U.S. Economic/Financial News
GM Tells Auto Suppliers: Move to China, or Charge Chinese Prices
Beleaguered General Motors, the world's largest auto maker, is telling its auto suppliers in effect, move to China or charge rock-bottom Chinese prices. Of course, such a move would rip still more industrial capacity out of the already-deindustrializing United States. Some 380 executives from U.S.-based auto suppliers were summoned to a meeting at Michigan State University April 6, where GM chief purchasing executive Bo Andersson threatened them point blank that the suppliers should either "consider building their parts" in China to remain competitive, or charge prices for auto parts produced in the United States that would be equivalent to the prices of those produced in China. Andersson instructed the executives not to speak to the press, but the Detroit News obtained Andersson's 13-page slide presentation to the suppliers.
Thus, in response to its crisis, GM's insane response would create a situation in which, within five to ten years, few parts suppliers would be left on American soil, and hundreds of auto parts plants, representing advanced machine-tooling and more than 150,000 workers, would be trashed.
While refusing to go into details, GM's official spokesman Tom Wickman said of the meeting, "We're a global company, we needed a global supply base, a competitive supply base."
This demand came after GM had already earlier this year demanded that its suppliers cut material costs by 20% from 2003 levels.
According to a study done last year by Ronald Berger Strategy Consultants, North American auto suppliers will close plants and move as much as 20% of their production to low-wage countries by 2010, although GM's latest move appears to accelerate that schedule. Delphi, GM's largest auto parts supplier, has built or is finishing construction on a total of 11 factories in China. Recall, that a UAW official told EIR that of Delphi's 23 plants in the United States, ten to 12 could be more or less permanently closed down by June or July, were GM to go into bankruptcy. The Detroit News reports that GM "expects to increase its auto part purchases from China ... from $200 million in 2003 to $4 billion in 2009," an increase of "20-fold in six years."
John Henke, president of Planning Perspectives, Inc., sputtered April 6, "Simply because of wage structures around the world, you'll go to places like Mexico, China and India to get the best price on anything." This confirms what Lyndon LaRouche said April 7 at his international webcast: that the bankers intend to "slaughter GM" and the auto sector.
GM, Ford Downgraded to Just Above Junk Bond Levels
Jon Rogers, auto analyst for Smith Barney, which is an investment banking division of Citigroup/Salomon Smith Barney, has downgraded GM from stable to negative, and announced that he is projecting a target price for GM stock, from his previous target of $32 per share, down to $24 per share; he has also called for cutting GM production capacity by 20%. GM's stock is currently trading at $30.50 per share; this downgrade, coming from Citicorp, America's largest bank ($1.1 trillion in assets), could precipitate a fall in GM's stock price.
There are valid reasons that rating agencies and banks would be concerned about GM, but the process can also work the other way: that these downgrades are intended to intensify a crisis. Rogers also projected Ford Motor Company's stock price to fall from his previous target of $16 per share, down to $12 per share.
Rogers then proposed, "To remedy [GM's financial] situation, GM would need to enact more sweeping and radical changes than have been detailed thus far." He added that GM's decline in market share "is manageable, but only if the auto maker can strip out capacity as well." Rogers said that GM has 33% of auto plant capacity in the U.S., but accounts for only 25% of all North American car salesand thus must reduce capacity by at least 20%, accompanied by the elimination of 25,000 workers.
GM has slashed its American workforce of UAW unionized workersalmost exclusively production workersfrom 460,000 in 1985, to 120,000 today, a 75% shrinkage. These 340,000 workers, who could be reconstructing America, have been sent to hamburger joints and unemployment offices across the country.
30% of U.S. Tool and Die Makers Gone in Last Five Years
An April 4 Detroit News article describes the destruction of the Michigan, and national tool-and-die sector by globalization, illustrating with the case of a 50-year-old family firm. Schmald Tool and Die's general manager is heading to India in May to arrange to "team up" the company with Indian computer design firms. The Indians will design the tools made at Schmald, in order to compete at lower prices.
As a result of globalization, outsourcing, and computer design, one-third of Michigan's tool-and-die workers have been laid off or quit since George W. Bush took office. Some 39,000 remain. And nationally, the picture is the same: Thirty percent, or more than 100,000, of the 350,000 tool-and-die workers employed in 2000, are no longer working.
An increasing amount of the work done by these machine-tool firmsparticularly those associated with the auto/auto supply industryconsists of repairing brand-new machine tools made more cheaply, but less well, abroad. This is also their most lucrative work. The office of Michigan Governor Jennifer Granholm (D) is counselling machine-tool firms that only by outsourcing parts of their production process to foreign firms, can they survive. This has meant sharing tool designs with those firms, and more importantly, consigning the design and testing of the tools before actually producing them, to computers. Many of the experienced tool-and-die makers have quit rather than agree to work in this way. Schmald says their own tool designers are on short hours because of outsourced design. The head of another Michigan firm, Precise Engineering, told Detroit News, "It's a bitter pill for us to swallow."
Call for Action to Protect, Expand U.S. Nursing Homes
State leaders are calling for action to protect and expand the U.S. national base of nursing homesFederal veterans' homes, state-run veterans' homes, and general care facilitiesto provide adequate care and to create necessary jobs. Meanwhile, the Bush Administration's fiscal '06 budget is ordering major funding cuts and shutdowns, which will of course also result in job loss.
A significant part of the American health-care infrastructure the system of state-run veterans homes, Veterans Affairs-run homes, and private nursing homes, accounting for thousands of facilities.
The following are some essential parameters:
1. State-run veterans' nursing homes: in 117 cities and towns, with 27,1000 beds or so, as of 2004. This system began under the Eisenhower Administration. In recent years, a daily rate of $59 per resident/patient is paid by the Federal governmentthe Veterans Administrationto defray state expenses.
2. Veterans Affairs-run nursing homes: some 130 sites, with 14,930 beds or so, as of 2004. The new Veterans Affairs budget plans to limit eligibility for care, to keep out thousands, and to reduce payment for the existing patient load, in what VA Director Nicholson calls "management savings."
3. Nursing homes nationwide.
1. Five state-run veterans' homes: Erie (175 beds), Holidaysburg (515), Pittsburgh (236), Scranton (200), Spring City (342), Delaware Valley (171). The Bush proposal will cut the per-diem subsidy for vets, and will also disallow any vet who needs care, but has no combat injury. This will disallow even a World War II-era veteran who may have seen fierce action, but escaped direct injury.
2. Eight Veterans Affairs-run nursing homes: Altoona (40 beds), Coatesville (281), Erie (52), Lebanon (136), Philadelphia (240), Pittsburgh-Aspinwall (336), Wilkes-Barre (106), Butler (97).
3. Some 732 long-term-care facilities which employ overall 200,406 in health care and other industries in the state.
Meanwhile, as a result of the Bush proposals for cutting Medicare and Medicaid funding (and thus stiffing nursing home), 203,000 jobs in Pennsylvania alone will be killedalong with patients.
In the Philadelphia metro area, 141 nursing homes support 55,100 jobs statewide. In the Pittsburgh metro area, 128 nursing homes support 31,000 jobs statewide.
U.S. Tries To Stop Hemorrhage of Textile Jobs
After the loss of 17,200 of the 700,000 remaining textile jobs in the United States in January-March, the U.S. Commerce Department on April 4 announced a 30-day impact investigation of Chinese imports since World Trade Organization (WTO) quotas expired on Jan. 1, and by June 1, will probably re-impose quotas on Chinese imports of cotton shirts, blouses, trousers, and underwear. These imports had increased over the first quarter of 2004 by between 1,200% and 1,500% depending on the items. Some 17 American textile mills closed, temporarily or permanently, in the first quarter.
Overall, U.S. first-quarter imports of textiles grew at the same rapid rate as in the previous four quarters; the difference is that in first-quarter 2005, China crowded out other exporters. American textile employment has dropped by 381,000 jobs, over 36%, while George W. Bush has been in office, and for the most part, while the quotas limited China's imports. Financial interests like those represented by corporate raider Wilber Ross have entered the industry, bought up companies bankrupted by globalization, and further outsourced textile production. Textile employment is down 70% since 1990, mirroring other major industries.
Following the U.S. move toward protection, spokesman Qin Gang of the Chinese Foreign Ministry denounced the move as unfair, according to Associated Press.