Is GM finished?

[Furcifer]

There are healthy car manufacturers in the US. And GM might have become healthy if the government hadn't prevented it. And the idea that the government should keep any industry going because it was useful in the past is exactly the same kind of thinking that doomed the UK in the fifties. Failure is a critical part of capitalism. Things change and keeping the old, corrupt and/or inefficient going is the sure path to disaster.

I'm not familiar with what happened in the UK in the 50's. Perhaps I'll do some reading myself.

Certainly failure is a healthy part of Capitalism. At the same time I think you need to consider the potential for what is know as a cascade failure. With a company as large as GM a cascade failure could result in disaster greater than the economy could bare. I say it's reached that critical mass.

 

[drkitten]

I'm not sure you really understand what Henry Ford and the automobile did for the US middle class. Perhaps you could read up on him a bit then tell me if you think the US economy will recover without a strong US based automotive sector. At some point the economy moved from farming to automotive. A very, very large portion of the economy relies on making and buying cars. I'm not sure there is anything to replace it.

The United States moved on from a manufacturing to a service economy decades ago, precisely because there's more money in it. There's not much money in making cars any more, in part because there are so few jobs in making cars any more (productivity per employee has skyrocketed since 1970 because it's all robotic now). There's a reason that Target has more employees than any manufacturer (except Siemens AG) world-wide. With modern manufacturing technology, one person can make more than another person can sell.

It's the same transition that we saw a hundred or so years ago, when farming dropped of the employment radar. There were some people then, complaining that a very very large portion of the economy relied on raising food and what were we going to replace it with.

 

[Furcifer]

It's the same transition that we saw a hundred or so years ago, when farming dropped of the employment radar. There were some people then, complaining that a very very large portion of the economy relied on raising food and what were we going to replace it with.

Unlike food, cars aren't required for survival. In addition there was a 40 year transition. In the early part of the 20th century there was a massive migration from the southern farming communities to Detroit. There were good paying jobs to go to. Today there is nothing.
What do you propose the 3 million unemployed ex-autoworkers do to survive? Do you really think they are going to make windmills and solar panels? What about the other 20 million people that relied on the autoworkers for income?
American consumerism and the automobile created an artificial economy. People worked making cars so they could get money to buy cars. I remember going to the States as a kid and being amazed at all the new cars. No one drove a car older than 5 years old in the States. Cars that were 3 years old were looking beat up. People complained about them and bought new ones. It was all part of an image and a lifestyle. The same thing happened with computers. They made it fashionable to have the latest and greatest to keep you buying and driving the industry. Even that has tapered off. The need for the fastest computer with the most memory and storage plateaued. The current trend is small, cheaper ones with just enough memory and just enough processing.
Without a healthy automotive sector there's nothing to sustain the economy. Computers and electronic gadgets don't represent enough of a driving force, even if they were to be built in America. Whether you like it or not that's the reason the Government has seen fit to invest the people's money in GM and Chrysler. And whether you realize it or not this isn't the turn of the 20th century and there isn't anything else for Americans to do. As we've seen in another thread about the only other thing they have is exporting their fast food culture, which they don't appear to be very good at

 

[drkitten]

Unlike food, cars aren't required for survival. In addition there was a 40 year transition. In the early part of the 20th century there was a massive migration from the southern farming communities to Detroit. There were good paying jobs to go to. Today there is nothing.
What do you propose the 3 million unemployed ex-autoworkers do to survive? Do you really think they are going to make windmills and solar panels?

No, they're not going to "make" anything. That's what a service economy means. They will provide services.

What about the other 20 million people that relied on the autoworkers for income?

They will provide services.

Without a healthy automotive sector there's nothing to sustain the economy.

Have you even heard of a "service economy"?

And whether you realize it or not this isn't the turn of the 20th century and there isn't anything else for Americans to do. As we've seen in another thread about the only other thing they have is exporting their fast food culture,

That's actually more or less exactly my point. What the Americans are great at doing is exporting services (which, yes, include business models, such as franchises). And they've been better at exporting services than goods for something like forty years. This is hardly breaking news. (News flash: Nixon resigns!)

 

[Furcifer]

No I don't know what a service economy is. At least not one as a primary economic model. Is that what the Romans did after they built their empire? What the Mayans did after terraforming and building cities? What "service" economies would you consider as roll models? Germany? China? Japan? France maybe?
My limited knowledge of economies suggests the healthy ones export raw materials, or import them for manufacture. Neither of which the US is capable of doing. Well the latter perhaps, but that's only with a healthy investment by the government. A large one that stimulates and already well established manufacturing base. I can't for the life of me figure out what that would be? Maybe in a company? A really large company. Maybe the largest company the World has ever seen?

 

[drkitten]

No I don't know what a service economy is. At least not one as a primary economic model. Is that what the Romans did after they built their empire? What the Mayans did after terraforming and building cities?

No, and no. Neither of them had the technological basis even to be an industrial economy, let alone a service one.

One of the earliest examples of a (large-scale) proto-service economy is the UK in the early 20th century, which had mostly farmed out industrial production to the colonies (and to the United States) but made money off providing services, mostly financial, to the world. If you wanted to get into the raw materials business, for example, you would need to go to London to arrange your financing.

There are of course smaller-scale service economies all over the world. Luxembourg, Liechtenstein, Hong Kong, and the various tax haven islands all qualify.

And, of course, there are lots of local economies that are primarily service-based instead of manufacturing or agriculture based. The entire states of Delaware and Connecticut are mostly service based, as are any of the tourist traps anywhere in the world. Any college town runs on a service-based economy, and most local governments do as well.

My limited knowledge of economies suggests the healthy ones export raw materials, or import them for manufacture.

Then your knowledge is indeed limited.

All you need for a successful economy is something that someone wants. In the case of a college town, for example, the area around the town wants the expertise that you've accumulated in the form of the college itself. People are willing to pay lots of money for that expertise, either in the form of tuition payments or in the form of consultancy fees. The college can then turn that money around and use it to import (and pay for) thing that they need like food, furniture, and bricks.

Which is why a small town like Urbana, IL can have a booming economy in the middle of nowhere.

Silicon Valley is another good example of a service economy; very few products are manufactured there, but a significant fraction of the world's products are designed there, and if you want to start a new high-tech firm, that's a very good location to put your headquarters, precisely because there is so much infrastructure there to support design. You can staff your R&D offices very easily, for example -- much more easily than if you were trying to persuade people to move to Fargo, ND. There are venture capitalists an hour or two drive away if you need to find startup money; most VC won't lend to anywhere they can't drive to in a day, because they prefer to be able to work closely with their companies.

Hollywood is also primarily a service economy; it makes movies and TV shows which people all over the world want to watch. But it's also where you want to be if you want to make movies and TV shows, because it's where the people who have the skills that you need -- from financing through production through editing through distribution -- are.

Of course, all those Hollywood camera operators and editors have to eat and clothe themselves, but they can do it quite easily without being involved in manufacturing, because the people who do grow food and who do make clothes are willing to pay huge amounts of money to watch the films.

And, of course, Washington DC is one of the largest service economies in the world.

I don't think that Palo Alto, California has ever had an automobile manufacturing plant. And yet the average salary there is among the highest in the world. Which strongly suggests that you don't need to make cars -- or anything else -- to be well-paid. Just designing the iPhone will do it for you. The people who designed the iPhone are actually paid much better than the people who manufacture it.

 

[Furcifer]

You've totally ignored that fact the automotive sector, this working middle class are the ones that send their kids to college and buy them iPhones for x-mas.
You can manufacture and sell everyone in the US an iPod and not come close to stimulating the economy like 1 car plant. How many little nonsensical devices do you have to sell to equate to 1 car? How essential is an iPod to a persons being able to live and make money? It's nowhere near what the automotive sector represents. That's just a tiny off shoot of a large stronger economy. One that car only be sustained by making cars.

Which is exactly why you've cited little communities and tiny countries. The only exception which is of course the UK. Unfortunately the current US track record with managing financial institutions is shot. The UK isn't going to give up it's economy to the US. Nor is anyone going to move their banking to the US. I wouldn't be waiting for that to happen anytime soon. The other examples you've given are simply little idealistic models that won't work on a big scale unless you consider some sort of social governent. You would have to restructure the entire US and break up the urban centers. What that amounts to is essentially reverting back to a preindustrialized state. Your Little House on the Pararie vision isn't going to work in the US.

So there you have my reasoning for why the government is investing heavily, and needs to invest more in the US economy by way of the automotve manufacturing sector. Or, you believe BAC and write it off a political payback. (hehe sorry, anyone see a guy stuffed with hay walk by here?. my bad)

 

[Furcifer]

Oh yah, and Palo Alto might be one of the richest, but if I recall correctly Sterling Heights was the richest (or Pontiac. I forget which one). At least until all this happened. I'll do a little digging when I get a chance to confirm this.

 

[drkitten]

You've totally ignored that fact the automotive sector, this working middle class are the ones that send their kids to college and buy them iPhones for x-mas.

That's right. That's because it's no longer true, because the automotive sector no longer comes close to having that kind of employment.

Today, the working middle class that send their kids to college work in the service sector, selling clothes at Wal-mart, selling insurance, or designing iPhones.

.....

Perhaps a little thought experiment will make it clear. Let's say that I invent a process that can, literally, create cars out of thin air. Using nano-technology and controlled fusion, I can literally take oxygen, carbon dioxide, and nitrogen, fuse them to make the substances I need, and produce a car at the touch of a button.

How many jobs will I create by the invention of this tech? None in manufacturing. In fact, I'll probably destroy a number of jobs, because I can by myself produce as many cars as the entire state of Michigan did at its heyday. I'll completely undercut the manufacturing base of this country, or probably the entire car-manufacturing world.

But I'll also create thousands of jobs in sales, because these cars can now be sold for the cost of transport, and I can make and sell them cheaply enough that any family can treat them as entirely disposable. If it's a nice day and you want a convertible to take down to the beach, just grab one. When you're done, drop it off at a recycling place and melt it down; I'll make more.

I can easily create more jobs in sales than I destroyed in manufacturing, because I can now supply cars (and people can want cars) on an entirely new level. I can literally, all by myself, make more cars than people can sell.

I can also easily create more jobs in transportation than I destroyed in manufacturing, because all of these cars are being created in my factory in Hayes, KS, but need to be delivered to customers all over the place. Since I'm delivering so many more cars than before, we need much more transport capacity than before, which means more people working in transport. I can make more cars than people can deliver.

Sure, this is an exaggeration. But it shows the central point. As the costs and efficiency of manufacturing improve, the employment prospects (and the money to be made) in manufacturing get less and less. It's not an exaggeration to say that one person in a car factory today is as effective as a hundred people were in 1950 -- which means that if one person in four was employed by the auto industry in 1950, you only need one person in 400 to be working there today to maintain the same level of industrial productivity.

Which means that everyone else is free to do whatever else they like. In most cases, they will be taking service jobs. Instead of making cars, they will be fixing them. Or selling them. Or transporting them. Or fixing, selling, transporting, or designing something else.

That's why the world's largest employer -- and the US's, for that matter -- isn't in manufacturing. It isn't even close. The largest employer is Wal*Mart, because it takes more people to sell clothing than it does to make them now. The second largest is McDonald's -- again, this is a service industry. The next is UPS, which of course, is simply transporting things around. We don't get to actual manufacturing industries until GM at #7.

The "working middle class" that pays college tuition and buys iPhones doesn't need to work in factories any more, because the factories are sufficiently automated that they can churn out more than enough goods to meet our needs. But what they can't churn out are the services to meet our needs, services like stocking shelves, delivering packages, managing delivery schedules, planning advertisement campaigns, and designing new products.

Which is why the working middle class in the USA delivers services, not manufactured goods. Which is another way of saying that the USA is a service economy, not a manufacturing one.

Of course, they deliver services outside of the country, too. Most of our exports are also services. Apple doesn't just sell iPhones (and UIUC doesn't just accept students) inside the United States. And all the Chinese-manufactured goods that are on Wal*Mart's shelves had to get there somehow, usually on a US-flagged ship run by a US-based transport company. (There's a reason that UPS is such a large company.) When China sells a T-shirt to France, there's usually a cut of that sale that ends up in the States. Because the USA is a service-based economy (and has been for decades) and transport is one of the services it offers.

 

[Furcifer]

You're completely missing the point of course. The economy isn't real. There is no actual way renumerating people based on what they do. Teachers would get paid more, lawyers less. The economy is set-up the way it is, and it's not going to change as fast as you and I would like it to. It's admirable, but it's not realistic. The World economy isn't suddenly going to come in line with what you and I can dream up here. Toyota isn't going to start selling cars cheaper.
Which is what would be required for the US to rethink it's current economic model. You gave Wal Mart as an example. It might be the largest employer, but what do these eployees contribute to the total economy? What do you think the spinoff is in trucking, advertising, taxes, infrastructure etc.? It's no where near that of the automotive. The automotive might be 7th (just GM) but when you consider what they make, pay in taxes, the amount of good paying jobs for Americans associated with suppliers, the health care jobs etc, it quickly over takes Wal Mart as the number 1 employer.
What you are proposing is that Americans need to make less because it will cost less to live. That isn't going to happen in this global economy. The Chinese, the Japansese and Europe don't need to come in line with your service industry ideal. Not only that but a weak US manufacturing sector will deflate the currency. Why do you think the US dollar is almost at par with the loonie these days? Because the US dollar in a service based economy is worth less. Without an export and a manufacturing base, or even appearance of such, the US has very little to offer the rest of the World.
I like you idea dr.k, I just know it won't work. Just about everyone realizes this and I'm glad Obama and his administration see this. They realize the importance of stimulating the right areas of the economy, while encouraging others.

 

[drkitten]

You gave Wal Mart as an example. It might be the largest employer, but what do these eployees contribute to the total economy?

Quite a bit. Otherwise, clothes would still be sitting in huge piles next to the factories in the Third World where they were made.

What do you think the spinoff is in trucking, advertising, taxes, infrastructure etc.?

Much larger than that of GM or the automotive industry in general. If you consider how much material (by volume) Wal*Mart moves in an average day, it keeps many more teamsters in business than does GM. Think, for an instant, about how many cars the average American family buys in, say, five years. Then think about how many different trips that same family makes to Wal*Mart and the total amount of stuff that they buy. The average US family may well spend $20,000 every five years for a car. But over that same five year period, if they spend only $100/wk at Wal*Mart, they've spent $26,000. Right there, you see that Wal*Mart not only moves more stuff, but generates more in taxes, because they're creating more sales.

GM has nowhere near the economic impact of Wal*Mart. In fact, the entire US car industry has nowhere near the economic impact of Wal*Mart.

The automotive might be 7th (just GM) but when you consider what they make, pay in taxes, the amount of good paying jobs for Americans associated with suppliers, the health care jobs etc, it quickly over takes Wal Mart as the number 1 employer.

It does not. Not to be rude, but this is completely and totallly wrong.

What you are proposing is that Americans need to make less because it will cost less to live.

Not at all. I'm proposing that Americans need to make less collective, because individuals are so much more productive that individuals can make more than enough to satisfy our needs and the needs of the global economy.

That's the reason that only 1 in 100 of is a farmer. Because that one farmer can grow enough food to feed 100 people, and feed them well. Similarly, that one person in a hundred who works in the auto manufacturing industry can make enough cars to supply all the cars we're willing to buy. And one tailor out of 100 can make all the clothes we choose to wear.

But that one tailor can't get the clothes to us; that one tailor can supply enough clothes to keep thirty salesmen occupied. Which is why fifty years ago, we needed as many tailors as we did clothes salesmen, today we only need so many fewer that "tailor" is becoming a dying employer.

As is GM. Five years from now, it will be able to make twice as many cars as it did in 2005, while employing 2/3 the people. Because there's no need for people to make cars. And car manufacturing will cease being an important source of employment as people who would take jobs making cars take service jobs sellling them instead.

 

[Furcifer]

I'm sorry, not to be rude but you are patently wrong here. In your post you've indicated the reason "The Third World". Granted it doesn't flow out i torrents. But it is a very real trickle of money out of North America.

There are something like 40 jobs indirectly associated with each employee at GM and the big three (I believe it's about 25 direct and another estimated 15 indirect) . Can you say the same about Wal Mart? Are the few you can associate anywhere near as well paying? No. That's a fact.

Sure the average family may choose to spen somewhere near $100 per week at Wal Mart. And the taxes may be similar to what you would pay for a car of the same price. But it's glaringly obvious that these products are mostly made outside the US with none US materials. But there is no way $26000 worth of t-shirts and shoes put the same as a car back into the US economy. Even if the raw cotton came from the US. It get shipped on a container ship from Bangladesh. It might generate a little revenue from distribution on the way to Wal Mart but that's it. What's it cost to stock and scan a t-shirt? What about after the sale? Do you think the detergent and bleach over the lifetime of those shirts comes close to generating the revenue a car does? A can't think of a single product Wal Mart sells that does, even if made in the US with US materials.

I find it personally alarming you remain unaware of this simple fact. It's the root cause for your misunderstanding. I urge you to take the time and explore what most of us already involved in the
industry already know. This isn't a product you can outsource and then find something to replace it with.

 

[AWPrime]

Perhaps a little thought experiment will make it clear. Let's say that I invent a process that can, literally, create cars out of thin air. Using nano-technology and controlled fusion, I can literally take oxygen, carbon dioxide, and nitrogen, fuse them to make the substances I need, and produce a car at the touch of a button.

How many jobs will I create by the invention of this tech? None in manufacturing. In fact, I'll probably destroy a number of jobs, because I can by myself produce as many cars as the entire state of Michigan did at its heyday. I'll completely undercut the manufacturing base of this country, or probably the entire car-manufacturing world.

True

But I'll also create thousands of jobs in sales, because these cars can now be sold for the cost of transport, and I can make and sell them cheaply enough that any family can treat them as entirely disposable. If it's a nice day and you want a convertible to take down to the beach, just grab one. When you're done, drop it off at a recycling place and melt it down; I'll make more.

Why would you sell them for the cost of transport? Just sell them for just low enough a price to completely destroy the competition.

Also services aren't immune to increases of efficiency.

When China sells a T-shirt to France, there's usually a cut of that sale that ends up in the States. Because the USA is a service-based economy (and has been for decades) and transport is one of the services it offers.

It might just as well be a French or a Chinese company that does the transporting. The downside of a service is that almost anyone can perform it and that thus competition is very harsh.

Also pure service companies such as UPC are mostly global companies, because their costs (salary, maintenance) are also globally distributed. Providing no real advantage for the US economy.

In short services isn't a really good way to get money into an economy. Services are mostly focused on the domestic economy. The nice thing about manufacturing is that it adds a lot of value to the used resources, and the resulting goods can be sold globally.

 

[Furcifer]

I think people new to the discussion fail to realize wages account for 7% of the cost of a vehicle. Earlier in this thread I did a breakdown of the average cycle time, the number of employees on shift and the hourly wage. It is essential for the US economy that the other 93% stay within North America as much as it possibly can. Will shifting to imports make it all go away? No. Much of it will stay in the US under the current structure. More imports will mean even more leaves the country. Unfortunately much of the gains Unions have made will go out the door as well. North America cannot at this time afford to import its vehicles from 3rd World nations without a major saccrifice in the quality and standard of living we currently enjoy. I suppose that isn't a concern for retirees and people who already have a house paid off. Just remember all of these low paying service jobs will mean your kids and your kids kids will be living with you before they ship you off to a cheap retirement home in Malasyia.

 

[drkitten]

Why would you sell them for the cost of transport? Just sell them for just low enough a price to completely destroy the competition.

Because I can sell three times more of them if I sell them at half the price. , and make it up on volume. Price-profit curves are a standard part of any business plan. I sell them at whatever price makes me the most money -- but because my costs are tiny, that still leaves the competition destroyed.

Also services aren't immune to increases of efficiency.

It might just as well be a French or a Chinese company that does the transporting. The downside of a service is that almost anyone can perform it and that thus competition is very harsh.

Services aren't immune to increases of efficiency. But that's exactly where high-tech societies such as the US have the advantage. It takes a lot less training to farm than to pour steel, and a lot less training to pour steel than to plan a transport network.

Also pure service companies such as UPC are mostly global companies, because their costs (salary, maintenance) are also globally distributed.

Except that most of the management -- and most of the brains -- are still in the US.

 

[drkitten]

It is essential for the US economy that the other 93% stay within North America as much as it possibly can.

Repeating a false statement will not make it true.

 

[AWPrime]

Because I can sell three times more of them if I sell them at half the price. , and make it up on volume. Price-profit curves are a standard part of any business plan. I sell them at whatever price makes me the most money -- but because my costs are tiny, that still leaves the competition destroyed.

That only works to a point.

Services aren't immune to increases of efficiency. But that's exactly where high-tech societies such as the US have the advantage. It takes a lot less training to farm than to pour steel, and a lot less training to pour steel than to plan a transport network.

Actually a lot of service jobs require less skill then manufacturing jobs.

Except that most of the management -- and most of the brains -- are still in the US.

Those are being outsourced as well.

 

[Furcifer]

Repeating a false statement will not make it true.

No, the point of repeating is to get it to sink in. Denial don't make it false. We're talking about billions of dollars being taken out of the economy. We are seeing the effects of doing that in a small scale, and here you are suggesting it should be allowed to go even further. How foolish to not learn from your mistakes and make changes. Luckily you're not in charge.

 

[WildCat]

You're completely missing the point of course. The economy isn't real. There is no actual way renumerating people based on what they do. Teachers would get paid more, lawyers less. The economy is set-up the way it is, and it's not going to change as fast as you and I would like it to. It's admirable, but it's not realistic.

And you think high school dropouts being paid $45/hour to bolt on car doors all day long is realistic?

 

[Furcifer]

And you think high school dropouts being paid $45/hour to bolt on car doors all day long is realistic?

CEO's making $100 Million? $28000 an hour for college drop out throwing a ball through a hoop? Teachers making $15/hr dealing with one of our most important assets?

When remuneration is based on actual value added to society your point becomes valid. If you present a petition to do so I'll sign it. I'm all for a massive restructuring of the means for redistributing wealth in NA.

No one has explained to me what all these bankers did to earn their pay checks? Where did all this Wall Street money come from? Where did it go? How were they allowed to do this?

Don't worry, that was rhetorical. You can quote to me all day what the Union wage is and what kinda benefits they receive, but nobody knows what the sharks on Wall Street were doing to facilitate this collapse. Why? Because they don't disclose their pay, nobody is keeping track of them and they don't produce a tangible product.

This whole economic crisis was a result of the financial institutions playing fast and heavy with the working middle class wealth. When that ran out they outright lied to create more "Hey my autoworker did you know your house is worth $300 000 now, your rich!, borrow some more money against it so I can keep shuffling it around".

And what happened when that ran out? "Hey Mr. Foreign investor, hard working Americans are borrowing money and buying houses like crazy! Why don't you give me some money and get a piece of this action too?"

There's still no accounting for where all the money went. We've been led to believe it just disappeared. I'm inclined to believe that. I don't think it ever existed. It was all based on the promise that the middle class Americans would keep working their manufacturing jobs and continue to make the US a model for the rest of the World. Without a healthy North American auto sector we lose that. I honestly don't believe losing that is an option we can afford to explore.