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Following Up: GE’s Dubious Made in America Claims

25 Monday Aug 2014

Posted by Alan Tonelson in Following Up

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assembly, domestic content, Following Up, GE, Immelt, manufacturing, manufacturing renaissance, reshoring

Thanks to the Pittsburgh Post-Gazette’s Len Boselovic for writing about General Electric’s decision to put its appliance and lighting division up for sale, and for asking me to comment. He also deserves credit for being the only reporter I could find (through a Google search, anyway) to place the GE move in the context of the ongoing debate about whether American manufacturing is enjoying an historic renaissance. As I’ve posted, the issue is critical since GE’s previous commitment to reinvigorate its domestic appliance manufacturing was famously portrayed as the poster-child for the manufacturing renaissance in a humongous 2012 Atlantic cover story.

Possibly at my instigation, Len also touched on the critical question of whether GE had been truly manufacturing dishwashers and dryers and refrigerators in its U.S. factories or simply assembling them from foreign-made parts – though he didn’t make the point in his discussion of GE as such.

I and others have long suspected that most of the reshored GE appliance work is really assembly, which adds much less value to the U.S. economy. The low wages paid at GE’s facilities in Louisville, Kentucky seemed to be pretty conclusive evidence.

Imagine my surprise, therefore, when I started examining the question yesterday and found on GE’s website highly specific claims that its American-made appliances contain very high levels of U.S. content. According to the company, they start at 70 percent for the company’s ranges and go up to 90 percent for its dryers.

These figures were not only unexpected because they’re so lofty, but because they’re being made public at all. Typically, manufacturers keep such data very close to their vests – ostensibly because they represent very valuable commercial but also undoubtedly because the public would be furious to find out the extent to which so many Made in America products really aren’t. Therefore, the GE statistics show that the company was shooting straight all along with its reshoring claims, right?

Not so fast. First, I’d like to see some independent confirmation of the figures. Like many offshoring-happy multinationals in particular, GE isn’t above cherry-picking data even when it is presented accurately.

For example, in December, 2012 (not so coincidentally, the same month as that Atlantic cover story), GE Chairman Jeffrey Immelt told TV’s Charlie Rose that the company is a net exporter globally – meaning both that it ran a trade surplus and that its overseas sourcing of parts, components, and materials for its U.S. operations was relatively modest. This statement surprised me as much as the appliance content figures because although GE used to present its global trade balance figures in its annual reports, this practice stopped in the mid-1990s, and only exports have been specified since.

When I contacted GE’s press relations office by email, here’s the reply I got from Director of Financial Communications Seth Martin: “[U]fortunately we do not have public data on historical imports vs exports. I can tell you that as a multi-national company, GE has a supply chain that includes many American and global suppliers who support our domestic manufacturing facilities in the US. As a manufacturer of technologically advanced machinery our exports tend to be high value products. As you can imagine, there are many products we make for industrial use that contain parts made in many locations around the world. That makes it challenging to determine the $ amount of imports and exports from any one country.”

I responded that the company apparently had no trouble reporting on its exports, and that if import figures were not available, it was difficult to understand how Immelt could have come up with a trade balance figure. Martin’s response?

“In certain cases, such as the Annual Report, we have highlighted our commitment to making products in the U.S. by disclosing the international sales of American-made products. However, we typically do not provide these figures in our financial reporting, as it is not an SEC requirement to disclose, nor is it a metric that is used in managing our businesses, which are global in nature. That said, we can confirm that we are consistently a net U.S. exporter based on the value of our exports versus the value of our imports.”

In other words, “Trust us.”

There are some other important reasons for not taking GE’s word at face value. The definition of U.S. content provided on the GE appliance website refers to “funds used to make” a particular product being “spent in the United States.” Included are “U.S. parts, factory operations and wages.” But “parts” can be a tricky term at best. For example, an electric motor for an appliance can be a “part.” But in turn it’s made up of many other parts. How far down the supply chain do GE’s statistics go? Similarly, countless domestically sold products are imports. Is GE assuming that any money it’s spent on purchases from a U.S.-located retailer or wholesaler is being spent on a U.S.-produced good ?

As for that term “factory operations” – it could mean just about anything having to do with running a plant, including equipment depreciation costs, janitorial or grounds-keeping services or cafeteria services and the like, that have nothing to do with appliance manufacturing proper. Honda of America ran into trouble with the U.S. government in the early 1990s for inflating the U.S. content of its domestically produced vehicles to gain public relations and NAFTA-related tariff advantages. Are GE’s U.S. content figures similarly bogus?

With enough political will, nothing would be easier than requiring all manufactures doing business in the United States to make public domestic and foreign content levels. This information is essential for making sound trade and other international economic policies, and actually is already required for passenger motor vehicles, which must display a content sticker containing such information. The system isn’t perfect – it lumps Canadian and U.S. content together. But there’s no inherent reason that a fix couldn’t be made, and the policy extended to other manufacturing sectors.

Unfortunately, American trade and manufacturing policymaking is dominated by offshoring-happy multinationals like GE, which are determined to keep their monopoly over the most detailed and crucial information about changing production and sourcing patterns, and release it only in the most selective and self-serving ways. So they never tell, Washington never asks, and U.S. leaders and the public are forced to keep flying blind when it comes to globalization.

(What’s Left of) Our Economy: Major Pillar of Manufacturing Renaissance Claims Crumbles

21 Monday Jul 2014

Posted by Alan Tonelson in (What's Left of) Our Economy

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Tags

appliances, GE, Immelt, manufacturing, manufacturing renaissance, {What's Left of) Our Economy

The list of cheerleaders who have touted a phony U.S. manufacturing renaissance ranges from President Obama to the Boston Consulting Group to countless reporters who have parroted their largely fact-free claims. High on this list from nearly the start has been freelance journalist Charles Fishman, who published a lengthy cover story in The Atlantic’s December, 2012 issue boldly proclaiming the start of an “Insourcing Boom.”

Fishman’s distinctive contribution to Manufacturing Mania was his exhaustive look at General Electric’s decision to revitalize its Home Appliances and Lighting division, and in particular, the enormous appliance production complex the company had long maintained in “Appliance Park” in Louisville, Kentucky.

GE had tried to sell the unit in 2008 but found no takers (at an acceptable price, of course). So according to Fishman, the company decided to make chicken salad out of – well, you know – and within years, the results were nothing less than miraculous. In GE’s investment in the first new Louisville assembly lines in decades – including for products whose production was brought back from China – in ingenious process improvements he exhaustively described, and in favorable overseas trends like rising labor costs in China, Fishman saw evidence that much broader, long-time economy-wide trends encouraging manufacturing offshoring were coming to an end. Replacing them was nothing less than an historic industrial “renaissance” that was already “under way.”

The Atlantic was nice enough to run on its website a response of mine, documenting the abundance of statistics making clear that domestic industry was experiencing nothing more than a nice cyclical rebound from an horrific recession. But the renaissance claims have continued almost unabated.

How surprised its readers must have been, then, to see last week’s news that GE was again moving (quietly) to sell Appliances and Lighting. Although GE CEO Geoffrey Immelt invested $1 billion in reviving the division, Bloomberg News pegged the likely selling price at $1.5 to $2.5 billion. Of course, appliance production is likely to continue, at least for a while, in Appliance Park no matter who buys it. But the Bloomberg piece reminded that the sale was “part of a greater strategy to exit businesses where the company is not a leader or poised for growth.” In other words, GE’s new, supposedly revolutionary white goods factories weren’t meeting that standard, and indeed Bloomberg cited industry data showing that the conglomerate trailed Whirlpool and Electrolux in U.S. market share.

Fishman deserves credit for being smart enough to write near the end of his piece that “It’s possible that five years from now, everything will have unraveled—that the return of factory jobs will have been a temporary blip, that Appliance Park will be closed. (Business practices, after all, are prone to fads.)” The company’s reported decision to bring its Louisville experiment to an end – barely two years after Fishman’s breathless account of “a wave of fresh innovation…inspiring further, faster advances—shows that his qualifier was the only reality-grounded point Fishman made.

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The Snide World of Sports

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  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
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  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
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Current Thoughts on Trade

Terence P. Stewart

Protecting U.S. Workers

Marc to Market

So Much Nonsense Out There, So Little Time....

Alastair Winter

Chief Economist at Daniel Stewart & Co - Trying to make sense of Global Markets, Macroeconomics & Politics

Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

So Much Nonsense Out There, So Little Time....

Upon Closer inspection

Keep America At Work

Sober Look

So Much Nonsense Out There, So Little Time....

Credit Writedowns

Finance, Economics and Markets

GubbmintCheese

So Much Nonsense Out There, So Little Time....

VoxEU.org: Recent Articles

So Much Nonsense Out There, So Little Time....

Michael Pettis' CHINA FINANCIAL MARKETS

New Economic Populist

So Much Nonsense Out There, So Little Time....

George Magnus

So Much Nonsense Out There, So Little Time....

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