It started off as a White House meeting with many of the world’s largest car companies’ heads to discuss rolling back the CAFE mandates for higher fuel efficiencies from future automobiles. It took place shortly after word hit the street that this administration would try to legally end California’s right to set its own emissions standards. Lowering emissions standards is a backdoor way to force higher fuel efficiency on automobiles, because the lower the emissions, the better mileage any given car gets.
Keep in mind that we live in the age of the PZEV, or partial zero emission engine, featured in vehicles that are almost flawlessly clean to begin with. Still, one wonders whether some brave soul had the courage to inform the President that twice in our past, presidents have tried to pry loose California’s rights over vehicle emissions in court and failed both times.
What is certain is that on that day at the White House, the President didn’t spend that much time dealing with the fuel efficiency issues that meeting had been called to discuss. No, instead he pivoted to creating more jobs here in the U.S., focusing primarily on the foreign automakers. Yet, as the Wall Street Journal pointed out on May 13, both GM and Ford still have unused factory space, but today are steering their excess dollars into driverless cars and such. Yes, that’s technically job creating too, just not heavy manufacturing. This in spite of the fact that billions of dollars in new investments have been made in the past 18 months of the current administration — and hundreds of billions in investments since the Financial Meltdown.
The President did mention that possibly he would consider adding a 20 percent tariff to imported cars, or forcing foreign car companies to fully comply with the CAFE standards that the Obama administration initiated, meanwhile cutting domestic auto producers slack in both areas.
Of course, all of this ignores the fact that in the past decade Toyota, Nissan, Volkswagen, BMW, Mercedes, and Geely’s Volvo have either built new factories here in the States, have expanded factories already in place, or have been responsible for getting more parts suppliers to move near those plants. Come to think of it, Mercedes builds as many vehicles in America today as it sells here, while BMW builds more new cars and SUVs in South Carolina than its total American sales numbers.
The President went on to thank Sergio Marchionne of Fiat Chrysler for “leaving Mexico for Michigan” and added he was now President Trump’s favorite guy in the room. Yes, FCA did announce that it would move some truck production from Mexico back to Michigan, but it’s not like they shut down that factory south of the border; something else will be built there in the Ram’s place. In any case, because of the threat to either levy tariffs on or merely force imported cars to face Obama’s fuel efficiency standards, after the meeting the “president’s pet” Marchionne said there are other options for their Mexican factories. They can ship those vehicles to countries other than America.
Then the last real “car guy,” Bob Lutz, in a May 17 Detroit Free Press column, entered the conversation. Before we delve into his comments, it should be remembered that Lutz is one of the two reasons that General Motors still exists today. (The other is the company’s reorganization, done by the equally terminated Fritz Henderson.)
It was Bob Lutz who saved the Ford Motor Company in the early Eighties; when he ran their European operations, he introduced the ‘aero’ design look and made so much money it covered Ford’s losses here. Ford’s North American losses threatened to sink the company during the Second Energy Crisis.
It was the same Bob Lutz who led Chrysler’s renaissance during the Nineties, driving the company’s “cab forward” designs and remaking the Ram truck into what it has become today. The same guy made GM products equal to the best the world had to offer in terms of design and styling in the first decade of this century.
You get the idea: If a lifetime achievement award existed for contributions to the auto industry over the past 40 years, Bob Lutz would be the only worthy recipient. That being said, he’s gone a bit daft in retirement.
Lutz wanted to discuss the President’s trade policies; in the DFP column he’s a huge supporter of Trump’s edicts, or so he says. He claims the exporting of American industry is something that just has to stop, adding, “If World War II were fought today, we couldn’t win … because I don’t think we have the capacity to build complete aircraft and complete tanks.”
Huh? First, it is true that we farm out parts of construction for modern aircraft, fighters, and commercial units to companies worldwide. More on that in just a moment. But Detroit was called America’s Arsenal of Democracy for a reason during WWII. It wasn’t because our automakers were already building complete aircraft, tanks, and other war material; it was because of how quickly they converted from making civilian automobiles to making the arms of war. Ed Cole, who would become GM’s president, made his reputation in the company during that war.
But in any case, it’s doubtful the next war will be fought like that one 80 years ago. So that statement wasn’t based in historical fact or connected to today’s realities. It got worse: In just one line Lutz said he favored the President’s proposal for increased tariffs on foreign imports, but believes the NAFTA trade agreement should not be torn up.
Lutz refers to all of this as an illness, believing “the country pays a social price for exporting all these jobs.” So he would like to see a rebirth of American manufacturing, once the foundation of America’s middle class.
Fair enough; but, for the record, Lutz was a senior executive with numerous car companies as they were forced to either downsize or close American factories, while building new or expanding operations overseas. He makes a valid point about reciprocity on tariffs, too. After all, Europe puts a 10 percent tariff on cars built in the U.S. and exported there, but our tariff on their products is just 2.5 percent. Does anyone see anything wrong with asking the EU to lower its automotive tariff to our level? Of course not.
That said, we have written numerous times about the Chicken Tariff War from the early Sixties: Our poultry producers were infuriated with higher tariffs put on their products shipped to Europe, and we retaliated by putting a 25 percent tariff on all trucks and commercial vans built overseas and shipped here. That tariff still stands 55years later. We want to believe that corporations absorb those high tariff costs as part of the expense of selling that product, but it’s really the American consumer who pays the tariff when he or she purchases the vehicle.
The real problem is the fact that that is not how Bob Lutz once felt about overseas manufacturing. Bob and I were having lunch one day back in early 2008 when the topic of manufacturing came up. A former Marine Corps fighter pilot who owned a private jet and helicopter, Lutz was holding forth that day about how brilliant it was that modern aircraft manufacturing relied on “farming out production of fuselages, wings, stabilizers, and so on” to producers worldwide. Not just to keep the cost of modern aircraft down, he clarified, but because doing so gave the aircraft manufacturer a business connection to the country where the final aircraft would like to find buyers.
For the record, it’s a variation of what our own military contractors have been doing since the Sixties: Make parts for all of our military’s equipment, jets, vehicles, and so on in every state possible, and you’ve got a solid commitment from every elected official in Washington to keep your military production going.
But that was Bob Lutz 10 years and four months ago. Before the Financial Meltdown, still the vice chairman of General Motors, and still responsible for finding ways to make GM more profitable in the future.
Yet even then the number of unionized auto workers in America had been falling alarmingly for the previous 25 years. In many cases, probably the majority, those jobs were lost to automation and not the outsourcing of automobile manufacturing. As pointed out before in this column, we build more cars today in the United States than we did 40 years ago. We just do it with a lot fewer people.
Now, other companies in the parts industry were decimated or destroyed by those jobs’ movement overseas. This column previously dealt with the loss of all 24 GM parts assembly plants in Anderson, Indiana, where even as late as 1999 — right before Lutz rejoined GM — 24,000 GM workers still earned a living in that so-called Rust Belt city. When the last GM plant closed, 15,000 people left town. What saved Anderson for its rebuilding was the 10,000 retired GM workers who didn’t leave. That and converting an old GM plant into a Coffee Mate factory.
Forgot to Remember
Always, one should be careful what one wishes for. Bringing back large-scale consumer durable goods manufacturing may not always be the best idea. It’s so 1950.
And, as some have pointed out, modern high-tech manufacturing is where the real money is today, particularly for a workforce. One example is the Apple iPhone; Foxconn in China doesn’t make squat assembling them. No, the biggest money makers are the iPhone’s suppliers in Japan and Germany, which manufacture the high-tech parts that are shipped to Foxconn for the iPhone’s final assembly. But those jobs require a workforce that’s highly educated.
As with any discussion today about the future of our economy, you can’t have an honest debate with people adding non-facts. Long before Bob Lutz apparently hated much of our international trade, he believed in its brilliance, at least for the aircraft industry. You can’t keep harping about all the jobs lost in automobile manufacturing in America when in fact many car companies have built new plants here since the turn of the century or spent billions expanding them. Some even reopened a closed factory; GM did that with the old Saturn plant in Spring Hill, Tennessee.
For whatever reason, those hard and verifiable facts never seem to gain entry into this modern debate. But if there’s one person who knows the real story, it’s Bob Lutz. At least, he used to. He used to tell it all the time.
© Ed Wallace 2018 Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. Email: firstname.lastname@example.org