When wealthy oilman Sam Jones saw what poverty and destitution the Financial Panic of 1893 had brought to his wife’s hometown, Toledo, Ohio, he dipped into his own substantial fortune and designed a better iron pump rod for the oil industry. He then built a factory to produce it, paid his workers double what other Toledo manufacturers did, cut their workday from 10 to eight hours, and built parks for their families. He quickly became so beloved and respected in what was then called the City of Glass that he was dubbed “Golden Rule Jones,” and in 1897 was elected mayor of Toledo.
He took that same vision to the city’s workforce and citizens; and at the next election he was rewarded with 70 percent of the vote. He passed away in office in 1904, still feeling he hadn’t used his powers as the city’s highest elected official to make Toledo an even better place.
Over the next 65 years Toledo continued to grow and prosper, its population peaking in 1970 at 383,818 — before starting a 45-year decline in which almost 100,000 citizens have left for greener pastures. In this way it appears no different from any other Northern city that was once a major manufacturing hub.
In just the decade from 1990 – 2000, the Toledo Blade reported that the region had lost another 20 percent of its factories to other states or overseas. But there is still one major bright spot in the city; the factory that is responsible for the city’s sole claim to fame today as the City of Jeep.
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Not only was Jeep in ascendance last year, accounting for nearly 25 percent of America’s total increase in new car sales; but Jeep Toledo is the most productive automobile factory in this country, taking only 13.57 hours to produce a new Jeep according to a recent Harbour Report. For perspective, compare that to the 22.25 hours per vehicle Toyota requires across its five North American factories.
But, on the Other Hand …
Somehow over the past 35 years some important things have changed in the financial game. Once individuals like Sam Jones used their own money, or found rich investors, or went to Wall Street to borrow the funds for their new operations. Mayors and governors believed that taxpayer monies were best used improving infrastructure and other items necessary to improve their citizens’ lives — in order to encourage private investment for industry.
But in the early part of the last decade Chrysler, then owned by Daimler, demanded and received $281 million in tax breaks for a new Jeep plant in Toledo, and the state of Ohio kicked in another $117 million to make it happen. By 2005 articles appeared covering the company’s high employee unrest, placing blame mostly on “DaimlerChrysler’s policy of mandatory overtime — employees must put in 10- to 12-hour days, six days a week.” True, Chrysler’s new plant managed to shave almost seven work-hours of labor for every Jeep built, but it did so at a cost to workers’ well-being.
In spite of that, and while one murder and suicide occurred at the factory that same year, Jeep Toledo continued to both improve quality and lower the time it took to build each Jeep, becoming as stated the most productive factory in North America. It was expected that Jeep Toledo would build 516,000 vehicles in 2014, far beyond the factory’s real capacity.
Then came last year’s Detroit Auto Show, where FiatChrysler CEO Sergio Marchionne made the statement that as long as Jeep existed it would be built in Toledo. Yet at the Paris Auto Show months later he suggested that, because the next Jeep Wrangler would have aluminum parts that would improve its fuel efficiency, it would likely have to be built somewhere else to be more cost efficient. (Marchionne did add that the Wrangler’s production venue change would not affect overall production levels or employment at the Toledo plant.)
No one knows why Marchionne threw out that line. But the results and the panic it incited were more than predictable.
We Stay You Pay
Almost immediately Ohio Governor John Kasich and Toledo Mayor Michael Collins scheduled phone calls and asked for meetings with Marchionne, looking for ways to shovel more money at Jeep so they could keep Wrangler production in that city. Three Lucas County commissioners also sent letters asking the CEO to reconsider.
Then came the letters from three members of Ohio’s Congressional delegation, begging Marchionne to do everything possible to keep Jeep in Toledo. And on January 13, 2015, the Toledo Blade carried another article, this time quoting Marchionne as saying he wasn’t trying to pass the buck, but suggesting, “the Wrangler’s future in Ohio may hinge on how sweet a deal the government can put together.” That same article went on to say that this time around the city and state might kick in another $500 million to satisfy Jeep Toledo’s demands.
When did it become necessary to make taxpayers cover the cost, not of keeping a failed factory or car company viable, but of subsidizing to the tune of possibly $1 billion over the past decade the most productive auto factory in North America? That factory produces some of the most in-demand SUVs sold, which in turn mint money for FiatChrysler.
That’s money that doesn’t go for Toledo’s or Ohio’s parks, roads, schools or even the pension funds for the state’s and city’s employees.
Corporate Feeding Trough
I’m not picking on Chrysler here. They are simply doing what so many other major corporations do today. This column has also discussed this same issue with VW and Tennessee and Alabama’s huge commitments to auto factories in their states. However, to be fair, it’s hard to explain how America went from free enterprise for everyone to states kicking in billions of taxpayer dollars in direct aid for Fortune 500 companies, while often pushing low wages for the workforce.
Further, the auto industry isn’t alone. This situation is no different from NFL owners’ demanding huge subsidies to build their new stadiums, with the implied threat that they’ll take their teams elsewhere if they don’t get their way. Nor is it different from many big box retailers, of which many have adopted this tax abatement strategy as their primary national growth plan.
Yet the Jeep deal still seems extraordinary. Far from floundering financially, Jeep Toledo is the model of what a truly efficient automobile factory should be and is staffed with a workforce that, for years and to this day, puts in 50 – 70 hours per week to meet the public’s demand for these exceptional products. As a result, that 13.57 man-hours it takes to build a Jeep means it’s the lowest cost labor auto factory here. One would think those factors would be enough to keep Jeep intact where it is. But the city’s mayor and the state’s governor and Congressmen don’t seem to have brought up that critical financial fact when arguing in the city’s favor.
This situation is endemic across America. Even the New York Times published a series of articles reporting on “Corporate Welfare in America.” In any case, we’re a long, long way from the days of entrepreneurs like Sam Jones or even John Willys; Willys purchased the failed Pope Motor Company’s Toledo production facilities and, with other acquired firms, created the company that would one day give us Jeeps. It surprises most, but for a time Willys was the second largest builder of cars in America, right behind Ford.
That was the real meaning of free enterprise, back when the government didn’t subsidize private operations.
Footnote: As of this writing, Toledo’s Mayor Michael Collins is hospitalized in critical condition from a heart attack suffered last week. Our thoughts go out to him, his family and the people of Toledo.