If you've been reading me for a while: a) Thanks, Mom! b) you've possibly noticed that I really enjoy spending a lot of money on clothes. This isn't because I think they make me look handsome; nothing could accomplish that task. It's because I truly enjoy wearing something that was made for me out of the finest materials available.
https://www.hagerty.com/media/opinion/avoidable-contact/avoidable-contact-130-earnestly-ersatz/
https://www.hagerty.com/media/opinion/avoidable-contact/avoidable-contact-130-earnestly-ersatz/
After enjoying my Christmas vacation, I’ve decided to expand a little more on my earlier posting. If I were as skilled as Jack, I could probably romanticize this and make it an enjoyable read. Brevity being the soul of wit, I’ll instead use bullet points. Maybe the underlying theme here is “you don’t know what you don’t know.”
- Unions: For those of you who bemoan the United Auto Workers “running manufacturing out of the US” and I thus assume look to Germany, Korea and Japan as models of labor efficiency, please do a little research into their home-market operations. Germany’s IG Metall is the union which represents German autoworkers and with 2.3 million members, it represents 15% of the entire German workforce. On a good day, the UAW has about 390,000 members, mostly in Michigan, representing whatever ever-tinier percentage of the American workforce it thus equates to. That matters (as you’ll see) because each casts an accordant influence on a nation’s industrial policy. To quote the readily available article “How Germany Builds Twice As Many Cars As The U.S. While Paying Its Workers Twice As Much”, the average auto worker in Germany made “$67.14 per hour in salary in benefits; the average one in the U.S. made $33.77 per hour.” (Both of those numbers include fringe benefit costs… Keeping in mind that Germany has a national healthcare system!) Moving on to Korea, perhaps I could recommend “unions-are-driving-hyundai-and-general-motors-out-of-south-korea” as a search, or just think of the last time you recall the UAW battling with police commandos sent in to remove them from occupying a factory? About 1937 if you know your history. In Korea, it was 2009. It’s safe to say that South Korea has a vibrant labor movement that makes the modern UAW look like a Sunday-School picnic. The Japanese also have unions, (unimaginatively known as the JAW) who make wage and benefit demands, but the Japanese approach is more nuanced, given what is termed shūshin koyō, roughly translated to “lifetime job contract”.
- Politics, Trade and Societal Norms: As you might imagine, generous pay and benefits don’t lend themselves to competition in a cut-throat world market. The simple answer was “Do Not”; at least for much of the 20th Century. The Anglo model of free-markets and competition simply isn’t looked upon the same way in Asia or continental Europe. Competition between companies is viewed as OK, but as you might imagine with such strong labor unions, there was little appetite for labor-price wars between nations. Before the European Union, tariffs upon German cars largely kept them out of France. French cars weren’t often seen in Italy. As recently as 2019, Japanese auto imports to Korea were 23,400 units, less than 1.4% of a 1.77-million-unit market. Two similar markets separated by 200 miles of water. Culturally, it’s more socially acceptable to drive an American car in Korea (a novelty) than a Japanese car (a competitor) and consequently, US imports to Korea were almost double the number of Japanese cars for 2019. In years gone by, the barriers to trade were fairly obvious. Outright bans on imports and steep tariffs gave way to costly “certification” procedures that would return an entire shipment on the basis of a defect found in one vehicle. Banks simply didn’t lend money for their own citizens to build foreign dealerships. To this day, European Value Added taxation (VAT) is computed on top of an American Manufacturer's Suggested Retail Price (MSRP), a price that takes into account any type of tax incurred while building a product (such as property taxes for a factory, etc.) For that reason, the same Jeep Wrangler Rubicon 4xe that retails for $56,230 in the US will cost you 71.000 €; or $80,259. Ohio gets some tax money, and so does Das Vaterland. Of course that doesn’t totally prohibit American imports to foreign lands, but it damn sure marginalizes them enough that labor cost advantages are neutralized. In the meantime, American politicians concern themselves with opening bathrooms to the opposite sex, rather than foreign markets to American imports. Well there was that one guy who tried to do something about this, but he was “GoInG tO eNd dEmOcrAcy” as we knew it. It’s almost like the rest of the world and a lot of heavily-lobbied American politicians didn’t want these kinds of trade disparities to become yet another talking point among the unwashed deplorables.
- Why Canada and Mexico aren’t as bad: Prior to 1965, traveling between Windsor, Ontario and Detroit Michigan not only took less time, but was looked upon more favorably then going to Ohio… No one from Michigan had ever shed blood over Canadian land. (Look up the Toledo War.) However, Canada did impose tariffs on vehicles built outside of the country. This meant the Detroit Three (and the independents) were wasting huge sums of money duplicating tooling to build identical vehicles literally minutes apart from each other. Sanity arrived in 1965 with what was known as “Auto Pact”, aka the Maple Leaf found on the driver’s door in any Chrysler Cordoba. The D3 agreed to keep Canadian employment at its current level in exchange for the removal of tariffs on American-built vehicles. Immediately, Canada became the sole-source for particular American-badged models, like the aforementioned Cordoba or any L-platform Mopar in the modern era. This was not only a financial benefit to the manufacturers, it resulted in the quality improvements gained by reducing model complexity at any given plant. Because Canadian and American workers earned similar pay (then represented by the same union) and had similar buying-power, this agreement was benign, or even ultimately beneficial to workers in both nations. A similar situation existed in Mexico, along with the idea of Mexican plant’s duplicating Detroit efforts. Thus 1992’s NAFTA was marketed using the Canadian Auto Pact’s success as an example. Of course, the Mexican government isn’t Canada. Organizing a meaningful union in Mexico is a good way to take a permanent vacation in the Sonoran-desert. Before long Mexico’s upper-caste saw an opportunity to exploit pennies-on-the-dollar labor into entirely new industries… That giant sucking sound which a marginalized, third-party Presidential candidate predicted. All of that said, the Detroit Three have not fled the US for Mexico. All of them have a similar number of Mexican employees and investment as they did before NAFTA. Of course they has become more efficient, sole-sourced and much more frequently mentioned, but each had manufacturing operations in Mexico dating back to the 1920s (and earlier in the case of the Model T). The real American job loss has come from new supplier investments and entirely new industries that didn’t exist in Mexico prior to NAFTA. By including a “minimum wage” provision in the USMCA, the Trump administration essentially did what the UAW failed to do 35 years earlier.
- Why is a Mexican Hellcat better than an Alabama Hyundai: Quite simply because a platform of American origin will generate more employment in higher-paid fields of design/engineering, testing, procurement, marketing and service parts. While it’s far from an ideal situation, until someone changes what you’ve read above, some amount of low-cost/high-profit manufacturing sustains the motherships in Detroit. And by the way, try being a “superpower” without significant employment in STEM disciplines. The same resumes that land on desks in Warren, Dearborn and Auburn Hills, Michigan also land on desks throughout the country in environments like General Dynamics, Raytheon, Boeing, etc. Without a civilian industry, the knowledge becomes like a lost language because the demand for manufacturing engineers, logistics, and the supporting machine tooling dries up. I came from a mechanical background and was later trained how to write testing programs, using German-language software. I've never seen a computer-coder taught how to rebuild an engine. With the loss of its domestic industry, Australia within a generation will become either a tourist destination that doesn’t allow anyone inside, or perhaps a Chinese call center for semi-English speaking markets. Remember that Toyota once operated an Australian plant on the basis of “See mate? We employ people too!” That plant closed in 2017 and if the Aussies don’t like it, they can ride a Kangaroo. If you don’t want to believe me that those jobs will never come to the US in the form of foreign-headquartered companies, then believe their own words from this 10-year old piece in Automotive News. I admit that I need to make a legitimate scan, but it says that despite cost advantages for American R&D, those disciplines are staying in their home markets. Try being an American purchasing a controlling interest in a German industrial company… their constitution forbids it! “foreign direct investments that are likely to affect public order or security in Germany or another EU member state, or relate to projects or programs of EU interest as set out in article 8 of the FDI Screening Regulation may be restricted, meaning the investment can be made subject to certain requirements or be prohibited.” Unlike the U.S. Government which was too busy prosecuting/defending the Monica Lewinsky scandal to notice the SEC filing that predicted Chrysler being hollowed-out by Daimler, I believe the Germans would take action.
Whew, that was a lot of typing.
Sorry for the poor quality photo...
After enjoying my Christmas vacation, I’ve decided to expand a little more on my earlier posting. If I were as skilled as Jack, I could probably romanticize this and make it an enjoyable read. Brevity being the soul of wit, I’ll instead use bullet points. Maybe the underlying theme here is “you don’t know what you don’t know.”
- Unions: For those of you who bemoan the United Auto Workers “running manufacturing out of the US” and I thus assume look to Germany, Korea and Japan as models of labor efficiency, please do a little research into their home-market operations. Germany’s IG Metall is the union which represents German autoworkers and with 2.3 million members, it represents 15% of the entire German workforce. On a good day, the UAW has about 390,000 members, mostly in Michigan, representing whatever ever-tinier percentage of the American workforce it thus equates to. That matters (as you’ll see) because each casts an accordant influence on a nation’s industrial policy. To quote the readily available article “How Germany Builds Twice As Many Cars As The U.S. While Paying Its Workers Twice As Much”, the average auto worker in Germany made “$67.14 per hour in salary in benefits; the average one in the U.S. made $33.77 per hour.” (Both of those numbers include fringe benefit costs… Keeping in mind that Germany has a national healthcare system!) Moving on to Korea, perhaps I could recommend “unions-are-driving-hyundai-and-general-motors-out-of-south-korea” as a search, or just think of the last time you recall the UAW battling with police commandos sent in to remove them from occupying a factory? About 1937 if you know your history. In Korea, it was 2009. It’s safe to say that South Korea has a vibrant labor movement that makes the modern UAW look like a Sunday-School picnic. The Japanese also have unions, (unimaginatively known as the JAW) who make wage and benefit demands, but the Japanese approach is more nuanced, given what is termed shūshin koyō, roughly translated to “lifetime job contract”.
- Politics, Trade and Societal Norms: As you might imagine, generous pay and benefits don’t lend themselves to competition in a cut-throat world market. The simple answer was “Do Not”; at least for much of the 20th Century. The Anglo model of free-markets and competition simply isn’t looked upon the same way in Asia or continental Europe. Competition between companies is viewed as OK, but as you might imagine with such strong labor unions, there was little appetite for labor-price wars between nations. Before the European Union, tariffs upon German cars largely kept them out of France. French cars weren’t often seen in Italy. As recently as 2019, Japanese auto imports to Korea were 23,400 units, less than 1.4% of a 1.77-million-unit market. Two similar markets separated by 200 miles of water. Culturally, it’s more socially acceptable to drive an American car in Korea (a novelty) than a Japanese car (a competitor) and consequently, US imports to Korea were almost double the number of Japanese cars for 2019. In years gone by, the barriers to trade were fairly obvious. Outright bans on imports and steep tariffs gave way to costly “certification” procedures that would return an entire shipment on the basis of a defect found in one vehicle. Banks simply didn’t lend money for their own citizens to build foreign dealerships. To this day, European Value Added taxation (VAT) is computed on top of an American Manufacturer's Suggested Retail Price (MSRP), a price that takes into account any type of tax incurred while building a product (such as property taxes for a factory, etc.) For that reason, the same Jeep Wrangler Rubicon 4xe that retails for $56,230 in the US will cost you 71.000 €; or $80,259. Ohio gets some tax money, and so does Das Vaterland. Of course that doesn’t totally prohibit American imports to foreign lands, but it damn sure marginalizes them enough that labor cost advantages are neutralized. In the meantime, American politicians concern themselves with opening bathrooms to the opposite sex, rather than foreign markets to American imports. Well there was that one guy who tried to do something about this, but he was “GoInG tO eNd dEmOcrAcy” as we knew it. It’s almost like the rest of the world and a lot of heavily-lobbied American politicians didn’t want these kinds of trade disparities to become yet another talking point among the unwashed deplorables.
- Why Canada and Mexico aren’t as bad: Prior to 1965, traveling between Windsor, Ontario and Detroit Michigan not only took less time, but was looked upon more favorably then going to Ohio… No one from Michigan had ever shed blood over Canadian land. (Look up the Toledo War.) However, Canada did impose tariffs on vehicles built outside of the country. This meant the Detroit Three (and the independents) were wasting huge sums of money duplicating tooling to build identical vehicles literally minutes apart from each other. Sanity arrived in 1965 with what was known as “Auto Pact”, aka the Maple Leaf found on the driver’s door in any Chrysler Cordoba. The D3 agreed to keep Canadian employment at its current level in exchange for the removal of tariffs on American-built vehicles. Immediately, Canada became the sole-source for particular American-badged models, like the aforementioned Cordoba or any L-platform Mopar in the modern era. This was not only a financial benefit to the manufacturers, it resulted in the quality improvements gained by reducing model complexity at any given plant. Because Canadian and American workers earned similar pay (then represented by the same union) and had similar buying-power, this agreement was benign, or even ultimately beneficial to workers in both nations. A similar situation existed in Mexico, along with the idea of Mexican plant’s duplicating Detroit efforts. Thus 1992’s NAFTA was marketed using the Canadian Auto Pact’s success as an example. Of course, the Mexican government isn’t Canada. Organizing a meaningful union in Mexico is a good way to take a permanent vacation in the Sonoran-desert. Before long Mexico’s upper-caste saw an opportunity to exploit pennies-on-the-dollar labor into entirely new industries… That giant sucking sound which a marginalized, third-party Presidential candidate predicted. All of that said, the Detroit Three have not fled the US for Mexico. All of them have a similar number of Mexican employees and investment as they did before NAFTA. Of course they has become more efficient, sole-sourced and much more frequently mentioned, but each had manufacturing operations in Mexico dating back to the 1920s (and earlier in the case of the Model T). The real American job loss has come from new supplier investments and entirely new industries that didn’t exist in Mexico prior to NAFTA. By including a “minimum wage” provision in the USMCA, the Trump administration essentially did what the UAW failed to do 35 years earlier.
- Why is a Mexican Hellcat better than an Alabama Hyundai: Quite simply because a platform of American origin will generate more employment in higher-paid fields of design/engineering, testing, procurement, marketing and service parts. While it’s far from an ideal situation, until someone changes what you’ve read above, some amount of low-cost/high-profit manufacturing sustains the motherships in Detroit. And by the way, try being a “superpower” without significant employment in STEM disciplines. The same resumes that land on desks in Warren, Dearborn and Auburn Hills, Michigan also land on desks throughout the country in environments like General Dynamics, Raytheon, Boeing, etc. Without a civilian industry, the knowledge becomes like a lost language because the demand for manufacturing engineers, logistics, and the supporting machine tooling dries up. I came from a mechanical background and was later trained how to write testing programs, using German-language software. I've never seen a computer-coder taught how to rebuild an engine. With the loss of its domestic industry, Australia within a generation will become either a tourist destination that doesn’t allow anyone inside, or perhaps a Chinese call center for semi-English speaking markets. Remember that Toyota once operated an Australian plant on the basis of “See mate? We employ people too!” That plant closed in 2017 and if the Aussies don’t like it, they can ride a Kangaroo. If you don’t want to believe me that those jobs will never come to the US in the form of foreign-headquartered companies, then believe their own words from this 10-year old piece in Automotive News. I admit that I need to make a legitimate scan, but it says that despite cost advantages for American R&D, those disciplines are staying in their home markets. Try being an American purchasing a controlling interest in a German industrial company… their constitution forbids it! “foreign direct investments that are likely to affect public order or security in Germany or another EU member state, or relate to projects or programs of EU interest as set out in article 8 of the FDI Screening Regulation may be restricted, meaning the investment can be made subject to certain requirements or be prohibited.” Unlike the U.S. Government which was too busy prosecuting/defending the Monica Lewinsky scandal to notice the SEC filing that predicted Chrysler being hollowed-out by Daimler, I believe the Germans would take action.
Whew, that was a lot of typing.
