Following Up: Lousy U.S. Auto-Making Productivity and Those GM Layoffs

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automotive, Bureau of Labor Statistics, Detroit automakers, General Motors, GM, Jobs, layoffs, motor vehicles, NAFTA, North American Free Trade Agreement, offshoring, productivity, total factor productivity, Trade, Trump, yoFollowing Up

Yesterday, I posted some data – with a special focus on major victim state Ohio and major victim region Youngstown – providing some badly needed perspective on General Motors newly announced manufacturing jobs layoffs in the United States (along with Canada and other unspecified locations). Today I’d like to follow up with some statistics that shed more light on GM’s decision – and the strengths and weaknesses of the American domestic automobile industry.

There’s no doubt that, as widely noted, many trends and developments are responsible for the new job cuts – which are highly unlikely to be restricted to GM alone. Some of the biggest include changing product mixes (away from smaller vehicles and toward larger vehicles), new technologies (for electric vehicles and self-driving vehicles), and the inevitable waning of the latest “automotive cycle” – that is, a slowdown in auto sales that has been entirely predictable following the sector’s strong recovery from a terrifying downturn during the last recession.

But one industry trend that’s been sorely neglected – and that surely bears heavily on the “Detroit 3” auto companies’ failure to continue producing smaller vehicles profitably at their domestic factories (the plants targeted for closure) – concerns its productivity performance. In a word, it’s been lousy – which supports last week’s post presenting evidence that U.S. metals-using industries like automotive have been using crutches like (foreign government-subsidized and therefore artificially) cheap raw materials, along with massive job and production offshoring, to juice their profits rather than efficiency-enhancing improvements resulting from creating new technologies, investing in new machinery, devising better management techniques, or some combination of these measures.

That post last week featured data showing that the American transportation equipment sector (which of course includes auto manufacturing) has performed relatively well during the current U.S. economic recovery and the previous expansion – though the rate of growth decelerated over that time span. These periods were examined because they were marked by a tremendous increase in American imports of steel over-produced and dumped into the United States by foreign producers, which pushed steel prices way down for reasons having nothing to do with free trade or free markets.

But more detailed statistics make clear that the automotive sector per se lately has fared worse when it comes to total factor productivity – the broadest of two measures of productivity tracked by the Bureau of Labor Statistics, and the productivity measure I examined last week.

During the 2001-2007 American expansion, total factor productivity in the motor vehicles sector actually grew faster than that for transportation equipment overall – 22.70 percent versus 13.38 percent. But from the 2009 start of the current recovery through 2016 (the latest available data), vehicle makers’ total factor productivity advanced by only 2.53 percent – that is, much more slowly than the 9.67 percent improvement registered by transportation equipment overall.

In fact, since achieving a huge (15 percent) snapback in total factor productivity during the recovery’s first year following a deep (12.29 percent) nosedive during the recession, vehicle-makers’ total factor productivity fell by 10.94 percent through 2016. As a result, its total factor productivity hasn’t improved on net since 1989.

Also interesting: Since the U.S. ratification of the North American Free Trade Agreement (NAFTA) in 1993 created a bright green light for automotive production and job offshoring, total factor productivity in American motor vehicle-making is up by only 9.20 percent. That’s a considerably slower rate of progress than for manufacturing overall (20.13 percent), even though automotive trade has figured so heavily in U.S. trade flows with fellow NAFTA signatories Mexico and Canada so far.

I don’t mean to minimize the challenges all automotive manufacturers face given the multi-dimensional crossroads that seems to be arriving rapidly for the sector. What should be glaringly obvious, though, is that they’re unlikely to be met adequately – including producing smaller vehicles profitably, especially if and when oil prices start rising again – with a productivity performance that barely qualifies as second-rate.    

(What’s Left of) Our Economy: New Data Further Mock Wage Inflation Claims

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automotive, competitiveness, contract talks, Detroit automakers, inflation, inflation-adjusted wages, low road, manufacturing, real wages, recovery, United Auto Workers, wage inflation, wages, {What's Left of) Our Economy

Even if you keep emphasizing that wage figures aren’t the only, or even best, measure of U.S. employee compensation available, you’ll have difficulty saying or writing the term “wage inflation” after seeing the new real wage figures available from the Labor Department.

According to the new data, inflation-adjusted wages for private sector workers fell by 0.38 percent from May to June – the worst monthly performance since February, 2013. (My numbers come straight from the raw data posted on the Labor Department website.) Just as bad, May’s figures were revised down from a 0.09 percent decline to a 0.19 percent drop. On a year-on-year basis, June’s 1.75 percent after-inflation wage increase was the lowest since last December.

The year-on-year figures get interesting because they reveal what a low bar has been set for wage-inflation worries. Those June, 2014-15 real wage gains were not only much better than the previous year’s – which were zero. They were the best June-June numbers since 2008-09. During that stretch, when the deep recession was turning into a weak recovery, real wages shot up by 4.14 percent. But that increase followed a June, 2007-2008 fall of 2.17 percent. In other words, choices of baselines count.

But here’s one baseline that should be completely uncontroversial. The current recovery is commonly dated to mid-2009. Since that June, American private sector workers have seen wages rise a grand total of 1.65 percent faster than the cost of living. And the anointed experts wonder why so many consumers remain cautious (when they’re not bemoaning this prudence)?

As has been the case for way too long, manufacturing’s real wage performance kept lagging that of the overall private sector in June. Month-to-month, its constant dollar wages sank by 0.47 percent – the biggest such drop since August, 2012. Moreover, the year-on-year manufacturing real wage figures show the importance of baselines even more strikingly than their private sector counterparts.

The June, 2014-June, 2015 manufacturing real wage rise of 0.86 percent was the best June-June increase since that early 2008-2009 late-recession period (when it surged by 5.10 percent). In fact, it’s only the second increase since then. Yet since the recovery began, inflation-adjusted manufacturing wages are down by 1.59 percent, adding to the evidence that the sector’s strong comeback following a scary recessionary nosedive has come largely at the expense of its workforce.

Finally, the new real wage data provide some essential background for just-started new round of Detroit automakers’ contract talks with the United Auto Workers’ union. Numbers for sectors as specific as autos and light trucks (together) per se lag the broader figures by a month. But in May, they plunged 1.76 percent on month, after increasing by 1.19 percent in April. From May, 2014 to May, 2015, they fell 1.40 percent – nearly twice as much as the 0.73 percent decrease on year the previous May. And since the recovery’s June, 2009 technical onset, they’ve dropped by 9.86 percent. Detroit’s low road back to competitiveness, in other words, keeps getting lower.

(What’s Left of) Our Economy: Auto Journalism from Fortune that’s a Lemon

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automotive, Cars.com, Department of Transportation, Detroit automakers, domestic content, Fortune, free trade, globallization, journalism, Made in America, manufacturing, NAFTA, North American Free Trade Agreement, Trade, {What's Left of) Our Economy

Memo to journalists at Fortune: If you want to run an “Aha!”-type item based on a new report or study, at least read the whole document – and report all its main findings. Because apparently no one involved in its coverage of the latest Cars.com index of American-made cars and light trucks followed this rule, its readers were denied crucial facts and context.

Here’s how Fortune led off the post in question: “The phrase ‘made in America’ has always pulled at the hearts and wallets of loyal, red-blooded consumers, and never more so than in the automotive space. But according to research released Monday, the car company that qualifies as most American is….the Toyota Camry.” 

And in case you have any doubts about the main point Fortune wanted to make, here’s what the magazine concluded after spotlighting two more “surprises” about declining domestic content in vehicles sold in the U.S. market: “Globalization is here.” If you think this it’s coincidental that this observation came on the heels of a knock-down drag-out fight in Congress on trade policy, I’ve got some turnip truck tickets to sell you.

More damning evidence that Fortune was looking for a chance to score some cheap rhetorical free trade points comes from what the magazine ignored in the Cars.com study: its observation – based on official U.S. Transportation Department data – that “Detroit has the bulk of cars with high domestic content. GM, Ford and Fiat Chrysler Automobiles build 37 of the 57 U.S.-assembled cars with 60 percent or higher domestic content. Foreign-based automakers are responsible for dozens of imported cars with zero percent domestic content, according to the National Highway Traffic Safety Administration [NHTSA]. Detroit automakers have just two cars below 5 percent….”

Moreover, had Fortune bothered to look at the latest set of government statistics and Cars.com’s observations, it would have spotted some important differences. For example, Cars.com found that “The Toyota Camry took the top spot this year, as 2014’s top vehicle,” with 75 percent of its content coming from either the United States or Canada. (NHTSA weirdly has never distinguished between the two.) But in April, Washington reported that nine models were at the 75 percent mark, and six came from the Detroit automakers.

And had Fortune gone to the source, it also might not have written that “A Chrysler hasn’t shown up [on the 75 percent list] since 2012.” The NHTSA data place the Dodge Grand Caravan in that select company.

Fortune is of course free to like free trade as much as it wishes – though an intellectually honest publication would at least mention that government decisions like the pursuit of the North American Free Trade Agreement have shaped automotive (and other manufacturing) production patterns at least as much as “globalization” – a term whose combination of sweep and vagueness inevitably implies… inevitability. But it shouldn’t be free to cherry pick findings it likes and present the slanted results as straight news.

(What’s Left of) Our Economy: Why the Auto Boom Has Been So Hollow

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auto boom, auto parts, automotive, bailouts, Buy American, Cash for Clunkers, Detroit automakers, George W. Bush, imports, manufacturing, manufacturing renaissance, next-generation vehicles, Obama, trade policy, transplants, wages, World Trade Organization, WTO, {What's Left of) Our Economy

I’m happy to recommend two cheers for the Wall Street Journal reporters who have just told us that the ballyhooed boom enjoyed by the American automobile industry since the U.S. economic recovery technically began in mid-2009 has been marked by vehicles increasingly stuffed with foreign parts (which has held down potential production increases) and largely, as a result, by falling wages.

These reporters would deserve three cheers, however, if they’d written on the inevitability of these woefully subpar results when it counted, and especially about what needlessly sabotaged the domestic industry’s prospects from the get-go. The best timing, of course, would have been at the height of the financial crisis, when the Bush and Obama administrations both blew the opportunity to re-invent the nation’s crippled domestically owned auto sector as an industry capable of contributing to a real renaissance in manufacturing and a much healthier, production-based recovery.  And the industry’s emerging underperformance is rooted in offbase U.S. trade policies.

As I wrote back then, and later told Congress, neither president promoted auto rescue strategies dedicated to maximizing automotive output and employment. Rather, they deferred to World Trade Organization rules that prohibit member governments from discriminating in favor of domestically owned companies and factories in their economic policy making (but that are overwhelmingly honored in the breach outside the United States).

The result:  Both Presidents Bush and Obama refused to condition their bailout of the Big Three Detroit automakers on requirements that vehicle production at home be prioritized, and that the use of U.S.-made parts be greatly increased. Just as perverse was the impact on initiatives aimed at spurring the production of “next generation vehicles” that would curb oil use. They were structured in ways that made import-heavy foreign auto transplant operations eligible for subsidies. The Obama administration, therefore, had few options other than focusing on improving Detroit’s “competitiveness” by cutting its wage and pension costs.

The counterproductive results were visible by late 2009. As I documented, for fear of WTO-authorized retaliation, the “Cash for Clunkers” law intended to aid the industry by stimulating auto buying provided taxpayer subsidies for the purchase of imported as well as domestic vehicles. As a result, more foreign auto production (of parts as well as vehicles) was fostered than American production.

Today’s Journal piece does usefully update the foregone gains and damage done by Washington’s timid and shortsighted trade policies. U.S. auto parts imports hit a new record last year. The share of domestic content in American-made vehicles has never been lower. (This statistic, moreover, bizarrely includes Canadian parts.) U.S. automotive employment remains nearly 32 percent below its recorded (1999) peak – slightly more than total manufacturing employment during this period. Real wages during the current economic recovery are way off throughout the sector, and entry-level pay at at least some parts companies down to Wal-Mart levels.

Imagine, however, the effect had Journal journalists – as well as so many others – been paying attention when these trends were unfolding, and focused on the (at least debatable) government decisions behind them, rather than drinking so much of the Kool-Aid of manufacturing and automotive renaissances.