Dean Barber

The Cost of Salvation

In Manufacturing on June 30, 2013 at 6:56 am

By any accounts, it has been a long haul. We have been through the fire together.

When the history books are written, this Great Recession, which economists say ended in 2009, will be viewed as a much more difficult period than I think we even realize today.

And we are still trying to reclaim lost ground. The typical household has regained less than half its lost wealth, according to a recent analysis by the St. Louis Fed. Household wealth plunged $16 trillion from the third quarter of 2007 through the first quarter of 2009.

By the final three months of 2012, American households as a group had regained $14.7 trillion, but bank researchers say that data is misleading. They argue aggregate household net worth data isn’t adjusted for inflation, population growth or the nature of the wealth. The analysts  contend the average household has recovered only 45 percent of its wealth.

“Considering the uneven recovery of wealth across households, a conclusion that the financial damage of the crisis and recession largely has been repaired is not justified,” the Fed researchers said.

I can buy that. The wounds are still evident, albeit our economy is healing. Consumer confidence is at a five-year high. Houses and cars are selling again, and the energy sector is booming.

Words of Hope, Signs of Growth

And despite a dysfunctional Washington, I hear words of hope and signs of growth just about everywhere I go, and I have been on the go a lot lately – Alaska, South Dakota, Missouri, Tennessee and Ohio, just in the past few weeks. I’m now in recovery mode at home in Texas, pondering what I have seen and heard from business people.

And I am encouraged, but fully appreciate that we have a long slog ahead. What I sense is that small businesses on Main Street continue to struggle to find customers, while many Fortune 500 companies are seeing record profits. So there is this rather odd dichotomy at work in the U.S. economy.

If there is anything this Great Recession taught business, big and small alike, it is that we can get by, even profit, by doing more with fewer people. This new digital machine age which I think we are just now entering will make it even more so.

(I give a rather sobering if not downright scary presentation called “Machines Rising.” You can see it at my LinkedIn profile.)

And don’t you know that presents quite the pickle for economic developers, who are too often judged solely by job creation, an unreasonable expectation in my view. But that’s whole nuther blog in itself.

Look, even with an unemployment rate that has dropped to 7.6 percent, we have 2.4 million fewer jobs today in this country than we did when the recession began. Adjusting for population growth, it will take more than nine years at the current rate of hiring to return to prerecession employment levels, according the Brookings Institution.

Consumers Rule

Consumers hold the key. They will propel this recovery forward as household purchases account for about 70 percent of the economy. I believe that to be particularly true with the automotive industry, in which vehicle sales for 2013 could reach 15.5 million, the highest in six years. 

Automotive plants today are operating at about 95 percent of capacity, with many running three shifts. As a result, companies are adding floor space and spending millions on new equipment. 

“We’re really bumping up against the edge,” said Michael Robinet, managing director of IHS Automotive in a recent interview with the Associated Press. “So it really is brick-and-mortar time.”

Just this past week, there have been such brick-and-mortar announcements. Nissan on Thursday said it would be adding 900 jobs to start making the Rogue crossover SUV at its Smyrna, Tenn., plant.

The new jobs are in addition to 800 positions added at the Smyrna plant last year, and will bring total employment at the suburban Nashville facility to more than 7,000. Rogue production is scheduled to begin this fall. 

Tennessee’s Megabet

When I was in Tennessee earlier this month, I learned more details about a nearly 4,000-acre megasite located between Memphis and Jackson, Tenn., off Interstate 40. The Memphis Regional Megasite, a certified site owned by the state, has been designed for a future automotive assembly plant, and that is what economic developers in the region are betting on. It could very well happen.

In a few weeks, I will be in Jackson, Tenn., which is about 100 miles from Toyota’s assembly plant in Blue Springs, Miss. (near Tupelo) and 150 miles from the Nissan plant in Symrna. With a rebounding automotive industry, I would expect some modest employment growth among Jackson’s nine automotive supplier companies. 

Big Announcements in Missouri

Also, this past this week, General Motors announced a $133 million expansion in Wentzville, Mo., about 40 miles west of St. Louis. It is the second expansion in less than two years at the facility, which employs about 2,000 people.

Construction will begin in July on a new 114,000-square-foot stamping press, which is expected to create or retain 55 jobs.

Earlier this year, Ford announced a third production shift for the Ford F-150 at its Claycomo plant, outside of Kansas City, adding another 900 new jobs. 

A couple of weeks ago, I was in Missouri, where I was an invited guest at “Lakeside with the Locators” and then subsequently spoke at the annual meeting of the Missouri Economic Development Council. It was there that I learned just how important the automotive industry was to the state. 

In fact, auto manufacturing contributes $2.6 billion to Missouri’s economy annually and represents its fourth-largest goods-producing sector. 

A Long Tradition in Northwest Ohio

Last week, I was in Northwest Ohio, which has historically been very much tied to the automotive industry and a manufacturing tradition. My host was the Toledo-based Regional Growth Partnership, an economic development representing 17 counties in Ohio, and with having close working ties to three counties in southern Michigan. 

Last year, the RGP worked 12 automotive related projects, representing capital investment of more than $74 million and resulting in more than 2,000 jobs created or retained. In the first quarter of 2013, the RGP has worked three projects, representing more than $40 million in capital expenditures, with more than 1,300 jobs created or retained.

RGP President Dean Monkse attributes the investment to the human resources of his region. 

“This ongoing investment in our regional automotive industry is a testament to an outstanding workforce that prides itself on continuous education and training,” he said. 

Judging from what I learned about Northwest Ohio, I think he is probably right.
 
The Toledo-built Jeep Wrangler set a sales record last year and is well on its way to a record in 2013. Parent company Chrysler is working to fill more than 1,000 new positions that will come to the Toledo assembly plant as it adds a second shift of production for the 2014 Jeep Cherokee.

As you can see, I have been doing a fair amount of traveling lately across this great country of ours. In the last three states where I have been – Tennessee, Missouri, and Ohio – the automotive industry plays a key role in those states’ economies. And the good news is that it is expanding. 

LMC Automotive, a forecasting firm, predicts sales will gradually reach 17 million in 2017. That would be almost equal to the boom years of the late 1990s and early 2000s. And hiring will no doubt follow. In 2005, before huge cuts began, more than 1.1 million people made motor vehicles and parts. Today, 798,000 do, according to the latest government statistics. 

The Center for Automotive Research predicts the industry to add 35,000 over the full year. Chrysler, GM and Ford, as well as Honda in Ohio and Alabama, and Mercedes-Benz in Alabama plan to add more than 13,000 people this year. And many of the Tier One and Tier Two suppliers will follow suit.

Reflecting on What Has Been

But sitting here at home in Plano, not 40 miles away from GM’s assembly plant in Arlington, Texas, I cannot help but reflect on the fact that it was not long ago when GM and Chrysler were in bankruptcy and facing the prospect of being dissolved. Federal intervention prevented that, and I think it was the right call, as not acting posed too many risks for too many people.

But there has been great cost to salvation, cost to this comeback. Thirty years ago, an auto worker made $40 an hour in today’s dollars, and paid zero for their health care. Today’s auto worker makes $17 an hour and must pay $200 a month for health care.

“So we have taken that manufacturing base and transferred it from the middle of the middle class to the working poor,” said Tim Leuliette, president and CEO of Visteon Corp., during the Detroit Regional Chamber’s Mackinac Policy Conference last month. 

“We have repotted the American manufacturing base to be globally competitive, but at a cost. We can’t attract some of the people we used to because the opportunity to make a good living is no longer there.”

Sobering words from Mr. Leuliette, a CEO with a tier one automotive supplier that has shrunk in the U.S. from three dozen plants down to four, from 12,000 employees to 1,200. Visteon now has 110 plants in China and is building more.

Yea, I think about these things. As a consultant, how can I not? I have to be constantly re-educating myself if I am to bring value to any client, be it a company looking for an optimal location for future operations or an economic development organization seeking to improve its competitive position.

But often the span of time illustrates truth. I think that is why I read history. I believe the history books yet to be written will tell us a lot. We have been through the fire, and yet somehow I have to think we are going to come out of this stronger and at least wiser. We can only hope that is so.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm in Plano, Texas — http://www.barberadvisors.com Telephone: 972-767-9518 Email: dbarber@barberadvisors.com

If your company needs an optimal location for future operations due to expansion or consolidation, we can help. We will take you there. If your community needs to improve its business climate and competitive standing, we can help. All requests for information will be considered confidential.

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  1. I was looking at the website http://www.zillow.com the other day and was astounded at the number of homes in foreclosure status in my county (I live in Hunterdon county, NJ…fourth wealthiest county in the country!). Just from my own quick scan, it looked like about one-third of the homes for sale were at some point of foreclosure. So I looked further…and a few calculations later, I realized that..and again, this is according to the data available on zillow. in New Jersey, almost 60% of the homes for sale are either in foreclosed status (already lost by the owner), foreclosure status (going to auction), or in pre-foreclosure (seriously delinquent and expected to be foreclosed on soon or in foreclosure). Now what is really interesting is that I know for a fact that zillow is not even reporting all of them, as I know a number of people whose homes are in foreclosure for more than a year that are not even showing up as foreclosed on by zillow.

    So, about now, I was feeling pretty bad about life in New Jersey…until I saw that Florida had about 78% of homes on the market that are in some form of foreclosure status…and Maryland had more homes in foreclosure status than homes for sale that were not being sold under duress!

    So, I looked at the whole country..and found that 43% of all of the homes in the country that are for sale (at least as reported on Zillow) are currently in some state of foreclosure!

    It appears that zillow is working with some pretty prestigious organizations in gathering their data (universities, federal reserve, etc)…so I am inclined to think this is reasonably accurate (if not even a bit low since I know that not all of them are being reported).

    This is so much deeper than about employment…. This is about survival. What is the reality of the social system we are destined for if people no longer can afford to own property?

  2. I think these observations are right on target… good article this morning. Charlie

    Sent from my iPad

  3. Lets hope GM shows strength. With a bailout that wiped out debt and does not have to be
    repaid (cleverly in the form of stock that when sold, we the taxpayer take the loss). In the
    auto industry, my hat is off to Ford, who made it through without a bailout. Dean, I am glad you show both sides to the story. It is painfully clear that we are in a recovery, but the foundation is not strong and our collective leadership (dems and repubs) is perhaps our weakest link.

  4. Dean, Well said. I always appreciate your insights. Thanks for providing this continuous stream of dialogue about what’s important in our economy and profession. Keep up the good work.

  5. One fact that is sometimes missed is that for every auto production line worker there are up to 6 other jobs created in the supply/manufacturing chain to support that one worker. That is a very powerful job multiplier and local Economic Development groups need to be ready and/or out ahead to make sure those workers are available and trained.

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