An Ethnographer Says Crazy Things
Via a PR email, I came across the following crazy paragraphs from an ethnographer. I won’t include the name of the ethnographer, as I’m convinced he has been badly misrepresented — that or he is cuckoo.
____________, an ethnographer who spent the last year inside U.S. and Italian auto plants, says the collapse of the Big Three automakers would halt the advance of another, arguably more important industry: the auto-parts suppliers. The supply workforce is roughly three times the size of the vehicle-assembly workforce, and more on the cutting-edge of innovation.
“Halt” seems strong. I worry that some of my comrades in the anti-bailout camp aren’t appreciating the seriousness of a collapse of the Big Three: this is a sector that generates a lot of tax revenue, and placing severe pressure on the Pension Benefit Guaranty Corporation is a legitimate issue, etc. I don’t mean to dismiss these concerns out of hand. Also, via John Robb’s Twitter feed, I found this eerie pronouncement:
GM is a integral part of the financial community. It’s a big financier. Its failure would also ignite another CDS meltdown (like Lehman)
Let’s hope this isn’t true. My preference, at the moment, is for some kind of prepackaged bankruptcy, though I need to think this over.
But surely innovative auto-parts suppliers will continue to supply transplants and the leaner domestic firms that would emerge from bankruptcy, and one assumes that they’d export more. Back to the press release:
“The discussion needs to shift from the automakers to the suppliers. Invention is no longer a one-man show, and the demise of the Big Three would stifle the innovation of American suppliers, leaving them exposed to competition from part-makers in the low-wage world.”
Does this make any sense? You have to assume that these suppliers are already exposed to competition — that or the Big Three are overpaying for parts as a matter of policy, which leads one to think that we shouldn’t be bailing out the Big Three.
“Cars improve because of supply-side innovation, with lots of workers thinking about their little bailiwick, like light-weight latches, for example. It’s not small potatoes; things like light-weight latches are the reasons Toyota and Honda improve their cars each year.”
Non sequitur?
“The car is a highly complex product, with 5,000 parts that must come together with a tolerance as low as one-one thousandth of an inch, where a fault in quality can shut down an assembly plant, costing up to $10,000.”
And another non sequitur?
I worry that some of my comrades in the anti-bailout camp aren’t appreciating the seriousness of a collapse of the Big Three
It’s beyond a worry, at this point. It’s true almost entirely across the board. Blogger after blogger is leveraging support for denying the automakers a bailout by dramatically underestimating the amount of damage that will be down to our larger economy by the failure of the Big Three. And many of them are doing it, of course, out of the conviction that arguing against the automaker bailout makes them Very Serious economic thinkers.
— Freddie · Nov 21, 10:17 PM · #
I’ve read that part of the Big Three’s problem is that they always strive to cut costs on parts, rather by building relationships with suppliers that would help them get long term quality increases. That would tend to contradict the claim that suppliers would only now be exposed to competition.
— Justin · Nov 21, 10:37 PM · #
This is an unusually confused post—almost as confused as the ethnographer musings that you are musing on. Not sure exactly what you are asking about, but a few thoughts.
First, there is not as much commonality in the supply base of the domestics and transplants as you might think. The transplants brought a big chunk of their supplier base with them and most domestic suppliers have failed to get a significant foothold. In fact, you wouldn’t be terribly wrong if you assumed a direct correlation between the financial health of a supplier and its success in getting transplant business. Those who didn’t are dead or dying. (Those who did are just sick as a dog).
Second, even if you assume that eventually lost production from the Detroit 3 will be replaced by domestic transplant production, that is a very long process. Car manufacturing is built on an astonishingly fragile supply chain. You combine just in time manufacturing, sole-source supply, huge upfront investments, years long product cycles and highly engineered custom parts and you wind up with a system that can fall apart for a thousand different reasons. It can literally take months to resource even relatively simple metal-bending parts and years to resource core systems. One supplier goes down, and the assembly line, and the hundreds of other suppliers that feed it, grind to a halt. If GM goes down, lots and lots of suppliers will go with it, and take other OEMs dependent on those suppliers down at the same time. It will be a long and bloody transition to a post-Detroit world.
— lurker · Nov 21, 11:05 PM · #
I don’t know what is the right thing to do about the GM bail out, but I do know from working at Boeing that mass producing items as complex as cars and planes is very, very…. uh, complex, like the ethnographer and Lurker above are saying. It’s like an ecosystem, with a million little system feeding into one big system. You can’t assume that if one big collection of systems fails that the rest will just find another way to keep going, or that something else will step in and take it’s place.
I don’t think anyone in Blogostan really knows what will happen if GM goes under. Like I say, I don’t know what the correct thing to do is, but I strongly believe this is not a time to rely on ideology. This is not an issue pundits can solve by applying good old-fashioned pundit greese to the problem. This is a time to put aside all assumptions and for people with the actual knowledge of the issue to really do some good thinking.
— cw · Nov 21, 11:25 PM · #
I don’t think any of us anti-bailouters are denying how much damage would be done by bankruptcy. It’s just that a bailout won’t make things any better, except perhaps for the few crony capitalists who might benefit short-term at the expense of everyone else, long-term.
BTW, I work for a public university in Michigan. Believe me, I want a successful Big Three to be there to pay taxes so the universities will rake in tons of money. But I have no faith that a bailout will help. In fact, I expect it to make the situation worse.
— The Reticulator · Nov 22, 12:14 AM · #
Freddie / cw:
I get it. But the symmetrical point applies: what is the baseline against which a rational, informed person would compare the effects of the bailout? ~100,000 people were employed in motor vehicle manufacturing in Michigan in 1998. Today, fewer than 40,000 people have such jobs. I don’t have the supplier employment data (which would have to include about 5 other states to be reasonably comparable) over this time period, but if their fates are as tightly linked as is argued, then we would have to see a similar pattern. Think about what this means: most auto employees in Michigan have already lost their jobs in just the past decade. The Big 3 have gone from ~70% market share to 47% market share in the same ten years since 1998.
These companies are being strangled to death as we speak. If you want to save (some parts of ) them and their supply chain, it sure looks likes triage is the only way to do it. Do you think that either (1) the current management and union leadership or (2) a political process dominated by the incoming administration and congress is likely to do this?
— Jim Manzi · Nov 22, 02:57 PM · #
I honestly have know idea what the right thing to do here is but if I was forced to give my opinion (I’m kind of shy about that, but I’ll try) I would say, yes to triage in the sense that the Gov or some outside entity uses the leverage of bailout to restructure. Rather than just let things unfold. I think there is a lot of value in GM. The whole idea that they have been making bad cars is off. They have been making very good cars with quality equal to toyota for a few years now. And they the made the big cars and SUVs because that’s what the people wanted to buy. Or at least that was the segment of the market that they had the strongest brand in. Thier problems stem from the union contract and the health care that goes with it and ceding the small car market to the japanese. Plus they are too big.
And as a country—I don’t think we want to risk sacrificing a industry like car manufactuing to ideology. OUr country is a better country with GM functioning than without it. Complex manufacturing like this is really vaulauble in all kinds of different ways. So to me, it’s problably better to spend $25 billion—if the gov gets power from the unions and the management to resturcture—to try and come out of this crisis with a functioning GM, than it is to just let it fail and hope for the best. We’ve been throwing all kinds of money at Iraq and the banks, what’s $25 billion more at this point?
When I just look at them as a company and see all the other better car companies, I say, sure let them fail. But when I look at them as a national asset, I say, lets try to keep what we can.
— cw · Nov 22, 05:27 PM · #
cw:
The key distinction here is between the collection of factories, intellectual property, people, supplier relationships, etc., and GM as a corporate entity (i.e., a bundle of contracts). GM the corporate entity is actually what is draining value (both in a narrow shareholder sense, and in the broader national sense you describe) from the assets. Continuing to burden these assets with commitments to pay that can not be me is what needs to change if you want to save the assets. Do you think that a political process governed by the White House and Congress will take the actions necessary to do this? It would be, in a theoretical world, a neat solution, but very unlikely to work out that way (IMHO).
— Jim Manzi · Nov 22, 09:07 PM · #
That’s a good way to look at it, becasue I think that collection of contracts is exactly the issue.
I just read something in the times on this. The guy there seemed ot think that becasue so many interested parties would have to negotiate in a bankruptcy that it would take forever and essentially shut the whole thing down. He mentioned the delta co, which made GM parts, has been in bankruptcy (becasue of health costs) for 3 or 4 years now with no end in sight. He said, and I guess I agree, that the gov. ought to try and manage these negotiation in exchange for the $, before letting the whole thing dissolve. That’s pretty much what I was trying to say. You get tied up in a long bankruptcy then I think everything is pretty much idle until it’s resolved.
It will be a good test for Obama. We will see how pragmatic he actually is. One thin I hadn’t htough about is that we will still have automobile manufacturing in the US if the big 3 go down, but it will be foreign owned. I don’t know if that qulifies as a nation asset for us or not. How much of the high end expertise is going to be in the brains of the japanese managers.
Anyway you should check out the article. Here is the link:
http://www.nytimes.com/2008/11/22/business/22nocera.html?scp=3&sq=gm%20bailout&st=cse
— cw · Nov 23, 12:39 AM · #