deficits the US ran with foreign competitors. Why should we pay them to do what we can do ourselves? Their weaker currency may have reaped immense profit, but that profit in the 1990s and 2000s only reached a few pockets, and most of Americans were left to neglect in the wake of Magical Outsourcing Unlimited.

The era of American charity should effectively cease, along this front.

[User Picture]From: thecesspit
2008-12-22 09:07 pm (UTC)
I'm not sure NAFTA is the evil for outsourcing.. its benefited the US a lot.
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[User Picture]From: sauce1977
2008-12-22 09:12 pm (UTC)


I don't know where you get that notion, and I'm not interested in perusing what I know is incorrect.


"78% of the net job losses under NAFTA, 686,700 jobs, were relatively-high paying manufacturing jobs.[8] Certain states with heavy emphasis on manufacturing industries like Michigan, Ohio, Pennsylvania, Indiana, and California were significantly affected by these job losses. For example, in Ohio, TAA and NAFTA-TAA identified 14,653 jobs directly lost due to NAFTA-related reasons like relocation of U.S. firms to Mexico.[9] Similarly, in Pennsylvania, Keystone Research Center attributed 150,000 job losses in the state to the rising U.S. trade deficit.[10] Since 1993, 38,325 of those job losses are directly related to trade with Mexico and Canada. Opponents point out the fact that although most of these jobs were reallocated to other sectors, the majority of workers were relocated to the service industry, where average wages are 4/5 to that of the manufacturing sector.[8]"

Which America are you talking about, the 5 percent that haven't been giving back much into the economy since the late 1990s, or the masses of regular Americans who keep finding less employment to provide even minimal use of themselves in society?

Edited at 2008-12-22 09:13 pm (UTC)
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[User Picture]From: thecesspit
2008-12-22 10:16 pm (UTC)

Re: nonsense.

The America that gets much easier access to Canada's raw materials... certainly NAFTA is viewed as less than good up here in BC for the trade and jobs going the other way across the border.

But maybe NAFTA is only benefiting the 5% of people in general.

Part of the overall problem of Global Economy is that transport of goods is cheap, so moving manufacturing to cheaper labour markets has much less of an offset for bringing those goods back into the country. If a flat screen TV is $2000 from Korea and $2500 from the US, which one is likely to get brought... regardless of the overall effect of lowering the US economy's health by buying that cheaper import.

(note that the British suffered much the saem disembowelling of their manufacturing base in the 70's and 80's and the 'Buy British' campaign failed as pounds and pennies talk more than national pride).

Course, when you have a trade agreement with an economy significantly behind your own (US-Mexico) labour costs look cheaper. Where they are on a par (US-Canada), the lack of tariffs should help both economies. The US/Canada trade is on e of the largest in the world. Of course I'm thinking from this side of the border... the collapse of the US industry would also impact Canada hugely, which is why the Harper government is showing willing as well.

That 5% is also slowing stifling invention and entrepreneurship... too many large companies fail to pay decent dividends in times of profit, which concentrates themselves.
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[User Picture]From: sauce1977
2008-12-23 07:18 am (UTC)

dick pills and gun guarantees

The only thought that comes to mind is an agreement with Canada and Mexico to have a North American Dollar, similar to the Euro, but I don't think that helps much. The US is on a whole gigantic world level, and really can't partner with anyone to reinforce that currency. If they partnered with similar GDPs, or they somehow merged into the Euro camp, that would raise dramatic protest from the outside countries, much like large corporations merging and raising questions of anti-trust within their industries.

As for currency, I disagree with the partnering of nations in currency, so I disagree with the Euro in general. I think it's as much of a breach of economic faith as the financial alchemy practised by Wall Street that led to US's economic struggle. What if France and a couple other countries fall into total disarray? What will the other countries do if 3-4 start dragging their collected value down?

USA really can't partner with anyone ... but it can tax the ever-loving shit out of any foreign or domestic company wishing to profit and leak cash from our border. That's a short-term solution, and I grant that NAFTA cuts both ways and seems to only help the 5 percent (or the corporate entity stay in better-than-minimal profit). It is a selfish view, to suffer the partners, such as Canada, even, by repealing NAFTA. I still think it's in the best interest of the United States, however, to stop giving advantages to country-partners such as Canada, and also to be far harsher on 'rivals,' sort of speak, such as what Iran currently is, or what the Arab nation can be with OPEC.

What could be the consequence for the USA in this proposed mode? Well, off-hand, it might raise the foreign creditors to demanding levels for immediate returns on their credit, but in the end, all currency is backed by the word of their government ... and that word is backed by guns. And that's why the United States has enough weapons to cripple the world several times over. So, I guess the US's word is pretty strong, even if it did manage to break capitalism in the new millenium.

I'd like to see more R & D ... and that's a whole different subject of ire, such as the immense amount of money boatloaded into pharmaceuticals. What do we get on that investment? A bunch of dick pills and 15 anti-depressants that have manic side-effects for a significant percentage? I propose a wholesale cessation of funding for all but continuing research into anti-biotics and the viral/bacterial diseases that plague society. That arena needs to be severely curtailed and focused.
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[User Picture]From: sauce1977
2008-12-23 01:32 pm (UTC)

NAFTA seemingly helps the corporate entities at the expense of all.

I know that NAFTA ruined Mexico's agricultural business by flooding US products into their market. I know that you just mentioned the loss of Canadian jobs. I countered with the decimation of manufacturing jobs in this region. I think that regardless of it's local nature, it's a symbol of just how ugly American government has allowed international private sector to behave. I don't think the intent of NAFTA was to destroy regular people, but that's what it has done.

More people will be destroyed by the reverse of this globalization, which is what I'm proposing. However, it's a way of trying to draw out private international elite into a sort of dragnet. I'm deeply interested in using that snare to identify who's contributing to this mess the most.

Globalization appears to be turning even larger numbers of people into pawns for an increasingly divorced and ever-jaundiced elite. There's still time now to try new approaches, or reverse once-new ideas that don't work.
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[User Picture]From: hammerscythe
2008-12-24 08:37 pm (UTC)
The open/free market economy system EPIC FAILS without oversight. That's what essentially happened. For some reason, DC has had the best interests of other countries first before it's citizens.

People have been screaming the same opinion that Fingelton is for the past decade: US aid has to be cut extravagantly, keep jobs in house, make it more attractive for companies to build infrastructure in the US, raise consumer confidence for domestic policies and products, and bamf, stable economy.

However, NAFTA, the free trade extravaganza, and that whole "Chinton campaign funds from the Chinese? WTF? Foreign involvement in domestic policy? No?!" thing has fucked us all.
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[User Picture]From: sauce1977
2008-12-24 09:16 pm (UTC)

international business to be dealt a monster blow, in my wishes.

There was a piece on the evening news in which the BYD F3DM was highlighted. The comparisons were made to the Fusion and Volt, from US automakers. These hybrids from US Auto will ring in around $40,000 in the market. The comparison switched to BYD, which could ship the car now, to the US, and sell it for $22,000.

And there's the problem, right there. It's not quality of products. It's that a Chinese plant worker makes for a far cheaper worker ... reduces the cost with a product dramatically ... and it's due to the poor value of their country's currency.

I personally would like to create a tax balance on all imports to align their pricing with American companies, making them 5% more expensive than the American product in our market.

So, if GM can't get the price of a Volt below $40,000, then the BYD offering should have $22,000 of tariffs attached to it. Surely, you would hear screaming and threats of war. I welcome those threats. The American consumer can't expect to have the cheapest products when they undermine the value of our workforce. The strength of the US dollar should not bottom out because foreign businesses treat our consumers like nuggets of gold in a symbolic American river. We are not to be panhandled, and our consumers don't know any better, so they should be made to be.

If there's no support for a wide-barrier of equating tariffs on every product, then at least, make it so for automobile industry. Congress is hungry for taxpayer money. Let the people speak, but if they speak for foreign automobiles, let them speak with large tariffs sent to our government. It is not unlike how gasoline, liquor, and cigarettes and other necessities/vices in our economy are treated. The inelastic nature of such has been a source of government income for decades.

I am tired of hearing about how America cannot compete in Asian markets, specifically, when their countries design their markets to add to the cost discrepancy that already hinders. The paragraph from this writer, the one that troubles me ...

For students of Japanese protectionism, perhaps the most telling point is that while France's Renault company, through its stake in Nissan, nominally controls Japan's second-biggest showroom network, Renault has never been allowed to sell more than token numbers of its French-made products in Japan.

How is that fair? Or, rather, maybe the United States should play up to that fairness.
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[User Picture]From: hammerscythe
2008-12-25 07:24 am (UTC)

Re: international business to be dealt a monster blow, in my wishes.

And that's the whole point: businesses are going to deal with bottom lines and bottom lines only. They can give a flying fuck about the consumer, so long as they keep buying the products. They'll keep extending their profit margin as far as they can. That's how NAFTA killed US productivity; it was far, far cheaper to build factories in Mexico than keep manufacturing jobs here. I agree with the tariffs, this whole "Buy American" schtick isn't working. Wal-Mart can't keep putting the same Chinese crap on the shelves.
(BTW, totally saw Bear Grylls kill an alligator. That's awesome.)
Not only should we hit the guys that are importing cheap goods, we also should tax companies that import an abundance of foreign goods and sell them here.

I'm all for international trade, just not trade that screws us over.
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[User Picture]From: sauce1977
2008-12-25 07:47 am (UTC)

regulations needed

On one hand, I feel bad for this mess ... this worldwide mess ... because the people who set it in motion couldn't possibly have wanted to cripple everything. It wasn't efficient or devastating enough to be a formal sabotage.

As for trade, and buying American ... you can't tell a consumer in a capitalist society to buy ... or else. People are accustomed to having choice. That's why it's really going to amuse some of us who enjoy dark humor, since it's going to get really ugly with regard to survival ... maybe not as bad as clawing at each other for a chance to buy bread, but I remember my grandfather's stories about the Great Depression, and I think we're headed there.

Regulations are definitely in order. I wouldn't expect to see the economic environment US citizens have been enjoying ... not for many more years, if at all.
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[User Picture]From: hammerscythe
2008-12-25 07:57 am (UTC)

Re: regulations needed

I agree with the notion that it wasn't planned - just a few money hungry dudes looking to line their pockets.

You're completely right about the "people are accustomed to having choice" point. Sadly, that's why we have to trick average Americans into buying products that are produced here. We've gotta rig the capitalist system to our benefit, and if that means tricking stupid people, then so be it. I know that's a bad statement, but...

Regulations are coming...but I fear that they will be all encompassing/blanket like and treat none of the problems that are really there.
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[User Picture]From: sauce1977
2008-12-25 08:06 am (UTC)

Re: regulations needed

Especially if Congress treats it like it normally does ... adding on 30 different items of special interest to appease both sides, and cutting the balls off any viable body of legislature.
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[User Picture]From: hammerscythe
2008-12-25 08:12 am (UTC)

Re: regulations needed

Correct, sir. WE LOVE RIDERS!!11!
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