Saturday, June 07, 2008

The commissars at the NY Times lament loss of "most productive" auto plants. (And the Trabant too?)

The New York Times reports...
Highly Rated Auto Plants Set to Close

Some of the most productive automobile factories, as rated by an influential study released Thursday, are closing down or losing large numbers of jobs in the motor industry’s upheaval.

Among the factories scheduled to close are a General Motors minivan plant in Doraville, Ga., and the Ford Motor Company’s midsize pickup truck plant in St. Paul, both of which ranked first in their segments in this year’s Harbour Report on automotive productivity.
It seems these "highest productivity" plants are being closed merely because people don't want to buy the cars they make -- and they can't be converted to make products people do want to buy.

“Those decisions were made not lightly, but based upon market demand,” said a G.M. spokeswoman, Pam Reese...

... the Detroit automakers’ roster of closings shows that a plant’s efficiency “is not a big enough differentiator anymore” when companies need to decrease production, said Ron Harbour, a partner in the North American automotive practice of Oliver Wyman, which publishes the study.
How horribly wrong is the economy going when efficiency doesn't matter any more?

Well, here's the thing: Western world developed-nation economic statistics measure bottom-line productivity in terms of "value added". That is, the value of a product as measured by what buyers will pay for it, minus the value of the inputs that the seller has to pay for. GDP is the national economy's net value added.

There are other measures for productivity, such as "hours of labor to make X" or "amount of stuff used to make X", and they have their uses -- but not on the bottom line. If you are a business that runs a loss on value added to maximize "hours of labor" or "stuff used to make stuff" productivity measures, then you are going bankrupt. If you are an economic system that does so you are, oh, the former Soviet Eastern Block.

And the Soviet Eastern Block did very effectively produce a lot of products using few hours and little stuff -- even automobiles, such as the famous Trabant, still fondly remembered over there. (I had the fun of riding in one once, and I sure remember!) People say a million of them were junked The Day The Wall Came Down (" Designed as a three-wheeled motorcycle, the decision to build a four-wheeled car came late in the planning process" *) but I wouldn't know about that.

So the bottom-line message is: if a manufacturing plant can't make a product that consumers want to purchase on a positive value added basis, and it can't be converted to do so, it is not highly productive, it is unproductive, and it's loss is not to be lamented. No matter what "industry studies" and NY Times writers and editors say.

The top-rated full-size pickup plant, a Ford factory in Norfolk, Va., closed a year ago, showing that even the best-run plants are not immune to cuts. Two of the top three large S.U.V. plants are closing, as is the second-ranked midsize S.U.V. plant.
And the Times' editors surely want to see more SUVs and full-sized pickup trucks on the road, right? Just ask Tom Friedman. Maybe some Trabants too?