More Lefty "Logic" in Detroit

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Barack Hussein Obama Monday bashed American automakers for failing to make fuel-efficient cars: "Here in Detroit, three giants of American industry are hemorrhaging jobs and profits as foreign competitors answer the rising global demand for fuel-efficient cars."

So his solution, naturally involving government intervention, is to "[encourage] domestic automakers to make fuel-efficient hybrid vehicles by giving them health-care assistance for retirees."

One would think that, with "the rising global demand for fuel-efficient cars," profits would be enough to encourage auto-makers to produce fuel-efficient cars. Automakers make cars based on which models they think will make them the most profit. They certainly have a better handle on this information than politicians do, even magical politicians. Retiree health care is overhead, Mr. Obama. It does not change with different models.

Still, health care is an issue for our automakers. Japanese automakers do not pay for their employees' and retirees' health care, the government does. So to make our automakers competitive, Mr. Obama recommends giving ours assistance with their health care costs. (What does that have to do with fuel-efficient cars? Nothing.)

Now of course the Japanese government doesn't really pay for the workers' health care -- the taxpayers do. The taxpayers pay for everyone's health care in Japan. So the money goes in a big circle, and the workers, by paying taxes, pay for their own health care. The net effect is to lower their real income. Now we get to the real heart of the problem, which is that our autoworkers demanded too much in their union-negotiated deals. They had a good run of it, getting paid far more than other unskilled workers. The party is over, and they are now putting their employers out of business.

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7 Comments

Excellent overview, Jack.

stay puft said:

I don't know what Obama has in mind exactly. It's true, though, that Japan's health system ends up saving Japanese citizens money in a way that our own does not. For one thing, the government can leverage drug prices through it's monopsony power.

The lack of competition between hospitals also can reduce unnecessary spending. For example, if there are two hospitals in a city, and one buys an MRI machine, it can advertise, "Hey, we're more high-tech. You should come to our hospital because we have the advanced equipment." So the other hospital is pressured to spend maybe a million or so dollars to buy it's own MRI, and hire the doctors and staff to run it, in order to compete. Medically, one MRI may have been enough to service the community, but the need to keep a competitive edge can lead to wasteful spending.

as far as autoworkers are concerned, part of it is that American autoworkers are paid a lot more than workers overseas. But recent UAW negotiations have been along the lines of, "what sorts of pay cuts are necessary to keep us in business?"

Quality control: that's where the difference is. It may seem like a detail, but American car companies quality control is basically a guy at the end of the line who inspects the cars and scraps anything that's faulty. Toyota has this thing called Lean Manufacturing (maybe you've heard of it), makes sure that nothing faulty gets produced to begin with. That added efficiency makes a difference.

This Lean thing is sort of based on these eastern ideas of flow and balance, so some people have even suggested that Japanese culture plays a role in Toyota's doing so well. But that's a different conversation.

Whatever the reason, Toyota has factories in the US, full of UAW workers, and it's making a killing while the big 3 go down hill.

The big 3 have the pickup/suv market cornered for sure, but what's that worth with gas prices, etc.?

jacob said:

Marshmallow,
Your info is dated, go look at consumer reports. Back in 80's the Japanese were producing ~120 cars with defects per 1000. The Americans were in the high 300's.

Today the Japanese are in the ~110 range, the Americans have caught up and are in the 115 range.

Note a defect is anything from a bad head gasket to a dinge on the door handle to a loose screw. This last one can apply to more than just cars.

One more thing, I took a Lean manufacturing 'class' it is something everyone who is not crazy has adopted. IT is also simple.

The idea being basically not to produce more at your point on the assembly line than the guy downstream can handle.

Quality goes up because no one is working at a pace that is overy hurried. No peaks and valleys. Think of it this way ...
you have lets say three output bins into which you place a partially built widget (call it a widg). Until the guy DOWNSTREAM from you pulls one of these three widg's out of its bin you don't do anything.

Then you proceed to build a new widg's until all your out bins a full again.

The key is to set up each station so that everone step in the process takes the same time.

One last thing, you don't pull a completed widget off the end of the assembly line until an order for it is placed. NO production for the sake of keeping people busy.

Hey, I did the Lean thing also around 2001. Ours only involved personnel and processes (we don't produce anything tangible) but it's amazing what you can accomplish by looking at the final result (what the customer sees) and working backward, eliminating the stuff that's extraneous.

The "kaizan" - continuous improvement - aspect has been a tougher nut to crack, as far as getting everyone in the organization involved.

But the Lean Thinking book definitely changed our entire company by forcing us to look at the wasteful processes.

Not that this is entirely relevant to Jack's post, but that's life in the big city.

Actually the American-based car companies are having their teeth kicked in by Japanese-based companies that build many of their vehicles in the United States, using American workers.

I guess both Obama and Ed Gillispie assume voters are too dumb to figure that out, but American companies are failing a) because consumers don't like their product and b) they caved in to labor unions and awarded them legacy benefits they can't pay for.

And considering European economies are being bankrupted by their socialized health care systems, what Obama and Gillispie are peddling is even worse.

The economically sensible thing to do would to allow American car companies to take their lumps while they restructure their benefits. But since that doesn't allow folks like Obmama and Republican chairmen to make voters dependent on them for their health care, it looks like we'll be getting more Big Government that just makes us sicker and bankrupts the economy.

jacob said:

Ferguson,
You are dead right about the legacy benefits. I think Detroit has a $7B on going medical expence taking care of retirees. This is a hold over from the pension days. This was the deal offered back then. Hopefully we have learned or lesson.

stay puft said:

we are sicker that the Japanese already

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