By on October 4, 2012

 

 

According to VW USA’s CEO Jonathan Browning, America is missing out on huge investments and new jobs due to our “rising debt and political discord.” In 1999, the U.S. did attract 41 percent of all global foreign direct investment. Now, the number is less than 20 percent. The money is going to places like China where Volkswagen has 12 plants and three more on the way, while there is only one in the U.S. Browning is talking in code about several facts of post-bailout automotive life.

1) Union Trouble

Volkswagen is the last major automaker to build a new plant in the US. The UAW has been targeting it for organization since it opened for business. Neither VW nor its workers want the UAW around, even its German unions want to keep the UAW away, and yet the UAW pushes on. The result: Audi production that was supposed to be added to Chattanooga is going to Mexico. Still, the UAW has continued to push for unionization at Chattanooga, even into this year.

2.) Protectionism

Largely prodded by labor unions, the Obama administration has embarked on a world trade war. This war is financed out of the pockets of consumers, it has not added a single job, and prevented many from being created. OEMs favor Mexico over the U.S., also because Mexico has trade pacts with major export markets, the U.S. has not. The pandering to union interests costs jobs and kills exports.

3) CAFE/EV Credits

Whereas GM’s DC Rep has cheerfully admitted that, for some strange reason, the latest round of CAFE negotiations were notable for their unprecedented cordiality and pulling-togetherishness, Volkswagen has been openly unhappy with the new rules, accusing them of being unfair, favoring truck makers (read: Detroit) and not technology neutral.

Interestingly, VW’s reasonable quibbles with environmental policy in both the US and Europe have earned it a long campaign of attacks from Greenpeace. Nobody has been able to explain why VW has been targeted by Greenpeace, as there’s no objective environmental reason for doing so. Conspiracy theories, anyone?

Upshot: Not only is VW not going to bring new Audi production to the US, it won’t build its next-generation Golf here either… both are going to Mexico. And this isn’t just a business decision: they say capacity in Chattanooga is “exhausted,” but it absolutely is not. I’ve been there, I’ve seen it, they have room to add entire new lines there. No way would they rather use their ancient Puebla plant rather than their shiny-gleaming new Chattanooga plant, all things being equal.

The business climate must be very rotten if a country embroiled in a shooting war with heavily armed gangs and sometimes rogue military elements is favored over a country that used to be proud of its enterprise spirit. The armed gangs seem to scare investors less than union thugs with friends in high places.

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41 Comments on “Volkswagen’s America Chief: This Country Needs To Get Its House In Order...”


  • avatar
    Ron

    Let me be sure I understand you. You are saying that the reasons why VW would rather produce in Mexico are 1) it fears being organized by the UAW, 2) it doesn’t like the U.S. objecting to the value of China’s currency, and 3) it is unhappy with CAFE rules. So it has nothing to do with paying Mexican workers less than $5 an hour vs. over $50 (including benefits) in the U.S.?

    • 0 avatar
      BigMeats

      Thank you. Short & sweet.

      • 0 avatar
        RobertPaulson

        Don’t worry, there is still plenty of money to pay exorbitant CEO salaries and dividends. The real problem is the lowly factory workers that want to be paid a wage that will afford them the opportunity to one day buy a car they make. Race to the bottom anyone?

    • 0 avatar
      th009

      You missed a key point in Bertel’s story: “OEMs favor Mexico over the U.S., also because Mexico has trade pacts with major export markets, the U.S. has not.”

      Building cars in Mexico will allow VW (or Ford, or Nissan, or …) to export those cars not just to the US, but also to Europe or Brazil.

    • 0 avatar
      tatracitroensaab

      @Ron First of all, American wages at Chattanooga start at $12/hr (1). Secondly, wages matter less when you are relying on machines. American jobs havent disappeared so much due to lower wages in other countries so much as the increasing efficiency and mechanization of our factories (2). I think that Bertel’s first point is a little bogus (workers at these plants dont want unionization anyway) but on the others it is spot on. If America wants to get back to the top, it needs to simplify its laws (not reducing protection, just making the rules easier to understand), educate its people better, and, most importantly, get its fiscal house in order. It can’t just be cutting the military, nor can it be just cutting social programs. It’s going to have to be a bit of everything. Taxes can still be cut, if loopholes are eliminated. But that’s for another conversation.

      (1) http://www.wsws.org/articles/2011/sep2011/chat-s23.shtml

      (2) http://www.theatlantic.com/magazine/archive/2012/01/making-it-in-america/308844/

      • 0 avatar
        Chicago Dude

        Why is it that the Japanese makes build non-union factories in union-friendly northern states and run them for decades with very little strife, while the German makes build non-union factories in union-unfriendly southern states and can’t seem to avoid butting heads with the UAW and others? Maybe VW needs an attitude adjustment.

      • 0 avatar
        Pch101

        “Maybe VW needs an attitude adjustment.”

        Browning’s point is that Mexico has cut free trade agreements with other countries that makes it easier to export from there than it is from the United States. He noted that he could deal with the resulting 10% import tariff abroad (which hints that he was referring to the EU, which imposes a 10% tariff on imported cars.)

        Browning didn’t reference labor costs or unions. (As I noted elsewhere, a guy who was fixated on avoiding unions would not have pushed to build a plant in Mexico.) He seems to be more concerned about the lack of a trade agreement between the EU and the US that would serve VAG’s interests.

      • 0 avatar
        Ron

        I stand semi-corrected on wages. I say “semi”, because my comparison included fringe benefits, which can easily add $10-15/hour. However, you are more correct than I am, because I didn’t realize VW went back on its 2008 agreement to create 2,000 local jobs at the “full” pay rate in order to receive a bevy of state, federal, and local subsidies.

  • avatar
    YellowDuck

    This is exactly the kind of highly political story that does *not* belong on this website. In this case, it even seems to be quite partisan. Boo, hiss…

    • 0 avatar
      CJinSD

      Your guy is conducting war on the middle class. I’m so sorry that reading about it hurts your feelings.

    • 0 avatar
      -Cole-

      It completely belongs on this website. It’s literally TTAC, or at least someone’s version of TTAC, and we’re lucky to have it. Get out.

      • 0 avatar
        psarhjinian

        I’d agree, but the editorializing in this post is something terrific. The story is worth it, but the pot-stirring is something else.

        If I have an issue with TTAC post-Farago, it’s that the separation between news and opinion is much, much less distinct. This nets two problems: editorialized news stories that come off like flamebait, and genuinely intellectual editorials are few and far between because the content has been badly poached.

        Also, I miss the podcasts.

    • 0 avatar
      alf42

      It’s reality and it needs to be talked about.

    • 0 avatar
      stuntmonkey

      >This is exactly the kind of highly political story

      In what way is it partisan? And if it’s political, how can you not talk about unions without talking about policy?

      • 0 avatar
        Pch101

        “In what way is it partisan?”

        Mr. Schmitt’s interpretation of the speech bears little resemblance to what the guy actually said, or for that matter, what he implied.

        If VAG’s main priority was with unions, then it would have built a plant in the US. It can build a factory in the southeast without dealing with unions, while in Mexico, the unions are not only active but fairly aggressive about striking and making demands. Perhaps the average TTAC reader doesn’t realize that the UAW are a bunch of pussycats compared to unions in other countries, but do your own research about strikes at VW’s plant in Puebla for an example of how this plays out outside the US.

    • 0 avatar
      JustinM

      Not just that, but Bertel is seeing what Bertel wants to see. The source article reads completely differently.

  • avatar
    MarkP

    The goal of a business is to maximize its profits. The goal of a union is to maximize benefits for its members. The goal of a country in setting its policies should be to maximize the benefits to the country as a whole, including both businesses and labor. Those goals are not necessarily mutually exclusive, but they do not necessarily coincide. Just remember who is saying what when you read an article like this.

    • 0 avatar
      RobertPaulson

      A union worker, a member of the Tea Party, and a CEO are sitting at a table.
      In the middle of the table there is a plate with a dozen cookies on it.
      The CEO reaches across the table, takes 11 cookies, looks at the Tea
      Partier and says:
      “Look out for that union guy, he wants a piece of your cookie.”

    • 0 avatar
      th009

      If you actually look at what Browning said, unions were not mentioned as far as I can tell. Read the Bloomberg link, or a longer story on Automotive News:
      http://www.autonews.com/apps/pbcs.dll/article?AID=/20121001/OEM02/121009991/vws-browning-political-discord-hampers-u-s-auto-investment

      What Browning does refer to is (1) political discord — I interpret this as the inability for congress+president to effectively pass legislation, (2) rising debt — related to the previous one and (3) protectionism — which makes exports from the US much more difficult than other countries. Add all of these together, and it will explain at least in part the steep drop in USA’s share of direct foreign investment. And the location of new factories in Mexico …

      • 0 avatar
        SP

        - Exactly what sort of federal legislation was Browning hoping for?

        - If rising debt tends to devalue a currency, wouldn’t the devalued currency make the country a better exporter? That’s what “they” keep telling us anyway.

        - How bad are the tariffs really?

      • 0 avatar
        th009

        What kind of legislation? How about the ability to pass legislation to increase (or eliminate!) the debt ceiling?

        A 6% tariff hurts a LOT more than a 6% labour cost increase, as the latter only affects the labour cost component of the car, which is well below one-fifth of the total these days, regardless of the car.

  • avatar
    wstarvingteacher

    You can put whatever spin you want on this story. Personally, win or lose, I can’t wait for this election to be over. It is a recurring pain that comes every four years and is worse each time.

    Thing is that money talks and VW intends to let it’s money talk in spanish. Much as I don’t like to politicize these blogs this story needed to be told.

  • avatar
    MarkP

    It really is ridiculous for someone to choose to locate a factory in Mexico over the US on the basis of political discord. I also don’t see why VW should care about national debt. As for protectionism, well, cry me a river.

    • 0 avatar
      Dan

      You’re right, there’s no reason for a corporation to concern itself with functional government or sustainable finances. Just ignore what’s happening in Greece, Spain, Italy, Portugal, California, etc.

      • 0 avatar
        MarkP

        Let’s make this into a game. Which one of these does not belong: Greece, Spain, Italy, Portugal, California

        I should also point out that the financial and economic conditions in the US are not even remotely like those in PIGS. Not. Even. Remotely. It’s pure tea-fueled wackaloon fantasy to compare PIGS to the US. If you want to look at potential financial liabilities, look no further than Germany. Right now they are piping the tune for the PIGS, but if they pipe too hard, the whole house might come down around their ears.

        And, by the way, if you want to complain about finances in US states, why just look at California? Why not look at that automotive-industrial powerhouse, Alabama? Their finances are so bad they just had to pass a state constitutional amendment to transfer money from the state trust fund to the general fund to keep the state’s essential functions going. For the time being.

      • 0 avatar
        th009

        California. It’s the only one not able to raise taxes to eliminate its deficit.

      • 0 avatar
        CJinSD

        Does attacking the tea party movement do anything to mitigate Bernanke printing 40 billion dollars every day or Obama continuing to funnel hundreds of billions of dollars stolen from our savings and futures to his cronies? There is something ridiculous about the brainwashing level achieved in people that vilify anyone concerned about the future of the dollar, or about the assault on our status as a nation of laws. People that find themselves attacking the tea party need to find their centers. They simply aren’t thinking effectively.

  • avatar
    DJTragicMike

    Just because VW wants to build, ship, and sell cars as cheaply and with the highest profit as possible doesn’t mean America has to help them. Unions were a driving force for workplace safety laws and the “golden years” of America (1950-1970) when a single factory income could buy a home and raise a family. Apparently, that is worthless when a foreign CEO gets his panties in a bunch because we won’t undercut the 3rd world.

    • 0 avatar
      th009

      Browning didn’t suggest undercutting the third world. But with tariff barriers in place, manufacturing in the US is not suitable for exports outside NAFTA.

      Mexico has a free trade agreement with the EU, and Canada is working on one. US, not so much.

  • avatar
    juicy sushi

    The long-term implications of a race to the bottom are rather strange, as the cheap labour costs which these companies supposedly seek are only transient. In 2010, Honda experiened significant labour discontent in its Chinese factories regarding lack of wage increases for the workforce. Their solution, meet the demands and start introducing robots as the automation was going to be cheaper.

    Workforces in the developing world are only marginally cheaper than the automated plants in the developed world, and as these workers frankly don’t plan on being poor forever, and expect wage increases and a better life like the rest of us. As that happens, the cost advantage between hordes of cheap labour and robots comes down, the robots come in, and manufacturers are left with the same factories everywhere, which just happen to have widely varying costs to transport the goods to market.

    The need for economic competitiveness is one thing, the requirement that workforces must depress their living standards in order to meet the short-term demands of the market is something related, but a lot more complex. The need for countries to address economic shifts with programs and plans for both industry and citizens so that workers can transition better to new employment in different industries is even more complex and not really discussed because it involves a lot of detail and hard thinking unsuited to websites, political campaigns and the need to sell advertising space. But until people are willing to have it, understand all the trade-offs involved and then make hard decisions, things aren’t really going to get much better.

  • avatar
    Pch101

    “Browning is talking in code about several facts of post-bailout automotive life.”

    I heard straightforward English. Not even a hint of talk about unions in his speech.

    Browning’s main gripes:

    -The “debt ceiling” issue that now turns into a regular crisis event

    -High tariffs assessed on US exports by other nations

    -Preference for domestic producers for bidding on government contracts

    -Alternative energy subsidies (which presumably VAG doesn’t get because it focuses on diesels, instead of hybrids and EVs)

    Aside from griping about political partisanship in Washington, his main point seems to be that the US appears to be apathetic about building export markets, and accordingly takes its FDI for granted. He downplayed the role of incentives in inducing investment, and he didn’t seem to care much at all about labor costs or unionization (and if he has a problem with auto workers unions, then Mexico is the last place that Audi should be building a plant.)

    http://www.brookings.edu/events/2012/10/01-foreign-investment#ref-id=20121001_Baily

  • avatar
    Mazda323

    Assuming VW really are concerned about the things Bertel lists (despite none of them being mentioned in the source article), then they are effectively saying this:

    1. We want to be able to build in your country but we want to set the pay rate for employees and never have to feel pressure to increase pay or improve working conditions.

    2. Despite being in the US, we want to get our parts from China and we want you to stop getting in the way of this.

    3. We want to use your land but not have to be concerned about the environmental standards that you’ve determined will help protect it.

    …People are upset that conditions here are not favorable for this?

  • avatar
    Volt 230

    Funny thing is that the VW chief story is right above the one about the junked 89 Audi, not much for durability there, Johnny, baby!

  • avatar
    MarkP

    @th009. Yeah, California labors under a legal tax prohibition, but Alabama and most other states labor under one that is not legally binding but is in reality just as effective. What politician is going to risk the ire of the tea party by suggesting that taxes should be raised? States will continue to cut funding for education, infrastructure and what used to be considered essential services rather than raise taxes even a little. So don’t criticize California because they can’t; criticize the other states because they won’t.

    • 0 avatar
      Charliej

      Having grown up in Alabama, and lived there until this year, I can tell you. Alabama is a failed state. Businesses locate there because of a lack of environmental laws and cheap labor. I started my career as an analytical chemist for a chemical company on the gulf coast. I left after a few months, as I wanted a long life. Of the people that I worked with there, over half have died of one form of cancer or another. The plant site is now a superfund cleanup site, with an estimated cost of over one hundred million dollars to make the area safe.

      I grew up during the civil rights era. The tea party members in Alabama are the children of the Ku Klux Klan members of that earlier era. Alabama is a beautiful state, unfortunately the people are ugly in their attitudes toward others not just like them. Better education and an attitude change would benefit Alabama greatly, but it will not happen.

  • avatar
    hreardon

    Bertel -

    Can you provide more information on the claim that Audi is not adding production capability to Chattanooga due to the UAW? Not that I disagree with you on that, but has some little birdie informed you that yes, that was indeed a very strong motivator?

  • avatar
    bd2

    Kind of ironic coming from an automaker based in a country where labor unions are stronger and is more protectionist (10% tariff on auto imports).

    VW is making good $$ on US-built Jetta and Passat sales even tho VW has been discounting them, as well as selling to fleet – since production costs for them are so low (lower than the Koreans or Japanese in the US).

    All this talk about Mexico is simply b/c the wages there are even cheaper but more importantly, much more conducive for exports to other markets (including to Europe) due to the FTAs.

    So a Mexican-built Audi means more profit selling to the US and Europe, as well as to countries in S. America.

    Same reason why Apple makes its stuff in China opposed to the US; turn what would be good profit margins into spectacular margins.

  • avatar
    Mike Kelley

    These days, Mexico’s economy is more vibrant than our own, and the US now has the highest corporate taxes in the world. Throw in Sarbanes/Oxley and Dodd-Frank, and you would have to be crazy to pick this country for your new factory. I remember the tech executive who said it would cost a billion bucks more to build a chip plant in California than overseas. The US is now toxic to business, and we are seeing the effects every day.


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