CRUISE the blighted streets that shoot off in either direction from 8 Mile Road, and the scars of the automotive crisis abound. “For sale” signs adorn the front of long-shuttered metal, paint and tool-and-die shops. And at factories still in business, the small number of cars in the parking lots testify that the shops are working below capacity.
The Empire State Manufacturing Survey indicates that conditions for New York manufacturers leveled off in December, following four months of improvement. The general business conditions index fell 21 points, to 2.6. The indexes for new orders and shipments posted somewhat more moderate declines but also moved close to zero…
It’s now fair to declare Ford Motor (F) an unqualified turnaround story.
The company reported a $997 million third-quarter profit on Nov. 2, adding profits to gains in market share and improvements in quality since CEO Alan Mulally took over in September 2006. The nearly $1 billion profit is a $1.2 billion turnaround from the third quarter of last year. The company also generated $1 billion in cash and paid down $2 billion in debt.
The manufacturing exodus from the U.S. is accelerating, but smarter tax policies, low-cost loans, and industrial zones may help keep factories at home.
When you buy for US$2 in New York an umbrella that’s made in China, you have to wonder how they do it. After all, the umbrella components have to cost something, there’s shipping, and there’s profit for numerous middlemen and the retailer. Among the economic miracles unfolding in China over the past two decades, the most mysterious may be how a country that skipped the Industrial Revolution, substituting the Cultural Revolution, became the low-cost factory floor to the world. Poorly Made in China: An Insider’s Account of the Tactics Behind China’s Production Game provides fascinating and disturbing answers. Chinese manufacturers cut corners wherever they can, from product quality to factory equipment and maintenance. They unilaterally change product and packaging specifications to trim costs. They raise prices after the deal is signed, leaving the importer to absorb the added cost. They reproduce their customers’ products for sale at higher margins in other markets. With support from government, bankers, and networks of fellow manufacturers, they conduct manufacturing and customer relations as a game, treating the other party as a patsy not a partner, playing for the short term of making an extra penny at the risk of product quality but also taking a long-term, multidimensional outlook that outflanks the hapless customer.
Outplaying your partner (via azspot)
In stark contrast to last summer, when oil prices soared past $140 per barrel, the economic slowdown has kept per-barrel prices relatively reasonable in 2009. But in his new book, $20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better, Christopher Steiner argues the dip is temporary, and says gas prices will soon climb beyond $4 per gallon to heights previously unimaginable.
I don’t know if I want to agree with this guy or punch him for his smug attitude about country dwelling and the agricultural backbone of America that will fall apart with $20/gal. fuel. Emphasis mine.
Ford Motor Co. is telling lawmakers it is concerned that federal support for GMAC LLC is giving the rival auto lender cheaper borrowing costs.
is roughly the percent of GM that each of us own.
$362 is what each of us paid for that equity stake.
That’s because $50,000,000,000 is the total amount the US Treasury has spent of GM’s survival. (That’s $30.1 billion for 60% of New GM’s equity + $20.6 billion that we spent trying to keep them out of bankruptcy.) And that’s just the beginning of it.
So $83,000,000,000 is what New GM would have to be worth in order for us to break even on our investment.
But $56,000,000,000 is what GM was worth at its all time peak in 2000.
And it’s only worth about $7,300,000,000 now.
So New GM would have to have about a 48% increase in value from its all time peak. Likely?
Corporate interests drove a policy agenda that rolled back taxes on high incomes, gave tax preference to income from financial speculation over income from productive work, cut back social safety nets, drove down wages, privatized public assets, outsourced jobs and manufacturing capacity, and allowed public infrastructure to deteriorate. They envisioned a world in which the United States would dominate the global economy by specializing in the creation of money and the marketing and consumption of goods produced by others. As a result, manufacturing fell from 27 percent of U.S. gross domestic product in 1950 to 12 percent in 2005, while financial services grew from 11 percent to 20 percent. From 1980 to 2005, the highest-earning 1 percent of the U.S. population increased its share of taxable income from 9 percent to 19 percent, with most of the gain going to the top one-tenth of 1 percent. The country became a net importer, with a persistent annual trade deficit of more than three-quarters of a trillion dollars financed by rising foreign debt. Wall Street insiders congratulated themselves on their financial genius even as they turned the United States into a national economic basket case and set the stage for global financial collapse.
David Korten (via azspot)
I think I understand all of the jobs numbers now.
May means new graduates. This puts people into the unemployed part of the labor force. This accounts for a significant number of people that are unemployed now that were not employed previously (hence, no job losses). This explains a significant chunk of the numbers. I need to look at the birth/death numbers (actually, I’ll just wait until Mish posts his analysis, because he’ll look at everything). Combined with the people who are defined to be no longer unemployed (something I dislike, but understand), this actually makes sense. This is a retelling of the fewer layoffs, fewer jobs story that was told by the weekly unemployment insurance reports in May.
The June report will likely have the same problem with the growth in the (unemployed part of the) labor pool. The layoffs slowed even further than the available jobs in the most recent UI report. I’m curious which effect will dominate. Unfortunately, there are signs of bad future numbers from manufacturing layoffs (particularly in the auto industry).
Popular notions of oligopoly and monopoly tend to focus on the danger that firms, having gained control over a marketplace, will then be able to dictate an unfairly high price, extracting a sort of tax from society as a whole. But what should concern us today even more is a mirror image of monopoly called “monopsony.” Monopsony arises when a firm captures the ability to dictate price to its suppliers, because the suppliers have no real choice other than to deal with that buyer. Not all oligopolists rely on the exercise of monopsony, but a large and growing contingent of today’s largest firms are built to do just that. The ultimate danger of monopsony is that it deprives the firms that actually manufacture products from obtaining an adequate return on their investment. In other words, the ultimate danger of monopsony is that, over time, it tends to destroy the machines and skills on which we all rely.
Examples of monopsony can be difficult to pin down, but we are in luck in that today we have one of the best illustrations of monopsony pricing power in economic history: Wal-Mart. There is little need to recount at any length the retailer’s power over America’s marketplace. For our purposes, a few facts will suffice—that one in every five retail sales in America is recorded at Wal-Mart’s cash registers; that the firm’s revenue nearly equals that of the next six retailers combined; that for many goods, Wal-Mart accounts for upward of 30 percent of U.S. sales, and plans to more than double its sales within the next five years.
The effects of monopsony also can be difficult to pin down. But again we have easy illustrations ready to hand, in the surprising recent tribulations of two iconic American firms—Coca-Cola and Kraft. Coca-Cola is the quintessential seller of a product based on a “secret formula.” Recently, though, Wal-Mart decided that it did not approve of the artificial sweetener Coca-Cola planned to use in a new line of diet colas. In a response that would have been unthinkable just a few years ago, Coca-Cola yielded to the will of an outside firm and designed a second product to meet Wal-Mart’s decree. Kraft, meanwhile, is a producer that only four years ago was celebrated by Forbes for “leading the charge” in a “brutal industry.” Yet since 2004, Kraft has announced plans to shut thirty-nine plants, to let go 13,500 workers, and to eliminate a quarter of its products. Most reports blame soaring prices of energy and raw materials, but in a truly free market Kraft could have pushed at least some of these higher costs on to the consumer. This, however, is no longer possible. Even as costs rise, Wal-Mart and other discounters continue to demand that Kraft lower its prices further. Kraft has found itself with no other choice than to swallow the costs, and hence to tear itself to pieces.
The idea that Wal-Mart’s power actually subverts the functioning of the free market will seem shocking to some. After all, the firm rose to dominance in the same way that many thousands of other companies before it did—through smart innovation, a unique culture, and a focus on serving the customer. Even a decade ago, Americans could fairly conclude that, in most respects, Wal-Mart’s rise had been good for the nation. But the issue before us is not how Wal-Mart grew to scale but how Wal-Mart uses its power today and will use it tomorrow. The problem is that Wal-Mart, like other monopsonists, does not participate in the market so much as use its power to micromanage the market, carefully coordinating the actions of thousands of firms from a position above the market.
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