The Age of the Induced Industrial Coma

Dear reader: in today's Wall Street Journal was an article I felt needed to be shared with you.  I hope they don't sue me for posting this entire article.  However for those of you who are not reading the Wall Street Journal on a regular basis (you should), I wanted you to have an opportunity to hear this interesting commentary. The original text of the article can be found at here.

 Obama's America: Too Fat to Fail

The age of the induced industrial coma.

 Studebaker, Nash-Kelvinator, Packard, Hudson, Stutz, Pierce-Arrow, Stanley, Checker and American Motors were once household names of the U.S. auto industry. Unlike General Motors in our time, they were not too big to fail.

Despite mergers and rescue efforts by their owners, each was shut down.

Their legacy lives on as classic cars, restored with erotic affection by collectors.

GM's end is different. In the spirit of the new age, General Motors, like Citigroup and AIG, will be kept alive in an industrial coma. One has to ask:

Is this where the entire country is headed? Since January, it looks like it is.

After GM's bondholders last weekend refused to answer the bell for another round with Uncle Sam, the White House put out a statement: "As a result, the President has deemed GM's plan viable and will be making available about $30 billion of additional federal assistance to support GM's restructuring plan."

Read that sentence again, slowly. It holds what look like the keywords of the American future: the president, deems, viable, making available, federal assistance, support, restructuring plan.

Last week's column in this space, "Obama vs. the Beach Boys," drew some responses from readers who thought its tone too nostalgic for a lost era of fast but inefficient cars with low mileage and high maintenance. Recognize and embrace the future, they said, which includes high-tech bikes and high-tech cars.

"Just pick up a copy of magazines like Euro Tuner or Import Tuner," said Thomas Alves, "and you will see many ads and articles about adding turbochargers, reprogramming engine management computers and the like to four cylinder engines. . . . California and Washington will try to kill and regulate, but the constant desire for innovation is still strong in this country, and there are more of us than there are of them."

Mr. Alves is right that the instinct to innovate lives on in America. The question is whether the innovators going forward will have an economy and system that gives them room to breathe, or whether the government's rescue of Old GM is the new paradigm.

So far Mr. Obama has used his personally exciting presidency for initiatives that are spending public money on a scale not seen since ancient Egypt.

Besides Obama Motors ($60 billion to $100 billion), there is Obama-Care for health insurance ($1.2 trillion over 10 years), the stimulus ($800 billion), a global-warming offensive called cap and trade that hopes to siphon hundreds of billions of dollars from the economy, and a fiscal year 2010 budget of $3.59 trillion. Out of these mists of federal "investment" they promise five million "green collar jobs." Only public-sector lifers could believe, or assert, anything so fantastic.

Then there is the never-ending march of the financial-rescue armies -- TARP, TALF, PIPP, EESA. The Federal Reserve's balance sheet stands at some $2 trillion and growing. Last week Treasury floated the possibility of a single financial regulator for the entire banking system.

All this is the Obama government's idea of innovation. It is all public sector because all any of them know is public sector.

Without exception, the Obama people with responsibility for the private economy come from a lifetime in politics, public administration or academia.

Besides Mr. Obama himself, the list includes Tim Geithner, Larry Summers, Peter Orszag, EPA's Lisa Jackson (16 years with EPA), Commerce's Gary Locke (zero private experience), or Transportation's Ray LaHood (14 years in the House). The bio for Agriculture's Tom Vilsack says he "has served in the public sector at nearly every level of government." How can the private sector -- especially the world of risk capital, sweat equity and start-ups

-- be anything but an abstraction for this group?

Many of Mr. Obama's supporters surely thought this young, dynamic generation of public leaders would elevate the hip, cutting edge of the U.S. economy -- nanotechnology, genomics, robotics, even health and medicine technology.

Instead, we've gotten the Old Economy on dialysis. General Motors has been commanded to restart aging UAW factories to output product on behalf of the administration's hybrid-car obsession. Where's the New Economy in any of this?

Or ObamaCare. How will a build-out of Medicare (b. 1965) to cover everyone and costing $1.2 trillion over 10 years not kill innovation in medical and health technology by siphoning away growth capital and its potential financial rewards?

All of this seems so out of sync with the persona and promise Barack Obama conveyed in the campaign. A lot of his Web-based supporters probably thought Mr. Obama was going to be about promoting young guns with new ideas seeking risk capital for the next big thing. Instead, it looks as if the Obama years will be about managing soft landings for mature industries and old unions in the American autumn.

Congress is talking about a "bad behavior" tax on beer and soda pop to reduce obesity and fund mega-Medicare. How about a bad-behavior tax on government? Slim as the president looks, Uncle Sam is looking like quite the fat boy.

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Printed in The Wall Street Journal, page A13

How the Unions Screwed the Auto Companies (And Will Continue To)

 In our brave new global manufacturing world, those who travel the globe have an interesting perspective to manufacturing and the costs associated. For instance, warehouses in Mexico, China, India, Hungary and the USA all look remarkably alike. They all use the same yellow forklifts, made by the same company. They all have some form of green and orange painted steel pallet racking, where pallets of automotive parts are stacked all the way to the ceiling. The concrete floors are nearly identical, as are the steel roll up dock doors, and the trucks that are parked as they are unloaded. The folks that are driving the forklifts, and doing the work may look different, but they are much the same, and they do much the same job.

The massive disparity is only seen when you go outside the factory, and you see the houses in which the workers live.

For instance, in Mexico, the government builds housing outside of the maquiladoras (factories) for the workers. In an effort to draw companies to Mexico, modern looking concrete tenements are in place outside of many of the factories, and many folks have cars and some of the trappings of the Western world.  

 Not so in China where few own cars, and most take public transportation to the ghettos of corrugated aluminum housing where they live. Some are lucky enough to have dormitory like housing in the factory where they work.  

In India, many ride bicycles to the huts constructed of mud that they call home.  

In Hungary, the wood from the discarded pallets thrown out of the back of the factory as trash, can be seen in the construction of the houses where the workers live. 

In South Carolina where I live, the average forklift driver wage is in the $9-$12 an hour range. Folks may have older cars, and often live in single wide trailers out in the country.

All these folks do the same job as the union autoworkers. So how do the autoworkers live?

Let's take Randy for an example. He's been with the union 14 years. His aggregate salary is $76 an hour, when all benefits and perks are included. In some cases he's paid overtime after working only five hours in a single day. He lives in a 2500 ft.² brick house, has a summer cottage up north, a nice 23 foot boat, a nice motorcycle and drives an Escalade. In another 16 years, at the age of 48, he will be able to retire with nearly a full income, and full medical and dental benefits at little or no cost to him. Like most of his coworkers who have retired, he is likely to take a job to "supplement" his income. If he is caught being late repeatedly, showing up drunk or high at work, has low production, makes a lot of mistakes, his company cannot fire him. He gets raises regardless of his production or performance,  and if his company goes through hard times  and needs to lay him off, he will likely draw full benefits and wages.  Hard for an automaker to save costs in tough times that way. 

When it comes time for his company to negotiate new wages, he will vociferously fight to retain or even gain more compensation than he already has. He will likely cite Henry Ford as saying that the workers should be able to afford the vehicles they make. No matter if Henry was referring to an Escort rather than an Escalade.

All this, when Randy has a high school diploma, and no more education or ability than the workers doing the same job in other parts of the USA or the world.

Non-US auto companies, and manufacturers of all kinds across the USA, are paying fair wages (aggregate $20-$30 an hour) to folks who are doing the same work as Randy is for $76 an hour. In Mexico the same kind of worker makes four dollars an hour. In China, four dollars a day. And Randy is campaigning and complaining about his $76 an hour.   

In other companies competent managers push for higher productivity and increased pay to incentivize good workers. But the unions do not allow such "nonsense", instead pushing for less production for the same pay, setting limits for production during an full workday and forcing promotions for even low producing workers. In other companies employees buy into productivity, quality products and competition, in the union making it to retirement with as little work as possible is the motive, and your job pays the same if you make a quality product or not, and whether you make a lot of it during your eight hours or not. 

Which brings up the issue of productivity.  Truck drivers to deliver to union auto plants become frustrated by the obtuse regulations that govern how slowly the UAW can do its job.  At most non-union facilities, you pull your truck with him into a loading dock, and a forklift driver will look at your paperwork, quickly and efficiently unload your truck and sign the paperwork. The process should take no longer than an hour, by one person.  

But in the union plant there are hoops to be jumped through to ensure that all sorts of people who don't have anything to do are given a piece of the pie. A truck driver will first have to find the office where the paperwork should be turned in. Usually this paperwork person is on break, so the truck driver has to wait 15 minutes to an hour just to find out what dock they should pull into. When the truck is finally in the dock, a forklift driver may not unload the truck. You see, the dock plate is hydraulic, and is operated by pushing a button. This complex task can only be accomplished by an "engineer" from the electricians union. And guess what, the "engineer" is on break. Another 15 minute to an hour wait while the "engineer" is located, and comes cruising up slowly on his three wheeled bicycle. His work is easily accomplished in 30 seconds, he pushes and holds the green button that lowers the hydraulic dock plate into place. This complex job being done he wheels away to sit in an office and do nothing until someone else needs him.  

Now finally after all this time a forklift driver is allowed to enter the truck. But does this forklift driver move quickly? No, there is no incentive for him to move quickly. The slower he goes the better off for him. I have quite literally seen forklift drivers creep at a slow crawl that enables them to stretch a one hour load into four hours. When asked why, they will honestly answer that they are paid by the hour and there is no point in going faster. Now comes the charade of the "engineer" being summoned to make the 15 minute trip from across the plant to do his thirty second job again. And of course the paperwork person who is required to sign off what the forklift driver unloaded is on break for lunch again. Four to eight hour waits are not unusual for truck drivers delivering to union auto facilities, an infuriating fact for those who are paid by the load, not by the hour, and know that an hour at most is needed.

Extrapolate this small picture of UAW inefficiency on one truckload of materials being delivered, into hundreds of trucks per day.  Or into thousands of vehicles made on assembly lines using this slow unproductive approach by frankly lazy union workers desperate to keep and protect their job rather than to keep their company productive and profitable.  How can I stretch the four hours of work I have, into the eight hours it needs to be so I can keep my job? 

Look, the unions had a good effect on the system 75 years ago when low wages and worker abuse were the norm. No one disputes they were necessary then. There was nothing wrong with Americans leading the way to a prosperous and happy middle class.

So its high time now that they take a look at the reality felt across the rest of the world now.  The UAW workers should understand the incredulity and anger toward the UAW that all the other Americans have across the USA who do the same damn thing for a living. They should understand that there are many Americans who have little or no sympathy for this whining of the union workers who are now being forced to give "concessions" that "lower" them to a new level of employment still far above most American workers. Really, who do these uneducated folks holding $76 an hour day labor jobs that should pay $12 an hour thing they are?

Other companies are slashing workforce, cutting salaries and benefits, and asking workers for more production in an effort to be profitable. But the UAW provides a foolish charade that they are making "concessions". What deep cuts are they taking? That overtime be paid after 40 hours a week on site, like all other Americans. Oh, wow, like, that was really a big one, good job guys. Lets see some serious cuts brought to the table, wage reductions bringing them into line with  what Americans in the rest of the country make, lets see some serious effort at incentivized pay for quality and production. Instead its more complaining about how bad they have it. Well go to India dude, and let me know how that makes you feel to see the same job done, with far better quality control than you have done, for so much less. If you want to make $76 an hour, go to college and make something of yourself. Be real.

In the Obama administrations view, the right thing to do is continue and empower this disastrous UAW model by turning 50% of Chrysler and GM over to the very entity that strangles it. Over the last 15 years, GM and Chrysler have been loaned over $36 Billion of cash by average Americans, and this has subsidized the losses caused by the UAW. Now the Obama administrations view is that all these people should walk away from the cash they put into Chrysler and GM, and just give it to the union workers. What insanity.

Until the UAW brings itself and its pay structure into line with reality, the companies it strangles will continue a slow choking death. Lets hope there is some change....