Monday, January 30, 2006

Follow the Money

An extremely good article by Mike Lawrence- hosted on

Ford is to close 14 plants and shed 25 30,000 jobs. Most would seem to be in the USA, but that is bad news for more than just Ford employees in America. Every new car needs tyres, spark plugs and light bulbs, so there will be a downturn among suppliers. When America sneezes, the rest of us catch a cold.
Do not lose sight of this chilling fact, Dubya has borrowed more money than every other President, from George Washington to Bill Clinton, combined. Dubya has turned a budget surplus into a trillion dollar deficit and it is planned to increase. America is borrowing from nations which save their money and it will end in tears. Debts have to be repaid and to do that countries have to sell things. America's two largest manufacturers, Ford and General Motors, are facing bankruptcy. If they were not who they are, where they are, neither would be in business.
Before the end of 2006, Toyota will have overtaken The General to become the world's most prolific maker of vehicles. GM is basically bankrupt and, unlike Ford, has yet to address its problems. It used to be said that what is good for General Motors is good for America and that was probably true, but the downside is what is bad for General Motors...
Despite this, I have seen it suggested, on another website, that GM should consider Formula One as part of its revival strategy. This would be like trying to douse a fire with petrol. Besides, what name would be used when you have a choice of Cadillac, Buick, Chevrolet, Saab, Holden, Vauxhall and Opel?
Ford has factories everywhere and it also owns roughly a quarter of Mazda (the Ford Cougar coupé used a Mazda platform, the result was dire). The Ford Puma coupé of 1997 was designed in Britain, on a Fiesta platform, and made in Spain. The engines however, needed a special treatment and, since the production was only 5,000 units a year, all the engine blocks were shipped to Yamaha in Japan, then shipped back to Spain.
Ford still makes a profit in Europe, and in South America, but it is failing in North America. Fuel and steel prices are rising, partly because China has entered the world market in a big way. American customers are turning away from large engined trucks and SUVs because, increasingly, they do not make economic sense. Furthermore, cars made for the North American market rarely have an application elsewhere.

Ten years ago Chrysler introduced its Neon saloon to the UK. On paper it looked a bargain, it had all the bells and whistles at a keen price. On value for money, it was swell, but it bombed because it had no virtue as a machine to drive. It was fine on an American freeway, with a 55 mph speed limit, but damn all use where I live, where the roads have corners and lots of them.
Pitpass is about motor racing, and as I keep saying, motor racing is not fuelled by petrol, it's fuelled by money. Ford has been the most creative contributor to all branches of the sport for more than 40 years. Le Mans, Indianapolis, F1, F2, F3, Formula Junior, saloons, various and manifold, let's not forget the great Ford/BMW battles of the early 1970s, plus rallies and, of course all the various Ford formulae. Ford has been great for motor sport and motor sport has been great for Ford.
At the beginning of 1959 you could still buy, in Britain, the Ford Popular, which looked like a Gothic chapel on wheels. Its specification was from an earlier age: sidevalve engine, beam front axle, cable brakes, three speed gearbox (with a throw measured in feet) and vacuum operated windscreen wipers. The wipers were swell, they worked okay on the flat at a constant speed, but if you came to a hill, you had to drop a gear and take a run at it. The harder you pushed on the loud pedal, the slower the wipers went, until they stopped. This was not what you needed on a dark and wet night with headlights that hardly got beyond the front bumper.
By the end of the same year you could buy the 105E Anglia with an engine which was a class leader. The Anglia also had a four speed transmission and for the next decade road testers would compare all gear changes, no matter how expensive the car, to the sweetness of the Ford 'box. None surpassed the transmission in what became the cheapest Ford. Ford led the way with it most inexpensive model, it beat Ferrari, Porsche and Aston Martin, the Ford gearbox was the business.
That 105E engine, with assistance from Cosworth, swept Formula Junior and established the dominance of the British motor racing industry because it killed off all the small constructors elsewhere.
Ford realised that a major influence in sales was the guy in every office who 'knew all about cars'. Suddenly Ford was getting a great name and we had landmarks like the Lotus Cortina, the Mustang and, in due time, the Sierra Cosworth. Forty years on and the Mustang is the Hollywood director's car of choice to portray a slightly off the wall hero, Aiden Quinn drives one in Conviction. Tom Cruise has a Mustang in The War Of The Worlds. The Shelby 450 GT version was top of Nicholas Cage's list in Gone In 60 Seconds while, in the TV series, Spenser For Hire, 'Spenser' (Robert Ulrich) was given a Mustang though he doesn't drive one in the books.
I don't even have to mention James Bond (two movies) and Bullitt, I am talking only about Mustangs at least 30 years old, but still the coolest car on the block. Tom Cruise drives an old car in War Of The Worlds and it marks him out as the special guy who will do something about those pesky Martians. A Camero of similar vintage would not send the same signal even though it is, on balance, the better car.
Ford was recently in Formula One through Jaguar Racing. The writing was on the wall when Bill Ford III demanded to know who the heck was Eddie Irvine, his company's top paid employee. When the COE has not heard of the leader of Ford's F1 team, the F1 team is doomed.
It is always the same, a few guys in senior positions, wanted the paddock passes and the cred. Various factions in Ford had been playing off each other like courtiers fawning around a Renaissance prince. One day the prince said, 'I am Bill Ford III. I am the prince. I am in charge.' Courtiers (aka suits) were sent home to tend their estates,
A problem faced by Ford and General Motors when producing in North America, is the deals struck with the union, United Auto Workers. Both companies are signed to welfare and pension schemes. In the case of Ford, that represents a layout of US$ three billion per year, or $1,000 per car. GM's bill, pro rata, is about the same. Between them, they will lay out $8 billion in 2006 on medical care and pensions, once they have done that, then they can think about making a profit.

In mature European countries, health care is free to the individual (it is not actually free, since it is paid for through taxation). If I am taken ill in Paris, I will receive excellent health care from a local hospital and the same is true if a person from France if taken ill in my city. Nobody will ask, 'How are you paying'? Both of us have already paid.
On New Year's Eve, The Times speculated that within 12 months Ford and/or General Motors may have to apply for bankruptcy protection. UAW had negotiated a small reduction (less than 4%) in medical care cost and this had received the backing of 51% of the membership. Some members, however, are claiming that the vote was rigged and want to go to court. If that happens, the true condition of either company could be exposed. Both are broke. A recent poll showed that 74% of American consumers would not buy a car from a company under bankruptcy protection. If either Ford or GM had to apply for protection, they would be finished,
Ford and GM are kept alive by banks, to whom they owe hundreds of billions of dollars. If Henry and The General fall, banks will fall. The whole American economy could collapse. That was not funny in 1929 and it would be even less funny in 2006. If you have a pension plan, it will be linked in some way to the American economy.
American unions are powerful, but then their fight for recognition is recent and, often, was bitter. In the 1920s, Henry Ford himself sanctioned the hire of gangsters to break union picket lines and you do not hire men with broken noses for their persuasive diplomacy. There are historical reasons why the unions are wary of management.
Another factor in all this is China. Ford and GM have both invested in China and last year, GM made nearly 250,000 vehicles there. Volkswagen, which has been in China for nigh on 20 years, made almost twice as many. BMW is in China, in partnership with Brilliance. Honda is in China, like it or not, a Chinese company has copied Honda designs.
The Chinese government has a relaxed attitude to copying, ask Microsoft. China represents itself as a modern nation, but it is a hotbed of piracy.
At present, China is servicing its home market with cars, but in about five years time it will begin to export. The effect will surely be like the arrival of Japanese cars. Nothing could compete with Japanese cars when they first arrived in Europe. For a start, they came laden with what were otherwise optional extras', such as a radio. It was economic sense to put a radio in every car when they were being sent by sea 12,000 miles. You bought a Japanese car from the showroom, you did not order one, ticking a box for a radio and paying extra. You did not go through a list of colour options, you chose a red one, or a blue one, and the prices were so keen nobody argued.
My DVD player became temperamental recently so I added a new DVD player to my shopping basket at a local supermarket, along with the bread, the eggs and the orange juice. It cost less than the recommended retail price of a Harry Potter DVD, bung it in the basket. Not only that, but in every way it is superior to the DVD player I junked. I cannot find 'Made In China' anywhere on it, but it was made in China. In small letters on the box is 'Made in PRC' (People's Republic of China). The word 'China' does not actually appear.
In 2003, it cost $34 per hour to employ a car worker in the USA and $2 an hour to employ one in China. A car worker in the USA is covered for their medical care, but there is no such obligation in China. Until recently, a Chinese worker received medical care as a matter of right, China was a down the line Marxist state, but now the individual must pay. Much of the population cannot afford to pay.
On BBC World Service recently I heard a heart rending interview with a Chinese peasant farmer. His wife is dying of cancer and she needs treatment he cannot afford. His only option is to rise early and pick herbs in the hope that a folk remedy may alleviate her condition. Herbs do not cure cancer, she needs chemotherapy, or surgery, but herbs is all the guy can offer. Not long ago, his wife would have been treated, free to the individual, with the best medical care his region could offer.
Think of this man, and his wife, and their children, when next you see effusive coverage from Shanghai for something as unimportant as a motor race.

We have an irony in that American car workers, in a capitalist state, have negotiated medical care and China, still a one party, nominally Marxist, state, has withdrawn the healthcare that we, in Europe, take for granted.
Recently, we in the West, followed the story of miners trapped in a coal mine in West Virginia. That wouldn't make the news in China because, literally, it happens every day. Thirteen coal miners are killed in China every single day, 365 days a year. Yup, that means more than 4,000 killed in 2005. It's amazing what you pick up from BBC World Service.
China is operating sweatshop conditions so the rest of the world can enjoy goods cheaper than I have known in my lifetime. My DVD player cost a twelfth of what I paid for a basic VCR (no remote) 20 years ago.
Of course, the Chinese are stealing the markets. We in the West beat our brows over children in sweatshops, but how did we become rich? It was through exactly the same process. In Britain we had women and children, as young as four, down coal mines. Mill workers were often slaves in all but name. There were slaves in America's Deep South who had an easier time than some of my forebears. It was better to be a black butler in a big house on a Georgia plantation than it was to be a mill worker, or a miner, in Britain. Freedom? Who had the greater freedom? Was it the butler, an essential pivot in a great house, or was it the kid, apparently free, who was chained to a loom? Who ate better? Who wore the better clothes? Who had more authority?
Of course, the butler could be sold, in theory, but nobody is going to sell a good butler. On the other hand, kid loses an arm in a machine, sack the kid. The kid will be 'free', free to beg on the streets or become a thief,
Ever read John Steinbeck's Grapes of Wrath? If not, you should. Steinbeck could write like an angel on occasion, and this is such an occasion. The novel tells of the exploitation of migrant workers in America, and it happened within living memory.
Britain was the first to exploit workers, because we created the Industrial Revolution, but everyone else has followed the pattern. In our case, one of the main prongs was the mass production of cotton goods. We did not care who else we made poor, people using hand looms, our mills took cotton thread and made it into cloth, which we sold round the world.
China is an ecological disaster, but then so was 19th Century London and New York. Actually, both cities were ecological disasters until recently. Want to understand exploitation of labour? Watch On The Waterfront. The same things happened in ports in Britain, but Hollywood once tackled big issues. There was a time when Hollywood was not about the hero running in slow motion from the explosion and somehow not being lacerated from flying glass, metal or brick,
China is doing what the UK and the USA once did. It is making products which undercut the market and it is using the same exploitative techniques which we once used as a matter of course and have conveniently forgotten.
Recently I bought a new TV, flat screen, 28", no bell unrung and no whistle unblown. On the front is the name 'Bush'. My family had a Bush radio in 1948, it is a name with resonance for me. Bush stands for sturdy men, men who smoke pipes and who perhaps maintain a pigeon loft. It has 'Bush' on the front, but it was made in China. If it wasn't made in China, I couldn't have afforded it.
I think that we in the West should buy while we can because China is headed for crisis. After nearly sixty years of Marxism, its banking system is fragile. No matter what else the British did, we left India with a sound infrastructure and cricket. China does not have a sound financial infrastructure, and there is something else, it has no trade unions.
When I was a teacher, I made sure that a union was behind me before I entered a classroom, It was good advice from a fine Headteacher. I never needed the union, but it was always behind me. I have a friend, a teacher, who did need her union, and her union delivered. I am a union man.

China does not have independent trade unions, but it will. There are an estimated 190 million migrant Chinese workers (they have moved within China to obtain work) and 48% of them (more than 90 million workers) have not received their contracted wages, many have not been paid at all. Ninety million is an awful lot of pissed off people. It's roughly the population of the UK and Scandinavia, plus Holland and Belgium.
When Formula One visits Shanghai, TV presenters (who are put up in five star hotels) gush about the economic miracle. They never mention the 4,000 miners who die each year, the 90 million who haven't been paid or the hundreds of millions who cannot afford basic health care which, once, was free. No government can contain that level of discontent for long.
China is trying to be both a Marxist state and a free enterprise zone. That is a recipe for disaster unless you have an internal buffer, such as an independent union movement along with, in parallel, an independent media. Google has done a deal with China and the big news is that while it will censor websites critical of the Chinese leadership, it will tell the Chinese user that they have been denied access. This is supposed to be progress?
The big question is, which will collapse first, China or America? Ford and General Motors are essentially bankrupt, therefore America is bankrupt. America is borrowing money to service its military and, one day, will have to redeem the loans. China cannot continue its present course because someone, one day, will say, "This ain't right". Such a thought was the start for Chairman Mao.
I think it is a race between America and China as to be the first to implode.
The overall winner will be India. India has been catching up with China. India has many problems, but it does have a solid infrastructure, it is a democracy and it has a free press. There are all sorts of problems involving corruption, but the basic structure is sound.
America used to have a sound infrastructure, China never has had one. China has never been more than a lot of people sharing the same land mass. Did you know, for example, that the staple grain for a third of Chinese is not rice, but millet? Try ordering millet with your Chop Suey and egg roll.
The other thing about dealing with India, as we will have to, is that Indians are crazy about cricket. I think we English may have a slight advantage there, we know about 'deep gully' and 'silly mid off', and Johnny Frenchman, and Kurt der Kraut, has no idea what we're talking about. I suggest that we keep it that way.
In the meantime, buy all the cheap stuff you can and then sit back and watch the firework display as Chine and America battle to be the first to implode. Please remember, you read it first on
Mike Lawrence

As Plato said

"every organism's strenght is automatically its weakness"
In the long run it pays to be socially responsible
Interesting article, However i cannot see the USA fall so soon, not because of one or two vehicle manufacturing companies. Their biggest problem is that their are spoiled.
The far eastern values of community over individualism should save them from revolt of their roughly 9% population who didn't recieve wages and one should keep in mind that with a population of a billion... according to the CIA world factbook amount roughly 7 000 000 people die each year. 6.76 per 1000 population. South Africa has 21.32 deaths per 1000 population.
of those 7 000 000 deaths about 0.002% was mine related. according to the article.

Not trying to debunk the article, just making an argument.
Hi Eben

Welcome to OORB

Are you a Cheetah supporter?

I like your dissection of Mike Lawrence's view.

remember he post regularly on a motorsport website- therefore he may be inclined to overcook the importance of the big two on the American economy to empasise his pet project- that F1 costs are too high.

On China- yes the are timid with regard to their government/community and the Party surely rulz in China

It9the article) does offers a fresh perspective and some interesting thoughts on India as well

Hope to see you around.
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