Thursday, June 09, 2005

Looks like there is something else Americans aren't going to make anymore.
General Motors Corp. said Tuesday that it would eliminate 25,000 U.S. manufacturing jobs and close several factories over the next three years to revive its sagging North American auto operations. . . .

The job cuts outlined by Rick Wagoner, GM's chief executive, would slash the Detroit-based giant's hourly employment in the U.S. by 23%. At the end of last year, the company had 111,000 hourly workers and 39,000 salaried workers in the U.S., plus 31,000 in Canada and Mexico.
Some are trying to mystify this story by pointing to all the Japanese and European firms producing vehicles in the United States. Reuters, for example, says
GM, the world's biggest auto maker followed by Toyota, lost $1.1 billion in the first quarter and is riding out its worst financial crisis in more than a decade. It has been closing and idling plants over the past four years and will have cut its annual North American assembly capacity to 5 million vehicles by the end of this year from 6 million in 2002.

Meanwhile, top Japanese auto makers are adding jobs and assembly lines in North America to meet growing demand there, prompting executives, including Toyota President Fujio Cho, to dismiss concerns that their success would reignite a political backlash.
Not so fast there. Ten years ago (April 1995) there were 1,249,800 workers in the US motor vehicle and motor vehicle parts manufacturing sector (NAICS 3361, 3362, 3363). Today (April 2005) there are just 1,099,900 -- a 12.0% decline in a decade. If we focus in on just the motor vehicles sector (NAICS 3361) we see a fall over the same period from 297,700 to 255,200 -- a 14.3% decline. Even if Toyota or BMW are adding jobs, they are nowhere near making up for the loss of jobs under GM and Ford.

Moreover, the import penetration of the US market is growing; all those Japanese models aren't made in the US after all. In 1989 (the earliest year for which I could easily dig up data), domestic production of motor vehicles made up 77% of domstic supply (production + imports - exports). By the recent employment peak of 1995 that figure was down only slightly to 76%. Yet seven years further on, i.e. by 2002 (for data see here and here), domestic production was a mere 70% of domestic supply (up to 72% in 2003).

Regardless of the fact that Japanese firms are now producing in the US when they weren't in the early 1980s, the overall value of vehicles produced in the US relative to imports is falling, and along with it, the number of jobs in this sector.

Yet another line of production the United States used to be competitive in, going the way of textiles and furniture, apparently? But back in November the deputy governor of the People's Bank of China tried to console us by saying,
�The appreciation of the RMB will not solve the problems of unemployment in the US because the cost of labour in China is only three per cent that of US labour. They should give up textiles, shoe-making and even agriculture probably.

�They should concentrate on sectors like aerospace and then sell those things to us and we would spend billions on this. We could easily balance the trade.�
So how is that robust US aerospace sector doing, anyway? Since the same benchmark -- April 1995 -- the US aerospace sector has gone from 525,900 jobs to 457,900 jobs -- down 13%, amazingly similar to the story in motor vehicles.

Still, the US maintains its position as a net exporter of aerospace products and parts, unlike in motor vehicles. However, the trade surplus here is down notably off the 1998-99 peak, and even if the US can keep its head above water in this sector, the increasing capital intensivity of production means there won't be any jobs to show for aerospace's trade success.

Perhaps Americans can sell travel insurance to the world's auto, air and future space wayfarers instead?

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