Monday, April 10, 2006

First of four parts

GREENEVILLE, Tenn. — Lacy Michael Brown works at a color television manufacturing plant that as recently as 1989 employed 3,500 workers toiling over three shifts.

Now, fewer than 100 employees are left on a single shift at the last domestically owned TV maker in the U.S.

“You just walk into that plant and see it empty. We used to work elbow to elbow building TVs, and now what do you see?” said Mr. Brown, referring to a chilly, 1 million-square-foot facility that stands largely idle, with most overhead lights and floor machinery switched off, the parking lot all but empty.

“It’s a shame this country is coming to this,” said the 60-year-old warehouseman.

For Mr. Brown, “this” is the deterioration of American manufacturing and the loss of manufacturing jobs, coupled with steadily rising purchases of foreign-made goods.

U.S. manufacturers in 2005 set production records, but consumers and companies bought more imports than ever. Foreign goods account for about one-third of the manufactured products consumed domestically, compared with about one-quarter in 1992 and 15 percent in 1982.

The shift has led to the decline of companies once synonymous with American industrial might, as well as heavy job losses across entire sectors that struggle to compete with imports.

“What is worrisome about that is the U.S. standard of living. I think it is very difficult to envision our standard of living being preserved if we’re in an economy where all people do is flip hamburgers, wait on people in stores and sue each other. It’s not much of a basis for an economy,” said Wilbur Ross, chief executive of WL Ross & Co., the global investment firm that has acquired and merged faltering textile, steel and coal companies.

In this four-part series, The Washington Times looks at the past, present and future of products made in the U.S.A. Today’s article examines “sunset” industries that have struggled to compete against foreign competition and cheaper foreign labor.

The Times also will look at continuing success stories of American manufacturing, the globalization of production and the cutting-edge innovation necessary to maintain the country as the world’s leading economy.

‘Code red’

Five Rivers Electronic Innovations, which has made parts or assembled color TVs under the Philips, Samsung, Akai and other brand names, is the only television manufacturer left in the U.S. without foreign ownership.

In an industry once dominated by American companies, almost all TVs now are made by non-U.S. companies, some at a half-dozen surviving U.S. plants but most imported from Mexico; Japan; China; Taiwan, also known as the Republic of China; and other nations.

Today, industry pioneers such as Zenith Electronics, which was at the forefront of developing and introducing black-and-white and later high-definition televisions, are owned by overseas businesses. A Korean company in 1995 acquired a controlling stake in Zenith, the last American-owned company to make TVs under its own nameplate.

Since 1995, U.S. employment in the industry has fallen by 44 percent, while television set prices have declined by more than half, new technologies have been introduced and sales have increased.

“If ‘Made in the U.S.A.’ was important, Wal-Mart wouldn’t be growing so much,” Tom Hopson, president and chief executive of Five Rivers, said in a reference to the Bentonville, Ark., retailer that imported an estimated $18 billion in goods from China last year.

“It’s probably going to take something like the automotive industry [disappearing] before people realize that the U.S. is not the world’s leader in manufacturing,” Mr. Hopson said.

Manufacturing employment across all industries in the U.S. peaked in 1979 at 19.6 million. As of November, it was 14.2 million, a 27.5 percent drop. Among production workers, the slide was a slightly steeper 31 percent, to 10 million workers. Salaries for production workers averaged a little less than $35,000 a year.

During that time, companies that helped forge the U.S. into an industrial powerhouse have been taken over by foreign owners, such as Bethlehem Steel; sent work overseas, such as Carrier Corp.; seen mass layoffs, such as Ford Motor Co. and General Motors Corp.; and in some cases simply ceased operation, as with Pillowtex, the North Carolina home-textile manufacturer that folded in 2003.

The slide in employment, decline in particular industries and wrenching stories of people who have lost jobs have alarmed many who say that the U.S. must do more to protect its industrial base.

“It’s code red. If you don’t make things, that means you don’t have the people who design the things to be made. You don’t have the people who prepare the things to be made. You don’t have the production floors where they are made,” said Rep. Donald Manzullo, Illinois Republican and one of Capitol Hill’s most outspoken advocates for domestic manufacturers.

“You lose your cutting edge to be a leader in the world. Nations seldom lead with financial services, they lead with manufacturing technology,” said Mr. Manzullo, whose district is home to machine shops and other manufacturers.

Made in Mexico

Not all sectors of U.S. manufacturing are in decline.

Some of the industries hardest hit by imports make mass-produced consumer goods, including televisions, clothes and toys.

Other U.S. industries that make products Americans seldom see in stores, such as machine shops and medical equipment manufacturers, have increased production and added employees in recent years.

“Manufacturing is a real mosaic. There are sectors that primarily service industry, that sell to consumers, that export heavily, that don’t export at all. Some face extreme import competition, and there are those that don’t. It’s hard to paint manufacturing with a broad brush,” said David Huether, chief economist at the National Association of Manufacturers.

But in general, the most labor-intensive industries — including many that produce goods for consumers — have seen the steepest drops in production and employment as imports have risen.

Footwear manufacturers in the past decade have shed more than two-thirds of their U.S. jobs. Doll, game and toy makers eliminated about 60 percent of their U.S. workers. Apparel manufacturers cut 72 percent of their jobs. Appliances and electrical equipment lost 30 percent.

But even the most devastated industries still provide some manufacturing and administrative jobs, although they no longer form the backbone of local economies.

“There are niches of every market we are going to keep. The mass-produced items — with a lot of low-cost labor — we can’t compete,” said Dan Meckstroth, chief economist at the Manufacturers Alliance/MAPI, an Arlington research group for manufacturing executives.

That means that American brand after American brand has shifted production out of the country.

Russell Corp., the Atlanta athletic apparel manufacturer, in January said it would eliminate about 1,700 U.S. jobs, shifting the bulk to Mexico and Honduras, in an effort to save as much as $25 million a year.

Even products that trade on an American identity move offshore.

Phil Marineau, Levi Strauss & Co.’s chief executive officer, in 2003 announced the closure of the company’s remaining manufacturing and finishing plants in North America. Almost 2,000 U.S. and Canadian workers lost their jobs as a result.

“We’re in a highly competitive industry where few apparel brands own and operate manufacturing facilities in North America. In fact, we are one of the last companies to do so,” he said at the time.

Levi owns plants in Africa, Asia and Europe, and the company still buys goods from U.S. suppliers, including shirts and a line of jeans. But most products come from independent suppliers in low-wage countries, including Mexico, the Dominican Republic and Cambodia.

Chicago company Radio Flyer in 2004 announced that it would outsource the manufacturing of its red metal wagons to China.

Huffy Corp., which at one point produced 1 million bicycles a year in the U.S., closed its last American plants in 1999, filed for Chapter 11 bankruptcy in 2004 and in October 2005 emerged as a subsidiary of a Chinese firm.

“Huffy Corp. is an important partner for the China-based companies which manufacture its bicycles,” said Zhidong Liang, executive vice president of China Export & Credit Insurance Corp. and now Huffy’s chairman.

Much larger companies also have been swallowed by foreign investors. U.S. steel companies were going bankrupt by the dozens from the late 1990s through 2003 as weak players collapsed or merged with competitors.

Some of the largest, including LTV Corp, Bethlehem Steel and Weirton Steel, were folded into a single company, International Steel Group, and then sold to the world’s largest steel maker, Mittal Steel, a Netherlands company led by Indian businessman Lakshmi Mittal. Now, about 8,000 U.S.-based Mittal workers produce the same amount of steel once forged by 12,000 U.S. workers.

Industrywide, iron and steel mill employment last year tailed off to less than 95,800 from 154,200 a decade ago, the Labor Department said.

But industry figures show that raw steel production during the same period actually increased, from 104.9 million tons to 109.6 million tons.

Cutting costs

Mr. Ross, the global investor who acquired and merged faltering steel companies into International Steel, now has his eye on the U.S. auto parts industry. Like steel, the auto industry is struggling under the weight of health and pension costs, as well as fierce foreign competitors.

Auto parts maker Delphi Corp. is in bankruptcy, General Motors last year announced the elimination of 30,000 jobs and closure of 12 facilities, and Ford Motor Corp. in January said it would shed as many as 30,000 jobs and idle 14 plants.

GM and Delphi have since taken additional steps, including plans to lower salaries and buy out or push their highest-paid U.S. factory workers into retirement.

Suppliers to the Big Three have announced tens of thousands of layoffs.

Mr. Ross said the trend of job loss and consolidation is likely to continue across industrial sectors, both because of lower wage competition from overseas and onerous labor rules, high health care costs and other factors that raise the cost of manufacturing in America.

“There clearly is going to be — from both foreign-owned companies and from the foreign subsidiaries of U.S. companies — there is going to be more and more competition for basic American industry. Therefore you will see more of the diminution in manufacturing jobs over time,” Mr. Ross said.

Old-line industries are not the only ones to lose jobs. Computer and electronic manufacturing jobs are down by 22 percent in the past decade, communications equipment manufacturing jobs are down by one-third, and semiconductor and electronic components by almost one-quarter, Labor Department data show.

Employment has declined because of the dot-com bust, because companies are more productive and because work is moving overseas.

Companies that move production out of the U.S. often do so to save on costs of operating in the U.S., including on labor but also on taxes, health and pension benefits, lawsuits, regulations and energy prices.

Mr. Ross laid part of the blame on lawmakers for not changing U.S. tax codes and health care and pension systems to reflect a more global economy.

“People in Congress would do better to deal with those issues than the mindless China bashing that seems so popular in Washington,” Mr. Ross said.

Growing deficit

China is central to the debate on manufacturing. U.S. exports to China are growing rapidly but pale in comparison to imports.

Last year, Americans imported $243 billion in goods from China, racking up a $201.6 billion trade deficit. A decade ago, China did not dominate so many manufacturing sectors, sending less than $46 billion in goods to the U.S. a year and contributing $34 billion to the trade deficit.

Now, after the development of domestic industries and heavy investment by U.S. and other foreign companies, China exports record amounts of clothing, furniture, toys, electronics and other goods to the U.S.

At the same time, China ramped up production of high-tech products. As recently as 1998, U.S.-China trade in goods that required heavy research and development, as well as advanced engineering was almost balanced, but by 2004, the U.S. shouldered a deficit in information technology, communications and other high-tech goods of $36 billion.

China and other developing nations, such as India, are able to capitalize on eager, well-trained labor pools that are willing to work for wages much lower than Western competitors.

Hourly compensation, including benefits, for manufacturing workers in the U.S. averaged a little more than $23 an hour in 2004. Blue-collar jobs have traditionally offered a path to the middle class for Americans without a college education.

But foreign workers appear eager to work for much less. In China, wages are less than $1 an hour at official exchange rates, according to a report for the Bureau of Labor Statistics.

“At one time in America a high school diploma and a job at the local factory was the ticket to success, but no longer,” Robert “Steve” Miller, chairman and chief executive of Delphi, told reporters in Washington in October.

Domestic manufacturers also say China is essentially cheating — manipulating its currency to make its products cheaper on world markets, stealing ideas and protecting its own turf in violation of World Trade Organization rules.

“What it means is consumers are getting a bargain. The other side of the coin is you are deindustrializing faster than you would have” without unfair competition, Mr. Meckstroth said.

Deindustrialization means that companies such as Five Rivers are barely holding on.

The Tennessee manufacturer is in Chapter 11 bankruptcy protection, may have run its last line of televisions and, to make some extra cash, is leasing out warehouse space to distribute cans of baked beans.

“It kills me. But there is no way we can compete with China,” said Mr. Hopson, the company president. “Most people don’t know there’s any TVs made in the U.S. anyway. I don’t think the public cares.”

Part II: Flexible companies change to stay put

Part III: Jetting parts around the world

Part IV: America’s cutting edge

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