Saturday, May 2, 2009


Greetings good citizen,

The public debate over the government’s ‘moves’ to bail out the US auto industry continues to rage. But there is a more important issue at stake here good citizen, one that the media, and therefor, the public is ignoring.

That issue is what happens to the US economy when the last fragment of the US manufacturing industry is destroyed?

How big a deal is this good citizen? Back in the 70’s one in every ten in jobs in the US were connected to the transportation industry. This is probably no longer the case since Wall-Mart became the nation’s single largest employer…

Nationwide union membership is down to 8% of the workforce with the largest of them being the union that represent workers in the hospitality industry…

But what would you expect from the nation that has the highest poverty rate as well as the largest percentage of its population under ‘lock and key’ than any other nation in the world?

This is economics 101 good citizen, the ‘principal’ activity that creates wealth is the conversion of raw materials into finished goods. You can generate wealth through the sale of raw materials but it’s not nearly as profitable as well as being an order of magnitude more dangerous for workers.

If we lose what remains of our manufacturing base, this is what will be left. Do miners need a college degree? (Perhaps, once the process is totally automated, eliminating the need for a large number of them.) Since farming is ‘land/capital intensive’ there are already a dwindling number of farmers…and little incentive to pay field hands anymore than they can get away with, with so many redundant people around, regardless of their level of education.

It’s a major kick in the head…fail to graduate at the very top of your (Ivy League) law class, the only work available to you will be down in a hole or under the blazing sun…if you can find work at all.

Well, you could drive a truck…but the steadily deteriorating condition of the roads will make this a far less attractive option.

Understand good citizen, the less we make for ourselves, the less there is to do. Bizarrely, this is not commerce’s problem, it’s yours!

If you’re curious as to the kabuki dance to ‘save’ the US auto industry is being performed, rest assured it’s not being done to ‘save’ US jobs.

For a bit of insight into this we turn to tonight’s first offering if you’ve never seen Max Keiser before, this is a treat…just understand that he’s positively ‘mellow’ in this particular video.

For our second offering we arrive at this curious piece that in essence deals with the threat of cascading systemic failure…[Hat tip: The Automatic Earth]

Toyota Partmakers in Japan Hire Detectives to Hunt Bankruptcies

Hironori Minezawa, a private detective, spends his days investigating struggling autoparts makers in Toyota City, Japan, as cuts by Toyota Motor Corp. end a 7-year expansion for the city’s thousands of parts suppliers. Toyota slashed production following the automaker’s first loss in 59 years, pushing some partsmakers into bankruptcy. Minezawa said he is employed by Toyota suppliers to find out whether subcontractors may fail, leaving his clients unable to fill their own orders. "A rumor of a possible bankruptcy gets out, and we are called in to find out what’s going on," said Minezawa, who works for Tokyo Shoko Research, based in nearby Nagoya. "These companies aren’t getting any work and are at the end of their tethers."

Failure of the weak links in the chain may force Toyota to turn to suppliers outside its traditional network, ending the company’s stranglehold over a procurement system that has driven down profit margins at subcontractors to 1 percent or less, said Takeshi Miyao, a Tokyo-based supply chain analyst at CSM Worldwide, which advises the auto industry. "This would change the balance of power and could become reflected in prices," Miyao said. Toyota’s supply network consists of two groups: the 217 primary partsmakers that deal directly with the carmaker and their subcontractors. Toyota spokeswoman Ririko Takeuchi declined to comment on the company’s pricing practices or negotiations between its suppliers and their subcontractors. Minezawa expects bankruptcies to mount over the next six months, particularly in the lower ranks of Toyota’s supply chain. [It will probably be quicker here in the US.]

"Profit is next to nothing," said Kazushi Kawabata, president of Comco Holdings Inc., a maker of machine tools, that supplies Toyota. "The suppliers are totally in Toyota’s grip." Nationwide, bankruptcies in the auto sector surged 52 percent to 41 cases in March compared with last year, according to Tokyo Shoko. The number of newly registered unemployed in Aichi prefecture, which includes Toyota City, jumped 88 percent in February. About 80 percent of the labor force in Toyota City serves the auto industry, according to Norio Seki, the head of the city hall’s industrial affairs division. Domestic production of Toyota and Lexus cars fell last year to 4 million vehicles, the first decline in 7 years. The cuts have rippled through the local economy.

In the Meitetsu Toyota Hotel, opposite Toyota City rail station, occupancy rates have halved since October to as low as 30 percent, said front desk manager Chiharu Suzuki. Foreign suppliers, who used to make up more than half the hotel’s guests, are gone, leaving the once popular samurai swords untouched in the gift shop, she said. At the Hello Work employment agency, Satoru Tsuda, a 31- year-old Japanese-Brazilian from Parana in southern Brazil, is trying to find work to meet his family’s 41,500 yen monthly rent. He, his two brothers and his parents worked for 12 years at an engine-parts factory until they were fired in March, he said. Toyota may post a 227 billion yen ($2.34 billion) loss for the year ending March 2010, according to the median of 20 analyst estimates compiled by Bloomberg. The company forecast a loss of 350 billion yen for last fiscal year. It reports earnings on May 8th. The carmaker said it may cut global production by 12 percent this fiscal year to about 6.2 million vehicles. As Japanese companies report earnings for the fiscal year ended March, more bankruptcies may come to light, said CSM’s Miyao.

Nihon Koshuha, a maker of car-door parts for Toyota affiliate Toyota Boshoku Corp., halted operations on March 3 after orders dropped and the company couldn’t service debt on a new plant built in 2007. Taishin Kasei Inc., a maker of plastic car interior and body parts in Nagoya, ceased production in April and filed for bankruptcy. Former President Eiji Toyoda, great-uncle to incoming President Akio Toyoda, once said "water can be wrung even from a dry towel if you put your mind to it," to explain how the company overcame the economic crisis following the 1973 oil shock, according to the company. This philosophy permeates the supply chain, Miyao said. Sub-suppliers’ profit margins are restricted because they are expected to open their books and show their costs to customers, he said. The price of their products is then typically decided after delivery, Kawabata and Miyao said. "Part of Toyota’s success is based on its ability to squeeze parts makers," said Bob Sliwa, advance design director at Nagoya-based Cobo Design Co., which works with Toyota suppliers such as Denso Corp., the world’s largest listed auto-parts maker.

Toyota group companies like Denso and Aisin Seiki Co., Japan’s largest maker of car transmissions, in which Toyota has equity stakes, sell to automakers around the world. Sales to carmakers other than Toyota make up about half of Denso’s business. In contrast, most secondary suppliers in Toyota City make parts only for Toyota. Denso set up a taskforce in January to help sub-suppliers cut costs, said spokesman Goro Kanemasu. Comco’s Kawabata said the company’s relationship with Toyota "shocked" him when he joined his father’s business in 1981, leading him to diversify his company from being completely dependent on the Toyota group to getting 80 percent of sales from other companies. Subcontractors "are pushed to cut costs in units of hundredths of a yen at times," Tokyo Shoko’s Minezawa said. "It’s that kind of world."

Hmmn good citizen, where do you suppose the Japanese learned these cut-throat practices? Even more interesting is why a Japanese ‘dollar’ is worth roughly a single US penny?

Mr. Tsuda’s rent is a mere $415, yet nothing from nothing leaves nothing.

$4 may as well be $4 million if you can’t lay your hands on it. This once again begs the question of why the average Japanese worker doesn’t starve to death…although no irony should be lost on the fact that Japan’s inadequate social safety net is indeed resulting in starvation deaths in the world’s ‘second largest’ economy.

Only slight more shameful is the number of retirement aged Japanese imprisoned for petty larceny…so the convicts could obtain access to healthcare, three squares a day and a roof over their head!

Sadly, many US workers will likely be forced to seek their ‘retirement’ courtesy of the US prison system. Considering the already overcrowded conditions at US prisons, this may not work out particularly well.

Yes, good citizen, welcome to the latest ‘revision’ of the American Dream, where you bust you ass until you’re ‘too old’ (typically 40) then you’re thrown out to fend for yourself the best you can.

If we fail to turn out the criminals in charge of our economy, the future is looking mighty grim indeed!

Understand good citizen, there is no shortage of things that need doing. The reason they don’t get done is because the elite can’t make a buck off of it because tax dollars only go so far.

Thanks for letting me inside your head,


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