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January 27th, 2012
Party like it’s 1998 Ford is reporting its highest annual earnings in over a decade. The Wall Street Journal says the auto industry’s profits are part of its new math: sell fewer cars, make more money (subscription required).
Curiouser and curiouser Keeping track of Wisconsin politics gets more complicated by the day. While the Wisconsin Government Accountability Board is still busy counting recall petitions against Gov. Scott Walker, the Milwaukee Journal Sentinel reports that two of the governor’s former aids have been charged with illegal campaigning. The charges are part of an ongoing “John Doe” investigation of Walker’s staff during his time in county government. Despite the investigation and the recall threat, Walker’s poll numbers are rising.
Meanwhile, in actual economic news, the Wisconsin Assembly voted to ease the way for a proposed Iron ore mine in the state’s northern region. Republicans say it will create jobs. Democrats say the changes could lead to environmental harm.
190 Acres of transformation In Cuyahoga County, Ohio, a 190-acre industrial site represents, in microcosm, the changes facing the Midwest. Officials in the town of Beachwood are hoping to rezone the property as the industrial sector declines and other sectors grow. Officials say they want to see the property used for health care, retail and residential investment.
Obama talks higher ed President Obama will be in Ann Arbor, Mich. today to talk about his ideas for higher education funding.
January 24th, 2012
The 2009 bankruptcies at General Motors and Chrysler were a historic moment for the Midwest economy. But a new memo published this week by The New Yorker shows that they were in danger of happening even sooner.
The insight can be found starting on page 36 of a 57-page memo by Lawrence Summers, written to President-elect Barack Obama on Dec. 15, 2008. The memo provides an in-depth look at the thinking that went into drafting Obama’s economic recovery plan.
At the time of the memo, Congress was considering emergency financing for car companies, who had been unable to borrow money from the nation’s banks. The Bush administration also was considering whether to use money from the Troubled Asset Relief Program, originally intended to rescue struggling banks.
Summers wrote, “Given GM and Chrysler’s current cash positions, it is overwhelmingly likely that one or both would be forced to file before or immediately after the New Year.” The Treasury Department, under President Bush, estimated the two companies would need $100 billion in bankruptcy financing.
“We believe that number to be wildly inflated,” Summers wrote.
In the end, the Obama administration provided $82 billion to finance the bankruptcies at GM and Chrysler, and pay for other assistance to dealers, suppliers and communities affected by the auto industry crisis.
Summers’ memo makes for interesting reading for anyone who’s followed the car companies’ bankruptcy and restructuring.
January 24th, 2012
Over the weekend, the New York Times ran a must-read story on why Apple products are not made in the U.S.
And, earlier this month, This American Life devoted an hour to a stunning look at work conditions inside Apple’s supplier factories in China.
Not long after TAL’s story ran, Apple released its annual progress report on suppliers in China. For the first time ever, the company issued a list of its suppliers and said it would allow an independent third party to audit its operations.
But there’s one claim in all this reporting that has particular relevance for the Midwest economy.
Early on in the New York Times story, reporters Charles Duhigg and Keith Bradsher (once the Times’ Detroit bureau chief) make the case for why Apple stopped making its devices in the U.S., and why that work is never coming back:
It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.
And, deeper in the story, we get this claim from an unnamed Apple executive:
“We shouldn’t be criticized for using Chinese workers,” a current Apple executive said. “The U.S. has stopped producing people with the skills we need.”
Is that true? Do American, and particularly Midwestern, workers really lack the “flexibility, diligence and industrial skills” that Apple needs?
Changing Gears has reported in the past that finding skilled workers is, in fact, a problem for manufacturers in the Midwest. But that same reporting revealed that many training programs are full across the region. The willingness to learn new skills is there. And, certainly, there are plenty of people looking for work.
To get a Midwest perspective on why Apple might be hesitant to try its luck with this labor pool, we called up Jeffrey Liker. He’s an expert on manufacturing in both the U.S. and Asia, and he’s the author of a number of books on the “Toyota Way” of manufacturing.
Liker doesn’t buy the claim that U.S. workers don’t have the skills or the flexibility to make Apple products. Any manufacturer opening a new plant has to do some training, he says.
Instead, Liker gave three main reasons why he believes Apple won’t build in America:
- Cheap labor Apple executives may not want to admit it, but Liker says one of the biggest advantages of going overseas is that workers there are much, much cheaper. This is really an obvious reason, and we all know it. But it’s worth remembering whenever someone tries to claim that the actual reason is because our workers don’t have the right skills. “Right now is the worst time to make that statement since the recession has put so many people out of work,” Liker says. “There are all kinds of skilled workers right now.”
- Taxes Liker says another big reason Apple and other manufacturers do work in Asia is because taxes are cheaper there. Usually, if a company makes profits from something built overseas, they have to pay American taxes when they “repatriate” those profits back to their headquarters here. But if a company spends money at lots of overseas factories, it just re-invests the profits over there, and it never pays the higher tax. Liker estimates this could make a 20-30 percent difference in profits for a company like Apple.
- They’re there because they’re there Once the decision to make products overseas has been made, it becomes incredibly difficult to reverse, Liker says. “Apple is not a manufacturing company,” he says. “They’re a design and marketing company.” All of Apple’s manufacturing plants in Asia are owned by suppliers, not by Apple. If Apple executives suddenly decided they wanted their products built in the U.S., they’d have to invest billions of dollars in new factories. In China, the infrastructure is already there. “They made that decision decades ago,” Liker says. “I don’t think they’re revisiting it.”
There’s another wrinkle to this discussion that Liker says is worth mentioning. Right now, he says China actually has a far greater shortage of skilled workers than the U.S. Demand for workers in China is so high that factories there have trouble holding on to people. Liker says turnover rates of 20-30 percent are common in Chinese factories. So, according to Liker, the truth is the exact opposite of what Apple claims.
The New York Times article generated lots of discussion online, and yesterday one of the reporters responded to readers questions. The Times says this is the first in series of articles about the “iEconomy.”
January 24th, 2012
Indiana Gov. Mitch Daniels got a lot of attention late last year when he finally came out in favor of a Right to Work law. Now, Daniels is suggesting that Volkswagen, in part, is the reason.
Speaking on Inside INdiana Business Television last week, Daniels said he was frustrated that his state was losing opportunities to compete for projects to other states that had Right to Work laws, which prevent unions from collecting mandatory dues.
One such project, according to the governor, was the assembly plant that Volkswagen recently opened in Chattanooga, Tenn. “I couldn’t get VW to return our call,” the governor said. “We’ve won on Honda, we won on Toyota, we’re clearly the fastest growing automotive state, and we couldn’t even get them to talk to us.”
Daniels. by the way, is giving the Republican response tonight to President Obama’s state of the union address.
Daniels was referring to Honda’s assembly plant in Greensburg, which opened in 2008, as well as Toyota’s two production sites. Toyota builds vehicles at its own plant in Princeton, and shares production with Subaru at its plant in Lafayette.
Tony Cervone, a spokesman for Volkswagen of America, declined comment via email.
Daniels’ decision to support a Right to Work law has caused an escalating debate in Indiana. Democratic lawmakers initially refused to attend hearings, even in the face of $1,000 a day fines.
Daniels said in the interview that their protests are justified. “Both sides ought to be heard from. I think the Democrats are within their rights to make a gesture of how strongly they felt, and to say let’s stretch this out a little further. It’s a good process and we’ll accept whatever outcome that comes.”
As the debate continues, companies like Remy International in Pendleton are weighing whether to invest in Indiana, or move elsewhere. Stateline.org looked at the situation for Indiana’s companies and its political future.
January 23rd, 2012
Classic car buffs were dazzled this past weekend when a 1948 Tucker smashed records at the Barrett-Jackson Auction in Scottsdale, Arizona. The Tucker, one of just 51 built, sold for $2.91 million, including transaction fees. a significant markup over its original $2,450 sticker price.
If you’re in the vicinity of Grand Rapids, Mich., this weekend, you’ll be able to see what a car like this looks like. The Torpedo owned by the Gilmore Car Museum in Hickory Corners, Mich., will be on display at the Michigan International Auto Show. It’s the same color and model as the one sold on Saturday.
The Gilmore Tucker was last put on display at the show in 2004, when it was valued at a mere $5,000, according to a press release. It has only 51 original miles, untouched paint and the factory grease pencil markings on it.
Tucker was a company with deep ties to the industrial Midwest. It was the brainchild of Preston Tucker, an entrepreneur from Ypsilanti, Mich. He built his cars in a vast factory on Cicero Avenue in Chicago that is now home to a shopping mall and the corporate headquarters of the Tootsie Roll Company.
Here’s the trailer from the film Tucker: The Man and His Dream, directed by Francis Ford Coppola.
January 20th, 2012
Michigan Film Incentives: In our very first story, Changing Gears told you about The Film Factory — the race between our states to attract movie productions. But last year, Michigan capped its film incentives, and the result was immediate, reports The Atlantic Cities. Only 84 productions applied for incentives in 2011, and just 22 were approved. That compares with 119 applications in 2010, when 66 were approved.
Ohio Police: Tiny Woodmere, Ohio, is known for having one of the highest ratios of police to residents — one officer for every 50 residents. But Woodmere now may shut its police force and hire protection from nearby Orange, Ohio, according to the Cleveland Plain Dealer. Its mayor feels the half-square mile village can no longer afford the $1.2 million cost. Orange, which surrounds Woodmere, plans to charge $500,000, the mayor says.
Wisconsin Web Cam: Wisconsinites have been riveted by the debate over recalling Gov. Scott Walker. So much, that a Web Cam showing bureaucrats counting recall signatures has become a hit. The Associated Press reports that watchers have given nicknames to the Wisconsin Government Accountability Board who are reviewing the signatures, and the Web Cam has gotten its own Twitter account, @recallcam. (The account is following just one person: The Reverend Al Sharpton.)
General Motors has ranked second among the world’s carmakers for the past three years. But now, GM looks like it’s back in the top spot.
GM said Thursday that it sold 9,025,942 vehicles last year, 7.6 percent more than in 2010, according to The New York Times. Its closest competitor was Volkswagen, whose sales grew 14 percent to 8.156 million.
Toyota, which has led the global car market for the past three years, looks like it has fallen to No. 3. It hasn’t released its 2011 auto sales numbers yet. But last month, it estimated that will sell 7.9 million vehicles in 2011, and 8.48 million vehicles for this year.
The title returns bragging rights to Detroit, and gives GM a new challenger to worry about. Meanwhile, Toyota, whose Princeton, Indiana, plant just built its 3 millionth vehicle, is still working on its recovery from recalls, the Japanese earthquake and tsunami and floods in Thailand.
Does it matter to you if GM is No. 1? Let us know what you think of the sales race.
But there’s another side to the jobs numbers: people simply giving up on finding work. (Take our Changing Gears survey.)
The conflicting numbers make it hard to get a clear picture of the jobs market.
Here’s what we know:
- Michigan’s unemployment rate fell to 9.3 percent in December, but the size of the workforce continues to drop, according to our partner station Michigan Radio. It says Michigan’s unemployment rate plus the “under-employment” rate (people working part time jobs because that’s all they can find, or in fields not related to their expertise) is 18.8 percent.
- Nationally, initial claims for unemployment benefits dropped by 50,000, to a seasonally adjusted 352,000. It’s the lowest figure since April 2008, says the Labor Department. Reuters reports that economists are watching for the seasonal number to drop to 350,000, which would be an indication that jobs growth is stronger.
- Manufacturing output rose 0.9 percent from November to December, the Federal Reserve said on Wednesday. Overall, it’s up 15 percent since the depth of the recession. Factories added 23,000 jobs in December, the most since July.
But there are concerns about the job market, in part because of the prospect that gasoline prices will rise this winter and into the spring. Consumer comfort dropped last week, in part due to a 20-cent a gallon rise over the past month, Bloomberg says.
We’d like to get a handle on your job prospects. Changing Gears would like to know if you’ve recently found work, or if you’re among those who’ve given up on landing a job. Please take our survey and we’ll be reporting on this situation as we sift through the results.
Polk, the Southfield, Mich., firm that tracks automobile data, says the average age of cars and trucks has reached a new high. The average car on the road is now 11.1 years old, while the average truck is 10.4 years old.
Overall, the average vehicle is now 10.8 years old, compared with 10.6 years in 2011. Polk bases its data on vehicle registrations, rather than sales numbers.
It’s a number that everyone in Detroit and the auto industry elsewhere watches closely, since it helps gauge how many future vehicles might be built.
What’s behind the longevity?
- Automotive quality. A decade ago, the average age of a car was 8.6 years, while the average truck was about six years old. Vehicles are simply lasting longer than they did for our parents or grandparents.
- Another factor is the economy, which was reflected by the slump in auto sales and only a gradual recovery the past few years. People are maintaining and keeping their cars and trucks longer, because they have to.
- A final factor is the length of auto loans. The average car loan is now 63.3 months, or a little over five years. People who pay off their loans often like to keep their vehicles a few years longer.
Polk also has some interesting data on the automotive fleet. There are now 240.5 million vehicles on the road, which is 500,000 more than at this time last year.
The Census Bureau says there are roughly 112 million American households, so that’s just a little over 2.1 vehicles per household.
How old is your car or truck? How much longer do you plan to keep it?
January 12th, 2012
For years, billionaire Manuel “Matty” Moroun has defied court orders regarding the bridge he owns between Detroit and Windsor, Ontario. (Yes, a private businessman owns an international border crossing.) Now, Moroun is in jail, in the latest chapter in the saga of the Ambassador Bridge.
A judge ordered Moroun and his associate, Dan Stamper, the president of the Detroit International Bridge Company, jailed on contempt charges. The company was under a court order to complete the Gateway Project, which was meant to allow motorists to enter the bridge directly from Interstate 96.
The project was supposed to be finished two years ago, but Moroun’s company constructed duty free shops that were not authorized as part of the project. Instead of zipping onto the bridge and over to Canada, motorists have to wind along a service drive and backtrack to toll booths.
State transportation officials estimate it will take about a year to dismantle Moroun’s additions and build the lanes, ramps and other features that the $230 million Gateway Project called for.
The chaotic courtroom scene comes as Moroun, 84, has been campaigning to build a second bridge adjacent to the Ambassador Bridge, something the state of Michigan would like to do itself.
Michigan Gov. Rick Snyder and a number of local business officials argue a new bridge is needed so the state can remain competitive. But Moroun has lobbied against it in the state capital, blocking legislation that would authorize a second bridge.
I wrote about the push for the new bridge last year for The Atlantic Cities. That project remains up in the air.