Electric Vehicles Can Power Manufacturing

The other day I read an article on electric vehicles (EVs) concerning investments. (http://seekingalpha.com/article/130742-electric-car-initiatives-heat-up-implications-for-investors?source=yahoo). The thing that struck me most about the article was that it indirectly indicated that EVs are good for America and American manufacturing.

EVs are good for America on several counts; they are more energy efficient, they produce much less pollution, and they are good for domestic manufacturing. Better energy efficiency reduces the amount of energy we have to consume, which translates into less oil we have to import. The higher energy efficiency can potentially save the consumer money.

Even if you do not believe in global warming, switching to green technologies to produce energy is good for both the economy and the environment. Less pollution means less pollution related health issues and less pollution related corrosion of our infrastructure.

EVs also add to our manufacturing economy by having domestic production of the EVs. A further benefit is that the EV can be powered by electricity from wind, solar, natural gas, nuclear, coal, etc. That energy will need to be generated domestically. There might be less gasoline stations, but is that a bad thing?

We are already seeing investments in battery makers, both domestic and abroad, in a ramp up to EV, and increased hybrid, production. There are already projects, both public and private, to add to our domestic wind and solar energy production levels. Wind energy manufacturing companies are needed to provide wind turbines, turbine towers, control systems and much more. Solar power has similar needs.

When looking at the benefits of EVs, one needs to look at the overall impact on the economy and not just the EV in isolation. Only time will tell if an EV directly saves the owner money. Even if it does not, it helps domestic manufacturing, reduce indirect social costs, and help our overall economy. All of these things help everyone.

I’m Scared

I am scared, and I think that many other people are scared as well. I am scared whenever I receive a credit card bill. Well, maybe scared is not the right word. I guess fearful is a better word. I am fearful that my bill will contain some drastically increased fee, a new fee, or penalty charge for something that was previously allowed.

I know it is my fault for not reading the change-of-terms notice. I did try once, but I did not make it through the first page before I got a headache. I always open the letter up and take a quick look at it. I hope for a miracle where the notice would be easier to read, but that never happens.

Between the legalese, small print size and artful way information is buried, it makes reading the notice more like torture then a helpful notice designed to inform. Add the almost monthly term changes to the established terms that do not make sense and you have a system that requires putting in a huge effort just to understand and stay current.

So why are credit card fees and penalties a manufacturing issue? Because over the years the changes to the usage terms has forced a change in how people use their credit cards. Many people used their credit cards for those bigger purchases that they needed to pay off over several months. For example, many years ago my wife and I decided to buy a swimming pool. For many reasons we decided to make the purchase on a credit card. Without the credit card we would either have put off the purchase or simply not made it.

With the way credit cards are today, my wife and I would never consider charging something and then paying it off over time. It is just too cost prohibitive to do so. This is why my wife and I are holding off redoing our den. With two kids in college we just do not have the money available to pay for everything outright. So we need to save up the money we need so we can pay it off when the bill comes.

Don’t get me wrong, my wife and I still charge a great deal. Food shopping, clothing, gasoline, and other day to day items are almost always purchased on a credit card. We just do not use our credit card to buy anything that we cannot pay off immediately.

I do not blame credit card companies, they need to make money. The credit card companies decided that they would make more money if their product changed from being a vacation, business trip, big ticket purchase product into an everyday convenience product. Credit cards accomplished their goal and have, in most cases, become the preferred method of commerce. VISA even has commercial that mock people who pay in cash.

Is it a bad thing that I now have to save up the money before I buy something big? No, but it is not a good thing either. I might not ever be able to save up the money needed for a purchase. I do have two kids in college. I am just scared that other people are in the same position and not making that big ticket purchase. Well, maybe scared is not the right word.

Another Rant About GM

In a previous post I blasted Rick Wagoner concerning how he ran GM. Mr. Wagoner ran GM into the ground, in part, by focusing on SUVs in the American market. So I was taken by surprise yesterday when I come across an article on the New York Times website, http://www.nytimes.com/2009/04/22/business/global/22auto.html?_r=1&scp=3&sq=&st=nyt, that documents how well GM is doing in China’s automobile market by focusing on fuel efficient vehicles. Was I wrong about Mr. Wagoner? Did this article change anything?

After I ruminated on this a bit, I realized that I was incorrect in my assessment. I now think GMs management was even worse then I originally thought. In the first post, I just assumed that Mr. Wagoner, and the rest of GMs management were totally ignorant of the problem. Now I know that on some corporate level GM management saw the problem coming and ignored it.

In addressing the eventual shift in the US market, I am not implying that GM could take the vehicles intended for the Chinese market and sell them in the US. I understand that vehicles built to China’s automobile standards will not meet US emissions and safety standard. Furthermore, I realize that it is not easy, or practical, to take a vehicle designed for China and add a few things so it will be good for the US market. It is just that I would have expected GM to see what was going on in the Chinese market and apply it to the US market.

Yes, I know that the US market was buying SUVs and that GM was filling that market need. Yes, I know that the current financial meltdown exacerbated the problem. Yet other automobile companies are weathering the same set of problems better then GM. GM management did not prepare the company for the eventual change in the market. GM management knew the problem was coming, but decided to risk the company and keep cost down to maximize the profits, and their bonuses. Instead of making sure they had a viable solution, they hoped that the problem would never come, or at least not on their watch.

You Can’t Get it Back

Why is manufacturing so important to our economy? The simple answer is because it generates jobs, but that begs the question of why a manufacturing job is any better then other types of jobs. The simple answer to that question is because manufacturing jobs create more additional jobs in the economy then job in other sectors.

There is a plethora of statistics that state for every manufacturing job created from three and a half to almost five other jobs are created in the rest of the economy. This number contrasts to only about one and a half jobs created in the rest of the economy for service sector jobs. The number is even less for retail jobs.

Many of the manufacturing jobs are well paying. Manufacturing worker compensation can average more then $65,000 a year. In addition, manufacturers typically provide higher levels of employee training then other sectors of the economy. Both these statistics are good for the individual employee and the overall economy.

So to put the numbers is perspective, if a manufacturing plant closes and 1,000 workers lose their jobs, the direct impact on the economy is the loss of $65,000,000 in salary and benefits. As the loss of jobs ripple through the economy, up to 5,000 other jobs are lost elsewhere in the economy.

This is a double hit since tax revenue arelost from both the company and the individuals. It is further compound because the fired workers often go from tax paying contributors to the economy to users of the nation’s support systems, such as unemployment, food stamps, etc.

In some cases the lost jobs are temporary, but in most cases the lost manufacturing jobs are not coming back. There have been numerous news reports indicating that with the higher cost of transportation, energy costs, and the weakening US dollar manufacturing jobs are starting to return. This is a fallacy since there is no evidence that a significant number of manufacturing jobs are coming back due to the change in economic conditions. There is only evidence that the above factors are slowing down the loss of manufacturing jobs.

Almost all economists will agree that it is easier to keep a job from going off shore then it is to get lost jobs to return. Once an industry is lost we also lose the required supply chains and technical manufacturing acumen needed for that industry. This makes the return of the lost industry almost impossible. As a country we need to work to retain and strengthen the manufacturing jobs we currently have and work to create new manufacturing jobs by creating new industries.

I do not want to get political, but when discussing how to retain and strengthen manufacturing or creating new manufacturing jobs, the discussion usually gets political. In future posts, I will start addressing some of the issues in a, hopefully, non-bias manner. Although, if I was political I would probably get more people to post comments.

Strength in Numbers

As a report in the New York Times (http://www.nytimes.com/2009/04/11/business/economy/11charts.html?ref=world) indicates, the level of world trade has suffered due to the economic downturn. What is so newsworthy about a slowdown in global trade due to an economic recession? Do we really need another negative story about something everyone would expect to be the case? Actually, if you look hard enough, there are some positives to be found.

The New York Times article points out some positives in the global trade numbers. The first is that there is an indication that China’s stimulus is increasing internal demand. That internal demand is translating into increased imports into China. The hope is that by importing, other economies will get a boost and they will start to import more. This will then lead to a floor, and then an improvement, in global trade.

Another positive aspect of China’s trade numbers is that it indicates a level of economic integration with other countries that were not there a decade ago. In addition, there is reasonable speculation that China is starting to get enough of a consumer class that they can help drive the world’s economy, i.e. they are consuming more of the world’s goods.

The other good piece of news is the American export numbers. February America’s exports showed an increase over January’s export numbers. This is important for two reasons. First, the faster the world’s largest economy starts recovering; the fast the world’s economy will recover. The other reason is that our increase in exports while most other countries exports are still falling shows strength in the quality and types of goods we produce.