From Thomas James:
I disagree emphatically with the BoingBoing commenter who claims that this is the result of ‘hypercapitalism having its vampiric way’ – it was capitalism which built all of these now-ruined buildings and the now-decaying wastelands of Detroit. The ruination came in degrees as Detroit’s industrial giants were increasingly hamstrung by unions and Detroit’s government increasingly fell victim to corruption and identity politics – if there were any vampires preying on “The Twentieth-Century Motor City”, they were from the union hall and the city hall.
There’s an Atlas Shrugged
comparison, too. It’s not a coincidence that the book is flying off the shelves.
The money flow that built Detroit did not evaporate — now it goes to Japan and Korea (and Ohio, and Tennessee, etc.). Japan got its market share by building better cars, which is how capitalism (vampiric or not) is supposed to work.
There was an interesting article in the Wall Street Journal a while back about Youngstown, Ohio. Obviously a smaller town but having a similar problem of shrinking population.
The gist of the article was that Youngstown was trying to intelligently manage the decay, doing things like de-annexing areas, decomissioning streets and generally trying to get the cost of city services in line with their tax base.
Detroit also never recovered from the riots of the late 60s. The city’s leadership kept proposing more liberal solutions to the city’s problems, and none of them ever worked.
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Jim, you miss the point (surprise, surprise).
It’s a tautology that Honda and Toyota are more profitable because they’re cars are a better value.
But One Question: Why are Japan’s cars better than Detroit’s? Why can’t Detroit compete?
Chris: I wouldn’t call consigning whole areas of the city to oblivion “smart.” I would call allowing capitalists to buy up those cheap assets and putting them to work “smart.”
Doesn’t de-annexation just mean that the county, not the city, now has jurisdiction? I don’t see how investors are disallowed in either case.
Perhaps the de-annexed portions of Youngstown just aren’t an investment opportunity superior to the others available. Investments in Murtha, Dodd & Frank, LLC is a very lucrative one.
Why are Apple’s computers more profitable than Dell’s? Why are Nintendo’s video game consoles more profitable than Microsoft’s?
Sometimes companies make better products.
Jim-
Sure, but for 30-years straight? Nuh-uh. Something else is at work, and we know what it is.
The sad thing is that even if GM and Chrysler go into bankruptcy and their assets are sold off to pay their debts, whatever companies buy them will still have to contend with the regulatory environment and labor culture that made the Rustbelt what it is today.
“But One Question: Why are Japan’s cars better than Detroit’s? Why can’t Detroit compete?”
All you have to do to answer that is look at Toyota and Honda’s -American- factories and GM’s benefits package.
It isn’t entirely that GM is making “horrible cars.” Just that their cars regularly end up being poor -value- for what you’re getting. Their “cheap cars” are carrying too much of their overhead – and they can’t stop manufacturing them and still meet CAFE standards. So you’re perpetually comparing $10k of GM hardware with $12k of Honda hardware. You have to -particularly- like the styling or truly desire to ‘buy US’ at that point.
The GM cars get more competitive as you move up the scale. 11 of GM’s 20 profitable lines are in line to get the axe – because their the largest/most expensive/farthest from meeting CAFE on an individual vehicle basis.
Apple, (or BMW, or Ferrari, whatever) has the luxury of not being REQUIRED to compete across the entire spectrum. They’re able to make reasonably solid contenders for specific markets. (Which, yes, get mauled if you’re comparing to something that is outside of that market.)
Apple doesn’t make blades, supercomputers, netbooks or a barebones desktop. But the things they do make are profitable.
Brock: Ohio has the same Rust Belt regulatory and labor environment as Michigan, and yet Honda builds great cars there. Ontario has a totally different regulatory and labor environment, but GM builds crummy cars there. Maybe it isn’t about the regulations or the workers.
Ohio has the same Rust Belt regulatory and labor environment as Michigan, and yet Honda builds great cars there
Jim, you goofball, Honda isn’t unionized. Don’t you ever use the relevant facts in an argument?
I don’t disagree with you, by the way, that GM makes poorer cars for the money than Honda. The question is, of course, why. The difficulty with the current Democratic answer, which is that Americans are lazy, or don’t have universal health care, or sufficiently subsidized college educations, is that GM is relatively alone in its incompetence. Apple, as you’ve pointed out, makes a great and profitable profit. So does Microsoft. (So, incidentally, does Dell; and it’s worth noting that they make far more money selling computers than Apple. Apple makes its money on iPods.) IBM is profitable, as is Cisco, Allied, General Mills, Proctor & Gamble, Boeing, et cetera and so forth. Many are in globally dominant positions.
And…er…they all employ Americans. Who do not have universal health care.
Carl: Brock referred to “labor culture”. I doubt that’s very different in Ohio than in Michigan, whether the workers are unionized or not. I certainly doubt that swapping the workforces would result in GM cars that are better than Hondas; the Hondas are better designs, and the best factory workers in the world can’t overcome that.
I don’t buy health care as the reason why Detroit’s cars are poor; the ones they build in Canada are no better.
The Auto Industry
The problem with blaming the UAW for GM and Chrysler’s problems are that Ford is a UAW shop with essentially the same contract. Ford is not anywhere near bankruptcy. Hurting, yes, but so are Toyota and Honda in this depressed economy.
GM’s largest problem is legacy costs – for every active worker, they have something like eight or nine retirees on pension. And unless you’re willing to put a bunch of senior citizens out on the street, whatever solution we apply needs to deal with that fact.
Chrysler’s problem is the disasterous merger with Daimler-Benz. After the de-merger, Daimler got all the new products and engineers.
The commentor that mentioned CAFE as a cause of the problem is dead on. Americans frankly don’t want small cars. I mean, nobody forced millions of Americans to buy SUVs, or forced Toyota to offer SUVs.
de-annexation
In Youngstown’s case, de-annexing parts of the city meant that the county picked up services. But IIRC, the county closed streets and shut down utilities, allowing the land to become more rural. Obviously investors could still buy the land, but the level of services now matched what investors were willing to pay for it.
I think that Jim misses the connection between union-induced scleorosis and the failure of American auto companies. It isn’t just the excessive costs of the UAW workers (though that certainly contributes to the problem), but the rigid work rules and overall organizational paralysis that the UAW encourages that makes the situation so dire. Making even small changes in a production facility (or even changes in how that facility operates) is extremely expensive, time-consuming and unpleasant when the UAW is involved, which means that even a well-run company (and GM is not…lets not let management off the hook here either) cannot adapt effectively to changing circumstances and the requirements that grow out of them. New technologies for production are simply not adopted at GM (my understanding is that Chrysler is almost as bad) with any alacrity, and when failures occur (as they inevitably do as part of any developing system) it is virtually impossible to adjust to and ameliorate them.
This affects all UAW auto manufacturers of course (and Ford, while it does better, is still hurting badly), but GM is particularly hard hit for another reason. Most of GM’s revenue came from financing, not from manufacturing, and their financing group has been hit very, very hard in the last 5 years. More loans went unpaid, and as sales dropped, fewer loans were written. While this certainly affected other sectors in the industry, GM was especially vulnerable to this sort of problem.
Bad management, failure to differentiate between car lines (very few models are unique to a single line in GM), CAFE (I share the views of those here that CAFE is hugely damaging to American manufacturers), legacy costs, etc. all contribute to the problem, but the UAW is certainly the major villian in this piece.
Carl: Brock referred to “labor culture”. I doubt that’s very different in Ohio than in Michigan, whether the workers are unionized or not.
Jim, I strongly disagree. The presence of a labor union alone causes several major differences: 1) an adversarial relationship between labor and the employer, 2) rigid and cumbersome work rules, and 3) insertion of the union into important labor issues like healthcare, retirement, and mediation with the employer.
Carl: Brock referred to “labor culture”. I doubt that’s very different in Ohio than in Michigan, whether the workers are unionized or not.
I’ve worked several jobs in the state of Michigan, at various locations across the Lower Penninsula. One was unionized. Most weren’t. The unionized position, everyone at that company in a position of authority (both company management AND the union reps!) verbally acknowledged that the policy was to create work conditions so bad that new hires voluntarily gave it up before the pension and health benefits kicked in at six months’ employ, by enforcing rigid work-rules, ignoring featherbedding and pure slackness (some “workers” simply disappeared on the premises after clocking in; in order to get anything out of them a manager had to personally search the entire building, find the slacker, and then stand over them while working to make sure they didn’t disappear again), union reps ignoring complaints, and a policy of starting full-dues payments to the union after one month (but as I said, benefits from the union CBA not kicking in until six; most people didn’t last that long). One coworker attempted to run for union rep; when he announced his intent to do so the managers targeted him for “special assignments” so vague and so often that he was unable to continue performing his duties; he was let go shortly before I quit. I quit after 4 months when a better, non-unionized position became available. In my brief time there, we had 3 people go through one job opening in my department, and another two (who each had over 10 years with the company) quit a month after I did.
It’s not the “labor culture” of an area. It’s what the “labor culture” is in a closed shop vs a non-union shop.