The Fate of 'Made in the USA'

[RedEarth]

The Fate of 'Made in the USA'

By Robert J. Samuelson
Wednesday, October 19, 2005; A21



The question posed by the bankruptcy filing of Delphi Corp. -- the largest U.S. auto parts company -- is whether manufacturing in America has a future. Or is it sliding toward extinction? Viewed historically, the question is misleading. It's true that manufacturing employment now accounts for only one in nine jobs, down from one in three in 1950. But the decline mostly reflects higher efficiency. Americans make more things with fewer people. From 1990 to 2000, for example, manufacturing output rose 61 percent while employment fell 2 percent, reports economist David Huether of the National Association of Manufacturers (NAM). This is generally a good thing. It frees more workers to produce services (software, education, health care) that Americans want.

Of late, however, the news about manufacturing has seemed particularly dismal. Since mid-2000, 3 million jobs have vanished. Though overall corporate profitability has been strong, manufacturing has until recently been a conspicuous exception. From 2000 to 2004, the sector's profits averaged only 60 percent of their 1999 peak. It's retailing, finance (banks, stockbrokers) and real estate that account for big profit gains. Finally, imports represent a growing share of Americans' consumption of manufactured goods. In a recent report, the NAM cites these figures for 2003: 35 percent for motor vehicles and parts; 45 percent for computers and parts; 22 percent for chemicals.

Delphi's bankruptcy suggests that the whole auto-industrial complex faces another wrenching shakeout. Delphi, once the auto parts subsidiary of General Motors, was spun off in 1999. The idea was to reduce GM's costs by forcing Delphi to compete for its contracts and to sell to other companies. Since then, Delphi's dependence on GM has dropped from about 80 percent of sales to 50 percent.

The trouble is that Delphi isn't profitable. The entire industry is caught in a cost-price squeeze. It needs price discounts (aka "incentives'') to sell vehicles. In 2004, GM's average selling price of $26,479 was $435 lower than in 2002, reports the consulting firm J.D. Power and Associates. Unfortunately, the resulting revenue pinches profits or pushes high-cost producers, such as GM and Ford, into the red. True, GM's distress (and hence Delphi's) stems partly from unappealing vehicles that don't sell well even at lower prices. Since 1999, GM's U.S. market share has dropped from 29.6 percent to 26.4 percent. But high labor costs are also a huge problem. GM and Delphi's hourly wages average about $27 under similar contracts with the United Auto Workers (UAW). Counting fringe benefits and retiree costs (health care and pensions), these soar to $65 for Delphi and $74 for GM

http://www.washingtonpost.com/wp-dyn/content/article/2005/10/18/AR2005101801215_pf.html