Chain Reactions

Detroit Finally Gets It Right (sort of)

We take the Not-So-Big Three automakers to task a lot here, so it's only fair to give them their just due on those few occasions when they do something right, even if it seems like their success is more on account of somebody else's bad luck. According to this article in the Wall Street Journal, the worse the U.S. economy gets, the better things are looking for U.S. automakers.

Sounds like a strange paradox, but the basic premise is simple: As the value of the U.S. dollar shrinks in comparison to foreign currencies, so too does the U.S. itself start to look like a low-cost country. Yes, that means GM, Ford and Chrysler have figured out how to beat the Chinese at their own game the only catch is that the entire United States has to suffer an economic slowdown for this strategy to work. The net result is that the number of foreign cars being imported into the U.S. has slowed, while exports of U.S.-built cars is on the rise. Whether this development will continue once the dollar rebounds is uncertain.

The strategy also takes advantage of the renegotiated labor deals the Detroit Three worked out last year. Although at the time most auto industry observers believed the automakers successfully won major concessions from the United Auto Workers union, the UAW appears to be pleased by the improved balance of trade. Said one UAW official in the WSJ article, "Combined with the weak dollar, we've got a contract that puts ourselves in a great position to ship products to other countries and do it making a profit."

In a related story, the U.S.-China Business Council reports that U.S. exports to China in 2007 were up 18% over 2006, reaching a total of $65.2 billion. As John Frisbie, president of USCBC points out, "Most Americans are aware of China's manufacturing output, since they see it on store shelves every day. Less known, however, is that the U.S. remains the world's largest manufacturer twice as big as China and China is buying more and more of America's exports.

Hoping to make some sort of political hay, the USCBC also observes that Michigan, Ohio and Pennsylvania three large Rust Belt states seen as key to the Presidential candidates each exported more than $1 billion worth of goods to China in 2007, and have seen triple-digit growth in exports to China since 2000. All told, 19 states exported more than $1 billion to China last year, while another 10 states had exports amounting to at least $500 million.

"In a time of softening in the rest of the U.S. economy, U.S. exports to China are a source of strength and jobs," Frisbie asserts.

TAGS: Supply Chain
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