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As American Manufacturing Goes, So Goes America’s Economy

If you a manufacturing guy who was born and raised in the Midwest, the last 30 years have been pretty darned depressing. Watching and participating in the exodus of the broadest group of middle-class jobs from American soil has been heartbreaking. It has left many thousands unemployed and for those fortunate enough to find new work, it has left families with a lasting reduction in their standard of living. Recently I saw an exchange on Facebook that went like this:

Sally: Good news for Illinois. The state is giving Mitsubishi $29 million in tax incentives to keep their plant open in Normal. Mitsubishi will produce a new Outlander Sport crossover SUV for US consumption as well as Brazil and India.

Cindy: Wow. I am happy for the employees, of course, but $29 million! If I lived anywhere other than Normal, Illinois this would NOT make me very happy. I wonder how much Mitsubishi will be able to extort from Illinois taxpayers the NEXT time they threaten to take their jobs someplace else? Am I missing something?

Cindy: We’re probably all missing something – lol- I guess it’s just the price of doing business these days? Forgot to mention that the union made some concessions at this plant in December … Illinois definitely is not bargaining from strength, but approx. 1,100 employees are still working.

George: I see. So if the 1,100 employees agree to cuts in wages and benefits, they can stay employed. And if Illinois agrees to a $29 million bribe, they can stay employed without moving to a different state. Yes, indeed. A great deal – for Mitsubishi!

The message is clear (actually several messages are clear here): If you want to work as direct labor in the manufacturing business, you had better expect your annual income to be dramatically decreased, and for a long time.

This made me harken back to an article published in the Washington Post by staff writer Peter Whoriskey published on July 25, 2010 entitled: “After Bailouts, New Automakers Make Half as Much as Veterans in the Same Plant.”

The veteran UAW members building Jeep Grand Cherokees in this story make about $28 and hour. The recently hired make $14 an hour. Whoriskey’s story goes on to say: “What factory workers should earn became a central part of Washington’s prolonged debate over the bailouts of General Motors and Chrysler, pitting the advocates of the free market against those for a “fair wage.” Although cutting labor costs was viewed by many as essential to the companies’ recovery, the issue was never fully resolved.”

As I have pointed out in other books, articles, and blogs, the cost of goods sold (COGS) at US manufacturing companies typically looks like this: Materials & Components: 65%, Overhead:25%, and Direct Labor (10%). Cutting direct labor costs is NOT the answer. Yes, direct labor also requires benefits costs (health insurance, etc.). But even so, it is not the pivotal factor. It’s just easier to squeeze the direct labor element than it is to work better efficiencies out of the material and procurement side of the house. The problem, in broad strokes, is that management has become lazy and has fallen into the “group think” mentality that it is always less expensive to send direct labor jobs overseas. When that’s prohibitive because of shipping costs, then carving another pound of flesh from the direct labor force is the next easiest thing to do.

Whoriskey goes on to point out that with unemployment still over 13% in Detroit, a lot of folks are taking these jobs because they are better than no job at all, quoting one employee who said: I’ve got a wife, three kids and a mortgage. I really needed a job.”

A new day is dawning for America, and left unabated, Ronald Reagan’s vision that America’s best days still lay on front of us seems less and less likely to be true.

What do you think?

6 Responses to “As American Manufacturing Goes, So Goes America’s Economy”

  1. My brother and my sister-in-law worked in manufacturing for JP Stevens. Those jobs left our home town years ago.

  2. Marie Luft says:

    Yep, I remember that exchange, Bill, and I believe I read (a couple of days ago) that someone had ordered a fleet of a certain model so that the plant will be working thru the summer instead of the usual layoff.

    Ronald Reagen was known as the “great communicator” wasn’t he? … could that have been because he preached a “feel good” message ?

    We are all upset with the exodus of manufacturing jobs from the US; on the other hand, probably most of the younger generations will not grow up in a manufacturing environment and are looking at jobs in other areas of endeavor.

    • Marie:
      Thank you for your post!
      I think Reagan’s messages often made Americans feel good. He described America as a “beacon on a hill”, and had a warm home-spun humor that appealed to many Americans. However, I doubt the Soviets liked his communications when he called for them to “bring down this wall”. And then of course there is the fact that he cut taxes and restored the US economy to a path of a balanced budget, and so on. Generally speaking, although he certainly had flaws, Reagan was – in my view – the greatest American President since Abraham Lincoln. But I digress.
      More to your point, I agree with you that younger generations will be looking for jobs in other fields than manufacturing. Fields that pay far less for middle class jobs, require more two-income families to make ends meet, and enable fewer kids to attend college to better themselves. In that respect, America is following in the footsteps of Great Britain….. and it’s a shame.
      Bill
      Bill

  3. Carl Burney says:

    I heard some stats on Rush’es radio show the other day that that showed how out of kilter our economy is. If I remember correctly there are now 8 government employees for every 1 manufacturing worker.
    We don’t have enough taxpaying workers to support such a huge bloated government. Somethings got to give!

  4. Marie Luft says:

    Do you guys know the name Al Dussliere ? (East Moline) He has a letter to the editor this morning where he says basically the same thing … used to be if you wanted a good job you’d go to John Deere. Now you go to the city of East Moline. The pay and benefits are comparable and, in some instances, better. The job is secure. … and of course goes on to make his argument that EM needs to assess its work force.

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