I saw the headline that General Motors had announced they were closing four U.S. auto plants, and one of them was in Lordstown, Ohio. This announcement caused me to flash back to another Ohio plant closure—the Ford assembly plant in Lorain, Ohio.
Every time I went to Cleveland on business I stayed in Huron, Ohio, near Lake Erie. After I left the airport, my route took me through Lorain and by the huge Ford assembly plant. This plant opened in 1958, producing nine different Ford models through 2005, when it closed. With its huge empty parking lot, it was a stark reminder of what is happening to American manufacturing.
The devastation caused by closing large plants like Lorain is far-reaching. According to the nonprofit Center for Automotive Research in Ann Arbor, Michigan, the elimination of one auto-making job causes the loss of four jobs in related industries. Tax revenue evaporates and related businesses vanish. Some companies that go out of business are suppliers that service the big plant; others are places where workers spend money: grocery stores, restaurants, day cares and barber shops.
The latest announcement of the Lordstown plant closure is not an isolated closure in Ohio. Ohio has seen auto plant closures all the way back to 1987.
- 1987 – General Motors assembly plant in Norwood
- 1988 - Ford Axle plant in Canton
- 2005 – General Motors assembly plant in Moraine
- 2006 – Ford assembly plant in Lorain
- 2008 – Batavia transmission plant in Batavia
- 2012 – Ford engine plant in Brookpark
- 2019 – General Motors Chevrolet Cruz plant in Lordstown
General Motors’ Lordstown closure is not being driven by lack of profitability. GM made $2.8 billion in profit in the third quarter of 2018, for a 10.2% profit margin (two points above the same period in 2017). The closures are also not driven by the aluminum and steel tariffs, which “added a few hundred million dollars to production costs” in 2018. According to the Coalition for a Prosperous America, the closures are really driven by General Motors’ desire to move more production to Mexico, where autoworker salaries are $3 dollars an hour rather than $30 an hour. Mexico now builds 300,000 GM cars per year.
Mary Barra, CEO of General Motors, summarized the situation very well when she said," I want to assure our owners that we are focused on creating shareholder value.”
Increasing shareholder value means increasing the stock price, reducing costs, increasing profitability, and buying back shares of the company stock. Contrary to what many people think, General Motors strategies have nothing to do with workers, families, communities, or the economies of states. It is all about shareholder value.
The auto industry is not unique in terms of plant closures. Other multinational corporations like Caterpillar, IBM, United Technologies, General Electric and many others, have also closed or are closing American manufacturing facilities.
According to the Department of Commerce, U.S. multinational corporations make up 66% of all manufacturing value in the U.S.
Multinationals are vital to any plan for growth of American manufacturing. During the 2000s, they cut their workforce by 2.9 million people while hiring 2.4 million foreign workers. In addition, during this same period, 51,000 manufacturing plants of all sizes closed. Despite the hope of reshoring jobs back to the United States, a Duke University survey found that only 4% of large corporations had such plans.
General Motors, Ford, and Chrysler are also building cars in China for the China market. In fact, GM built more than 4 million automobiles in China in 2017. If the Trump tariffs are removed, there is nothing to prevent GM from exporting cars from China to the U.S., rather than building them in the US.
There is also an enormous pressure on these multinational corporations to cut costs and move production to lower-cost countries. In particular, private equity firms buy shares of corporations to get on their boards and then pressure the corporation to both cut costs and increase buyback of their stock for quick returns on investment.
A good example is DuPont, which was pressured by activist investor Nelson Peltz to improve shareholder returns by buying back up to $4 billion of its stock. To achieve this goal, DuPont raised its cost-reduction target by $300 million, to at least $1.3 billion. As a result, DuPont announced a 10% reduction in their global workforce and the closing of a research and development facility.
It is important to point out that many economists do not think that offshoring production to foreign countries is a problem. They believe that the U.S. economy is transitioning out of manufacturing and into a financial and service economy that will provide growth and new jobs. They think that this is a natural transition just like the transition from an agricultural to a manufacturing economy.
The truth is if manufacturing continues to decline, then America will decline. The assumption that a service economy is adequate is a huge gamble which risks living standards, the economy, and in fact, our position as the No. 1 economy in the world.
In his recent article in IndustryWeek, “In Search of Stability: A Midnight Drive to Lordstown,” Editor-in-Chief Travis Hessman wrote: "Disruption has its limits. Too much disruption and we're left with chaos, and chaos gives us no way to grow, no idea where to grow to.”
The continued exodus of multi-national manufacturing plants will lead to chaos. Our free market approach may be good for General Motors, but it is no good for workers, communities, and state and local economies. America needs to transition from free-market economics to managed trade that focuses on the growth of the U.S. manufacturing sector and offers incentives to multi-national corporations to stay in the United States.
Michael Collins is the author of Saving American Manufacturing.