Ford’s Turnaround Plan: a death spiral

http://www.usatoday.com/money/industries/manufacturing/2008-05-02-ford-buyouts_N.htm#LogIn

I think this article is interesting for two reasons:  (1) The demise of either Ford or Chrysler is one of my 2008 predictions and (2) the reaction from some readers (see the comments) is typical of the misunderstandings about the role of “free” (blind) trade.

But first, a general comment is in order.  Ford’s turnaround plan looks a lot like that of Chrysler and GM: each turn in the turnaround involves making the company smaller and smaller - the very definition of a downward spiral, mirroring the overall U.S. economy. This won’t stop and neither will the overall decline in manufacturing and our economy in general (as we continue to bankrupt ourselves with our enormous trade deficit) until we abandon our screwball “free” trade policy and restore the tariffs (employing the population density indexed tariff structure that I called for in Five Short Blasts) that once made this country the world’s preeminent industrial power and wealthiest nation. 

“Ford Motor Co. will offer buyouts to about 1,300 workers at assembly plants in Chicago and Louisville, as part of the automaker’s plan to adjust capacity with demand for its vehicles, a spokeswoman said Friday.”

Decades ago, there were no such things as “buyouts.”  If a company failed, they simply let everyone go.  It wasn’t that big of a deal because they’d soon land on their feet with an even better, more lucrative job.  But, beginning in the ’80s, as the overall U.S. economy found itself locked in a death spiral, companies began to fear unruly mobs of peasants at their gates with pitchforks and torches.  The solution?  Numb them with “buyouts” that look like big money at the time but which are soon exhausted when their animosity toward the company has been dulled by the passage of time.  The effect is that America’s manufacturing workers trudge off silently into the night, sheep being driven toward what appears to be a greener pasture but is instead a green-painted slaughter house.  And the overall worsening of the supply and demand labor equation drags everyone down a little at a time - almost imperceptibly - like a slow drip from a faucet.

Readers’ reactions?

“The unions have not single handedly hurt the automotive industry.

The CEO’s have! They charge an arm & a leg for a product that has cheap plastic inside & out that breaks a week after you drive it off the lot.

They build gas guzzlers & have no inovative alternatives. The alternatives shown at the car shows will be built in 2010. They should hire the two kids that fiddled with a prius & ended up earning one hundres miles per gallon! TWO TEENAGERS! The Japanese probably have hired them already.”

While I have no love for CEO’s, come on!  They’re making exactly what American consumers have wanted.  Where’s the criticism of Toyota, Nissan, Mercedes and all the others who crank out equally garish monstrosities, for which they charge as much or more than GM, Ford or Chrysler? 

Here’s another:

“Keep cutting little three. This is the reason I will not buy any of their products. They cut jobs and add more foreign content to their cars. And do we see the prices of their cars coming down from that cheap labor?”

So, you’re saying you’d buy their cars if they stopped cutting costs?  And how much have the Japanese, Korean and German cars fallen in price lately?  Price has nothing to do with our trade deficit.  It’s due to granting free access to our market to nations that have nothing to offer in return.

“Union people keep demanding more so the big three cannot compete in price. The unions help keep the poor workers so quality stinks. No wonder they are losing market share, dah. I have not bought a vehicle from the big three since 1987. I refuse to support over priced union demands.” 

Wow, this guy is decades behind the times.  Does he not know that the UAW has been taking wage cuts for many, many years while, at the same time, improving quality to match the best the Japanese have to offer?  It seem he’d rather hand his money over to foreigners than to support a higher demand for labor in the U.S. that would drive up his own income. 

Is it any wonder there isn’t a greater outcry against our trade policies when people are so poorly educated about the problem?  Come on, Americans.  It’s time to stop blaming ourselves, get mad, and demand answers from our leaders.

Pete