Offshoring and the Auto Industry


auto plant GM China.jpg
(photo credit: Lou Linwei for The New York Times)
The U.S. government is about to kick $15 billion over to the U.S. auto industry. And what we have seen with all of the bailout cases thus far — from AIG to Citibank — is that that amount is probably just a down payment on a future bigger draw.
Michael Moore has compellingly argued that the best way to save the American auto industry is to force it to choke on its mistakes and bad management — and change. In a public letter, Moore has offered the shocking truth that anyone could buy the entire American auto industry for less than $3 billion — and U.S. taxpayers are about to pump 5 times that into the uncompetitive sector.
And on top of that — there is NOTHING in the current outlines of the auto bailout package that requires the auto industry to keep jobs in the U.S. This money can go to help them manage their facilities abroad — in lower wage countries — while facilities continue to shut down in the U.S. with jobs shifted overseas.
In fact, despite some minor verbal, non-binding assurances from the auto chiefs that American taxpayer funds would not be applied to offshoring activities, there are no deals, no guarantees at all — and if faced with a much higher, less efficient production base in the U.S. compared to cheaper platforms elsewhere — this bailout money could in fact be financing a new major offshoring trend.
Even Paul Krugman alluded to this in his Stockholm remarks accepting his Nobel Prize, suggesting that gravitational forces are going to unwind Detroit’s auto sector, no matter what Obama does. He said “the concentration of the industry around Detroit would disappear.”
Obama’s pre-government team in collaboration with Bush’s outgoing economic officials are trying to diminish the sense of crisis in key sectors in the economy by guaranteeing loans and promising huge cash infusions. . .but, there are ‘smart’ ways to help move industry in new directions and then there is dumb spending.
Not dealing with the question of a new “social contract” inside the U.S. when taxpayer dollars are being pumped into the auto sector is a major mistake.
— Steve Clemons


14 comments on “Offshoring and the Auto Industry

  1. bangzoom14 says:

    I think everyone knows a few horror stories brought to you by our friendly American Automobile Industry. I agree with Michael Moore. They haven’t learned their lessons. The whole industry should be revamped from top to bottom. But starting by laying off people to protect their balance sheet is wrong. There’s gotta be another way.


  2. PissedOffAmerican says:

    The windshield wiper switch went out on my 1/2 ton chevy pick-up last week. Cost? $469.00 for the switch, $378.00 for the installation. $847.00 to fix my friggin’ windshield wipers. And thats on a pick-up thats 10 years old.
    Its ludicrous. I would love to know where that gold-plated switch was manufactured, and what the cost to Chevy was. Something tells me some 30 cents a day kid in China would be amazed that I just paid over a year of her wages for some chicken-shit piece of plastic and copper that she just slapped together.
    Wouldn’t it be nice if I could just leave my tools and my truck in the city, and take a nice dependable jitney into the city from my residence, pick up my rig, and proceed from there??
    Ain’t gonna happen. Detroit, and Allstate, own me. I’m their slave.


  3. gypsy howell says:

    “Why is there such animosity toward the car industry which
    employs millions of Americans and though failing, stands as one
    of the last vestiges of American manufacturinig, – and barely a
    whimper or a shout cast at the finance sector”
    Wall Street doesn’t have unions. The auto industry does. The
    unions must be crushed.
    Disaster capitalism strikes again.


  4. haypops says:

    Kudos to you; TonyForesta
    POA; GM has developed and deployed a very succesful fleet of hybrid transit buses.


  5. Pacos_gal says:

    Here is something to keep in mind. The big 3 are not just asking the U.S. for a bailout, they are also asking other countries. Canada, especially Ontario, is home to manufacturing plants for all 3, and they have asked Ottawa and Ontario for 6.8 billion. GM says they need 800 million immediately. Ford has basically asked for a 2 billion line of credit if needed.
    I remember that not too long ago, one of the companies, I think GM, asked for a renegotiation of loans and Ontario did that.


  6. TonyForesta says:

    Not to diminish the enormous numbers being flung around – but it astounds me that there is all this wailing and gnashing of teeth over 15-35? billion dollars to bail out the Auto industry – and no not complaint, or one demand for accountability or transparancy for the 700, – and 700 billion dollar bailout of the finance sector and the thieves, swindlers, and pathological liars on Wall Street who are largely responsible for the economic crisis. All the disparaging remarks and charges of failures, and burying of heads in the sand, and off shoring, and the obscene compensation of executives and top management hurled at the auto industry (most of which are accurate) – can equally apply to the finance sector. Worse the finance sector is also culpable for fraud, financial malfeasance, and perfidy and nothing is done, no one is held responsible, nothing changes structurally in the system. 7.4 trillion dollars has been funnelled into the finance sector alone by the fed in the last year. 85% of the feds total outlays since it’s inception in 1913 has been given to Wall Street in the last year alone.
    The American people are being thugged, robbed, beaten, and stomped on by the bushgov, and this auto bailout charade is a distraction from the even more horrorshow and 20 – 60 times larger bailout of failed, fraudulent, and many criminal companies on Wall Street.
    Just as the US auto industry has failed and will either disappear or radically consolodate, so the exact same physics and should apply to the Wall Street.
    Both sectors should see their management fired.
    Both sectors should be forced to pay back the American people with interest for every penny allocated. Every working American should be allotted preferred shares in the now nationalized institutions.
    Both sectors must be punished, taxed brutally, and prohibited from shipping jobs off shore.
    Why is there such animosity toward the car industry which employs millions of Americans and though failing, stands as one of the last vestiges of American manufacturinig, – and barely a whimper or a shout cast at the finance sector, who is largely responsible for conjuring, cloaking, and exacerbating the economic crisis and whose bailout is hundreds of billions of borrowed taxpayer dollars more that the bailout of the auto sector?
    I’m stunned.


  7. erichwwk says:

    Nice Post Steve. I am thankful for this oasis from the larger world of elitist politicians and CEO’s, where delusion, self-importance, and absurdity seem to be the common currency.
    I am ashamed at the extent to which the economics profession has turned into a profession to justify and support selfishness. It was not always this way. Folks focusing on the big picture of how an economy works are tiny relative to those building complex models that attempt to explain nuances, and on which sensitivity analysis (the extent to which a small change in a critical assumption affects the outcome) is rarely, if ever, done.
    For politicians to “save” firms “too large to fail” merely postpones the day of reckoning. By definition, a firm that large creates an economy where market competition is not possible. In such a market, money is more important as a unit of account that it is as either a motivating factor or a means of determining entitlement to the output produced. In trying to preserve entitlements such as the $.5 Billion annual share for the CEO’s of the top 50 hedge funds (that produced exactly what??) we will destroy money’s ability to coordinate economic activity.
    In response to the great depression, in 1934 Henry Simons wrote that:
    “A Federal incorporation law could be used to limit corporation size and where technology required giant firms for reasons of low cost production the Federal government should own and operate them..”
    And years later, the 1978 winner of the Nobel Memorial prize in economics, Herbert Simon wrote that organizations that are that large, there is no reason to suppose that firms setting profit as the goal will produce a more efficient result than an institution motivated by other goals (non-profit). In that context, competition and profit simply have no meaning as a separate incentive or motivating factor.
    in response to liz, in terms of what is going on:
    Interest is the price, not of saving, but for not hoarding. Hoarding causes those w/o money reserves to essentially disappear from the economic radar, with those holding balances believing only themselves entitled to social product. As Michal Moore points out (and Steve gets), for Congress to consider loaning $15B to an oligopoly that could be bought outright for $3B makes no sense. One simply cannot delude, cheat or steal oneself into economic well being.


  8. liz says:

    We are turning into North Korea. Businesses are closing so the choices of where and what to buy are going away too. You have store A or store B or Walmart..
    Now the auto industry is joining in… you may choose car a or car b.
    My country appears to be changing but I’m not happy with the direction.
    Talk to bankers, they have money to loan for homes. Talk to car dealers, they have money to lend for vehicles.
    What is really going on?


  9. Spunkmeyer says:

    Ask the British how the British Leyland experiment of 1975 worked
    out. We seem to be mirroring the collapse of the British Empire in
    so many ways.


  10. PissedOffAmerican says:

    Heres the deal.
    Obama’s massive infrastructural undertaking should make public transportation its priority, and the Big Three should immediately be put to work on designing and manufacturing a fleet of fuel efficient jitneys to be used in our urban centers, a mid-sized and fuel efficent/clean burning bus to service the suburb/urban crowd, and the immediate development of high speed rail to service the nation.
    But alas, these assholes will undoubtedly attempt to figure out a way to continue to hold the American consumer hostage to their personal vehicles, so they can collect their obscenely extravagant ransoms from the people in the form of insurance premiums and parts and service costs.


  11. JohnH says:

    The best government money can buy: subsidize the wealthy so they can create jobs in China.
    Or, we are reaching the ultimate stage of capitalsim, where capital views the government as a wholly owned subsidiary whose sole reason for existence is to soak the people for the benefit of Kapital–the Reagan/Bush social contract in which Democraps are silent partners.


  12. michael claussen says:

    Excellent comments from POA, as usual. You have a way of compacting truth to it’s essence.
    Here in Michigan it is crunch time. Either they make it or we become a collective burden on the rest of the US economy as we walk your sidewalks trying to sell pencils to people who use pens.


  13. PissedOffAmerican says:

    Anyone that works on their own vehicles these days knows that one best have both metric and standard wrenches to do even the basics on their vehicle. A modern vehicle from any of the big three is a hodge-podge of components built domestically, by our neighbors to the south, and overseas. I have even found both metric and standard sized bolt heads on the same mechanical component, such as an alternator, where the body of the component might be built in China, and the armature and diodes built elsewhere, to be assembled at yet another plant in another nation.
    The idea that the auto makers can simply throw aside the practice of offshoring is naive. The die is cast, if you’ll pardon the pun. It is now a global economy, and we simply cannot compete with labor costs, material costs, and the lack of environmental and labor controls that overseas manufacturers use to produce a comparatively low cost item. Its simply a reality, as is the fact that China is selling us absolute crap, and we are buying it up like drunks at happy hour.
    Perhaps GM’s woes are simply blowback for dismantling the public transportation system in our urban centers back in the day. But there is no satisfaction for us little people when a corporate Frankenstien is dismembered, because, unfortunately, we are the limbs of the monster. Its a shame we can’t simply decapitate it, and start anew with a fresh brain.


  14. Mlaw230 says:

    Is this not the “Revolt of the Elites” Christopher Lasch warned us about 15 years ago? Rightly or wrongly, there is no loyalty to the home countries working people and the elites feel greater affinity to the elite of Europe and Dubai then they do to Detroit.
    The question really is whether offshore labor is actually more efficient, or just cheaper. I fit isn’t more efficient then moving the whole operation offshore is likely to be a poor long term proposition.


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