Say youíre in the highly competitive widget business. European widgets are nearly as costly to build as yours but enjoy a superior image and command higher prices. The best Japanese-built widgets earn rave reviews at costs far lower than yours, and the rest ride their reputation coattails. Korean makers, with costs maybe 70 percent of yours, are coming on strong with increasingly attractive," />

Issue: Mar 2005


At Witz' End



Level the Playing Field, Part II

by Gary Witzenburg

Say youíre in the highly competitive widget business. European widgets are nearly as costly to build as yours but enjoy a superior image and command higher prices. The best Japanese-built widgets earn rave reviews at costs far lower than yours, and the rest ride their reputation coattails. Korean makers, with costs maybe 70 percent of yours, are coming on strong with increasingly attractive, well-built, higher-content widgets at much lower prices.
 
Compared to those fast-growing Koreans, your (mostly union) wages and multiple layers of taxes (federal, state and local) are many times higher, and your regulatory burden (federal, state and local) is far tougher and more expensive. They, like other off-shore competitors, donít shoulder the extreme cost of providing healthcare for their employees, retirees and families, donít have to deal (at least in their home countries) with Americaís out-of-control legal costs and donít have many, if any, retirees on pension here or at home.

And it wonít be long before still lower-cost Chinese, Indian and other widget makers will invade the worldís largest, most open and most profitable market ó yours.

Youíve already cut your costs (the ones you can control) well into the bone ó shut down facilities, let go thousands of people, greatly improved productivity and squeezed your suppliers to where theyíre struggling for survival. You canít cut more without taking it out of your products, which you know would be market suicide. On the contrary, you have to keep adding cost to make your widgets more attractive, reliable, durable and safer just to stay competitive but canít recover that added cost in pricing. How can you compete?

Fact is, you canít. Not without moving to a lower-cost state Ö or country.

Of course weíre not discussing widgetmakers but Americaís long-suffering automakers, who have lost nearly two points of share of their own market each year for the last five: from 68.5 percent in 1999 to 59.1 percent in 2004. Each point represents nearly one assembly plant, and the average (plant or office) automaker job, according to Center for Automotive Research Chairman David Cole, ďis four times as economically significant to our economy as the average job. Its economic multiplier is 10.4, meaning it supports 9.4 other U.S. jobs.Ē

Conventional wisdom among Americaís media and (as a result) consumers is that this continuing disastrous plunge has been and remains their own fault. Thereís no shortage of self-styled experts full of advice on what these companies must do to better compete.

But few address what others should do. For starters, I submit that reporters owe it to American workers to quit cheering on the visitors and give our home teams a fairer shake. Car shoppers owe it to themselves to open their minds and learn which domestic-brand vehicles are equal to, or better than, most imports. Why is it so difficult to grasp the well-documented fact that U.S. vehicles on average, in the same half-decade when their makers have lost nearly ten points of share, have become higher in quality than all but the top few import makes?

Most urgently and importantly, its way past time for our governments at all levels to recognize the economic and strategic importance of U.S. manufacturing and business and stop taxing, regulating and litigating it out of town, or out of business. Itís past time to lose the disastrously wrong-headed belief that acting ďprobusinessĒ is bad for workers and consumers. Itís time to comprehend who generates jobs and wealth. Competitorsí governments certainly do!

The three most important areas where our federal government must act immediately are: 1) reducing the cost of healthcare, which has been inflating 12-15 percent a year, 2) putting a stop to unfair currency manipulation by Asian governments, especially Japan, and 3) continuing work on tort reform, where recent classaction reforms are a very good start.

Otherwise, itís a matter of time until what remains of American auto (and other) manufacturing is owned and controlled by lower-cost off shore companies ó whose leaders wonít think twice about moving it to lower-cost countries as soon as it makes sense to do so.

Gary Witzenburg, a former advanced technology engineering manager and part-time racing driver, is a widely published auto writer and Editor-at-Large of Automotive Industries.

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