Current President Trump is out of touch regarding business in the USA. Unfortunately, voters believed him. The good news is that he seems to be listening to people smarter than he pretends to be.
One example is coal. Trump’s words on coal, as well as any politician who says the same, are false. Thus, coal will always be necessary for the steel industry and several other industrial applications. But the biggest customers for coal are power plants. Coal never again will be used for energy in new power plants. How do we know? Call any power company in the USA and ask their plans for building future power plants. Power plants take decades to plan and build. Ask, “What kind of power plants are you planning to build?”
The answer, “Well, certainly not coal!”
Another example is bringing manufacturing in a meaningful manner back to the USA. The following article, in an expert and friendly way, illustrates the problems.
The Log, Rough Ride Ahead For “MADE IN AMERICA”
Mini motorcycle and go-kart maker Monster Moto made a big bet on U.S. manufacturing by moving assembly to this Louisiana town in 2016 from China.
But it will be a long ride before it can stamp its products “Made in USA.”
The loss of nearly one out four U.S. factories in the last two decades means parts for its bike frames and engines must be purchased in China, where the manufacturing supply chain moved years ago.
“There’s just no way to source parts in America right now,” said Monster Moto Chief Executive Alex Keechle during a tour of the company’s assembly plant. “But by planting the flag here, we believe suppliers will follow.”
Monster Moto’s experience is an example of the obstacles American companies face as they, along with President Donald Trump, try to rebuild American manufacturing. U.S. automakers and their suppliers, for example, have already invested billions in plants abroad and would face an expensive and time-consuming transition to buy thousands of American-made parts if President Trump’s proposed “border tax” on imported goods were to become law.
When companies reshore assembly to U.S. soil – in Monster Moto’s case that took two years to find a location and negotiate support from local and state officials – they are betting their demand will create a local supply chain that currently does not exist.
For now, finding U.S.-based suppliers “remains one of the top challenges across our supplier base,” said Cindi Marsiglio, Wal-Mart Stores Inc’s (WMT.N) vice president for U.S. manufacturing and sourcing. Wal-Mart partnered with Monster Moto and several other U.S. companies in a drive to increase spending on American-made goods by $250 billion by 2023 in response to consumer demand for American-made goods.
Their experience has shown Americans’ patriotic shopping habits have limits, namely when it comes to price.
Take Monster Moto’s bikes, which sell for between $249 to $749. Keechle, the CEO, says he can’t raise those prices for fear his price sensitive prospective customers will turn to less expensive rivals made in China.
“Consumers won’t give you a free pass just because you put ‘Made in USA’ on the box,” Keechle says. “You have to remain price competitive.”
Keeping a sharp eye on labor costs in their factory is one thing these U.S. manufactures can control. They see replacing primarily lower-skilled workers on the assembly line with robots on American factory floors as the only way to produce here in a financially viable, cost-competitive way. It’s a trend that runs against the narrative candidate Donald Trump used to win the U.S. Presidency.
Since taking office, Trump has continued promises to resurrect U.S. manufacturing’s bygone glory days and bring back millions of jobs. On March 31, Trump directed his administration to clamp down on countries that abuse trade rules in a bid to end to the “theft of American prosperity.”
But it’s more complicated on the ground for companies like Monster Moto.
“It’s almost as if people think you can just unplug manufacturing in one part of the world and plug it in to the U.S. and everything’s going to be fine,” said David Abney, Chief Executive Officer of package delivery company United Parcel Service Inc (UPS), which helped Monster Moto reconfigure its supply chain to bring its Chinese-made parts to Ruston.
“It’s not something that happens overnight,” he said. A White House official said that the Trump administration’s efforts to encourage manufacturers to reshore production will be focused on cutting regulations and programs to provide new skills to manufacturing workers.
“We recognize that the manufacturing jobs that come back to America might not all look like the ones that left,” a White House official said, “and we are taking steps to ensure that the American workforce is ready for that.”
MAKING ROBOTS GREAT AGAIN
In Monster Moto’s cavernous warehouse in Ruston, boxes of imported parts that are delivered at one end then become bikes on a short but industrious assembly line of a few dozen workers.
A solitary, long-bearded worker by the name of Billy Mahaffey fires up the bikes to test their engine and brakes before a small group of workers puts them in boxes declaring: “Assembled in the USA.”
Helped by that label, Monster Moto has experienced a recent boom in demand from major customers that include Wal-Mart. The company expects to double production to 80,000 units and increase its assembly workers – who make $13 to $15 an hour – to 100 from around 40 in 2017.
The most likely components Monster Moto could produce in America first are black, welded-metal frames for bikes and go-karts, but they would have to automate production because human welders would be too expensive.
“We can’t just blow up our cost structure,” said Monster Moto President Rick Sukkar. “The only way to make it work in America is with robotics.”
The same principle applies for much larger manufacturers, such as automotive supplier Delphi Automotive PLC’s (DLPH.N). Chief Financial Officer Joe Massaro told analysts in February that 90 percent of the company’s hourly workforce is in “best-cost countries.”
When asked about shifting production to the United States from Mexico, Massaro said depending on what happens to trade rules “it would have to be much more of the sort of the automated type manufacturing operations just given… the labor differential there.”
That trend is already showing up in data compiled by Economic Policy Institute, a Washington-based think-tank. According to senior economist Rob Scott, not only did America lose 85,000 factories, or 23.5 percent of the total, from 1997 to 2014, but the average number of workers in a U.S. factory declined 14 percent to 44 in 2014 from 1997. According to Scott, much of the decline in workers was due to automation.
“We’re going to see more automation in this country because it makes good sense economically for every company,” said Hal Sirkin, a managing director at the Boston Consulting Group. “You can spend a lot of time bemoaning it, but that’s not going to change.”
Manufacturers say automated production requires fewer, but more skilled workers such as robot programmers and operators. The National Association of Manufacturers (NAM) estimates because of the “skills gap” there are 350,000 unfilled manufacturing jobs today in a sector that employs over 12 million people.
In Ruston, Mayor Ronny Walker bet on Monster Moto by guaranteeing the company’s lease because he wants to diversify the city’s economy, and envisions suppliers setting up alongside Monster Moto’s assembly plant.
“Could it take a long time to bring manufacturing back here? Sure,” he says. “But you have to start somewhere.”