Flint's Final Death Rattle?

The Detroit News is writing about The fall of Flint.

FLINT -- Thirty years ago, it was the home of 14,000 workers, a sprawling complex of factories that churned out millions of auto parts a day for General Motors Corp.
But the once-mighty Flint East plant is now a shell of its former self, and a leading candidate for closure in the restructuring of GM's bankrupt spinoff, Delphi Corp.
Its likely demise speaks volumes about GM's mistakes, the globalization of auto parts manufacturing and the tortured relationship between the world's biggest automaker and the United Auto Workers. Now down to 2,800 workers, Flint East is a dinosaur in the rapidly changing auto industry, a source of spark plugs and air filters made cheaper in the low-wage economies of China, India and Mexico.

GM's latest downsizing will cost Flint an engine plant and another 800 jobs on top of the Delphi losses. "This is something that has been going on since the 1970s," said Northeastern University sociology professor Barry Bluestone, whose father once headed the UAW's GM division. "This is just kind of the final death rattle."

No demand for parts

Where Flint East once made 1.2 million spark plugs a day, the plant now turns out one-tenth of that volume. And GM has already told labor leaders at the plant that the company will cease orders for any of its spark plugs by next year.

Delphi Chairman Robert S. "Steve" Miller is characteristically blunt about the need to eliminate the spark plug operations. "We can't make any more spark plugs," Miller said in a recent interview. "You can put 1,000 of them in a box and ship them out of China. Parts like that are going to be made in low-wage countries, and there's nothing we can do about it."

"It's not that we can't build good products at a competitive price," said Art Reyes, vice president of UAW Local 651, which represents workers at Flint East. "It's that we're not allowed to."

Under Delphi's latest wage proposal, factory workers would earn around $12 per hour, down from the current average of $27 per hour.

If the UAW and other unions do not agree to wage cuts by a Jan. 20 deadline, Miller has said he will ask the court to reject its labor contracts -- a move that could prompt a strike at Delphi.

Situation demands changes

The stark decline is impossible to ignore, even for GM Chairman Rick Wagoner.
"If you look back (to) when Flint has the highest incomes per capita of any city in the country if nothing else you say, 'Wow, that's a lesson for us,' " Wagoner told the News. "If you do not adapt, man, the cost is high."

But did Flint East fail to adapt, or were the forces of change in the auto industry too powerful to overcome? Not only have many of its parts been outsourced overseas, but the GM vehicles that use those parts also aren't selling.

"What makes it so poignant is it isn't as though the auto industry in America is in decline," said Bluestone, the sociology professor. "It's actually quite vibrant if you're Toyota, Honda, BMW or Mercedes, but not if you're GM or Ford."

"It costs us $2.05 to make a spark plug, and we've been selling them to GM for $1.70," said Russ Reynolds, president of UAW Local 651. "But they can make them in India and Japan and China for $1.05, and we just can't compete with that."

Reyes said that the plant's management and union local went as far as to offer GM spark plugs for free for its new vehicles, just so Flint East could continue to supply the automaker in the aftermarket.

"They turned it down," Reyes said. "They're just killing us."

The bottom line is just as painful for Flint East's other products, such as instrument clusters, air meters and filtration systems. According to Delphi's Northstar plan, the company wants to dump those businesses -- identified as "losers" -- entirely.

"This is devastating people's lives," said former UAW President Douglas Fraser. "This is not a layoff. It's the end of a life. There is a feeling of abandonment."

And with the feeling of abandonment comes a wellspring of anger directed at Miller and GM's leadership. That rage could lead to strategic strikes at Delphi that would not only cripple GM's vehicle production, but also affect other automotive customers.

"We're going to go down fighting," vowed Roth, the regional UAW leader.

A similar sentiment can be heard in conversations across the city, as workers and residents frame the Delphi struggle as a fight not just for jobs, but for the future of the American middle class.

At the Dec. 2 news conference announcing the petition, union leaders appeared at a podium under banners that read "Jobs, Jobs, Jobs" and "America First."

"We need to take our country back," said Local 651's Reynolds, choking back tears. "We need to take our government back. If we wait until tomorrow, it may be too late."

Another union official recalled his military service, demanding the same loyalty from the U.S. government in saving the domestic auto industry from ruin.

But while many union leaders and workers are eager to take on Miller and Delphi, others are tired of fighting a battle they know they can't win.

"There are a lot of people who are just done talking about it," said Davidson, the bartender at Jammins, which sits across the street from Flint East. "Talking about it only causes more depression and anger. "I think people are giving up," she said. "That's the attitude now."

There is a lot to discuss in that article, so let's give it a try.

Yes, it is about "Jobs, Jobs, Jobs" and the situation is not pretty. Unfortunately it is spreading quickly to other sectors. I am quite fearful of "America First" however. The last thing the country (or world) needs is for protectionist legislation like Smoot-Hawley. It did not work in the 30's and it is far less likely to work now. The US is simply too addicted to cheap parts and labor from China and India.

Delphi CEO miller said "You can put 1,000 of them in a box and ship them out of China. Parts like that are going to be made in low-wage countries, and there's nothing we can do about it."

Sadly, that is the case. The FED and the government attempting to do something about the inevitable is not doing anyone a favor in the long run. Greenspan's refusal to take his medicine in 2002, and 1997, and preventing the bubble in the first place is going to cause a far far bigger problem "Down the Road".

Mish News Flash: "Down the Road" has now arrived.

"If you look back (to) when Flint has the highest incomes per capita of any city in the country if nothing else you say, 'Wow, that's a lesson for us,' " Wagoner told the News. "If you do not adapt, man, the cost is high."

Mish question for Wagoner: Exactly what are you doing to "adapt"? All I see you doing is cutting 30,000 jobs while ramping up production of SUVs that no one is going to be able to afford.

"It's not that we can't build good products at a competitive price," said Art Reyes, vice president of UAW Local 651, which represents workers at Flint East. "It's that we're not allowed to."

That seems to be the prevailing attitude. Unfortunately it is also a lie. The simple fact of the matter is that the US can not build good products at a competitive price when wages in India and China are 40-90% less than the US depending on what study you want to believe. It is simply impossible to overcome that differential.

I find this interesting so there must be another side to the story I am missing: Reyes said that the plant's management and union local went as far as to offer GM spark plugs for free for its new vehicles, just so Flint East could continue to supply the automaker in the aftermarket. "They turned it down," Reyes said. GM does not want free parts? Why?

I find this thought interesting as well. "What makes it so poignant is it isn't as though the auto industry in America is in decline," said Bluestone, the sociology professor. "It's actually quite vibrant if you're Toyota, Honda, BMW or Mercedes, but not if you're GM or Ford."

Actually I think the time is at hand for ALL car makers to take a hit, a huge hit. I fail to see how there can be any pent up demand for vehicles of any kind. I fully expect Toyota, Honda, etc etc etc to start sharing in the pain. However, because of cost differentials, that pain will not be spread equally. The high cost producers (GM and Ford) will bear the brunt of it. The problem is called overcapacity and in that situation, high cost producers will get decimated.

Let's now turn our attention to this idea: "We're going to go down fighting," vowed Roth, the regional UAW leader.If indeed Delphi "goes down fighting", it will hasten the demise of GM. Quite simply there is no way shape or form that GM can possibly weather a parts supply disruption that would stop vehicle production cold while GM has contract obligations to pay its workers 90% of their salary if they are laid off. If Delphi strikes and it is prolonged, GM will likely be bankrupt within 4 months. Hmmm. Would Bush step in like Reagan did with Air Traffic Controllers? Even if so, would it be too late or even matter at all?

Finally lets turn our attention to "giving up". "There are a lot of people who are just done talking about it," said Davidson, the bartender at Jammins, which sits across the street from Flint East. "Talking about it only causes more depression and anger. "I think people are giving up," she said. "That's the attitude now."

It is depressing that US corporations and the US government both can not see the long term damage they are doing. It is now too late, and the debt bubbles are too huge, and the transfer of wealth (manufacturing capacity) is too great to do anything about. The jobs situation is now rapidly spreading to banking and other industries. I will be talking more about that in "Tipping Point on Jobs" this Wednesday on a HoweStreet podcast. Be sure and listen in.

Mish Bottom Line:

No one is willing to admit the truth. The truth is that US spending is on borrowed time, living well beyond its means, and corporations as well as government agencies have made promises to retirees that simply can not be met. That means a lower standard of living, falling asset prices, and dare say it: deflation.

The more $Ben Bernanke chooses to fight the problem, the better it will be for gold.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/