Atlas's "Open Letter"

[nkalanaga]

Many folks don't know it, but China is also one of our biggest export customers.  While they sell us cheap trinkets and doodads, we sell them the heavy machinery to build the factories.  They COULD build their own, but actually prefer ours.

On a more model railroad subject, with MT/KD's experience in making MR parts, I wonder if it would be practical for them to start an "arms-length" subsidiary to provide manufacturing services?  It would have to be easier to bring production back to the US if there was a manufacturer who understood what was being produced and what the final customers expected.

We did the same thing at the bank I worked for 35 years ago.  Our computer department served multiple local banks, and even though we were employed by, and physically in, 3rd National Bank, even the bank officials were barred from entering without an escort.  We had to keep all of the customers' data confidential, not only from outsiders, but from our own employer, in order for the system to work.  And it worked fine, until the bank was bought out, and our department was sold to a third-party service provider.  They got the employees, customers, machinery, programs, everything.  All we did was move to another building and find a new signature on our checks. 

[peteski]

  They got the employees, customers, machinery, programs, everything.  All we did was move to another building and find a new signature on our checks.

You were very lucky. Many mergers or buyouts result in reductions in workforce.

[DeltaBravo]

Just remember that MTL track is made in china because the sales price is too low to allow American production. America is great at "dumping" production down. That is actually a compliment... we are good at making a complex product easy to assemble and produce with very high quality and reliability. What we are not good at is stuff too easy (track) or too finicky (individual free standing details) to produce at a consistent quality and price to make it worth while.

Not to toss gas on this fire, but isn't  Micro Engineering track made is the USA?

[lock4244]

With things getting back to normal at Atlas (thankfully), bring on the N GP40-2W.

[nkalanaga]

Peteski:  Very true, and they were both great companies to work for.  Even when the local data centers were closed a few years back due to changes in banking, we got a good severance package.  Two weeks pay, plus a week for every year with the company, up to a total of 26 weeks.  Even better, we could take it as a lump sum, or simply stay on the payroll for the duration, in which case we also kept our insurance.  And they had a good insurance plan, too.

The key here is that the new owners were based in Paducah, KY, while we were in Ashland, about as far apart as one can get in Kentucky.  Their nearest data center was two hours away.  Rather than hire and train new people, try to convince the customer banks to sign with them instead of someone else, and otherwise start from scratch, they transferred our employment and had a basically ready-to-run data center.  They did lease their own building and buy new equipment, but in the meantime we kept running.  For three months we were working for the new company, but still in the bank, on the bank's computer.  It made for a very easy transition, as we could test the new system while doing production on the old one.  We even kept 3rd Nat'l as a customer for the first couple years, until they were fully merged into their new owner's systems.

DeltaBravo:  Yes, ME is made in a suburb of St Louis, Missouri.

[Rossford Yard]

Sort of related, but I have been in China several times over the last year on Biz.  Always get a driver and the car of choice - Buick.  (sometimes Ford)  Those cost about $60K there (after import taxes) for what would be a $30K car here.  There are Chinese cars, but they are only driven by the poorest folks.  Those who can afford it buy foreign cars because they are that much better.  Only post it to make us feel a bit better about American manufacturing.

Also, most forget we are still the world's second biggest manufacturing country, with China first, but only sense a few years ago, as per this study:

China displaced the United States as the world’s largest manufacturing nation in 2010 and widened its lead in 2012, according to recently published data from the United Nations. Manufacturing value-added in China totaled $2.56 trillion in 2012 compared with $1.99 trillion for the United States

Only a few years before that, I recall the US at $1.7Trillion in mfg, with China just under $1T.  So they are coming up fast. 

The post concerning low value mfg is spot on.  Most of the US exports center on Boeing, Caterpillar and a few other companies. We can't compete in highly popular consumer electronics for instance, but at the high end we are.  And there as just millions of products in the middle where the economics favor building it the US.  I know things like sprinklers just aren't lucrative for other countries to make even though they are used worldwide.  Ditto, some US products, mostly construction related, like garage doors (and openers) and windows, etc.

There are some combos of weight and value that make this true. I looked up what it would cost to ship each N scale loco from China, and it turns out shipping cost is only pennies per unit, not enough to offset labor. But if you were shipping something heavy, the costs go up too much for mid value products.

Charlie Vlk and others have come on and mentioned permits and environmental regulations affecting setting up factories here.  That might play into a company like MT or IM which already makes stuff here simply expanding their line a bit, over some new company setting up.   Other possibilities is production in El Paso or similar border city where they can bring Mexican labor over the river, pay minimum wage and no benefits.

Obviously, I am in the "I hope so" camp regarding bringing back some US manufacturing, or I wouldn't be looking into it in this much detail.....but overall, I think that ship has sailed (and is bringing Atlas products to the US as we speak.!)

[Rossford Yard]

More snippets from a manufacturing trade magazine, which touches on some of the topics here.  In PP 1-4, there are some factors that mirror the MRR industry discussions.  Still think the lower value stuff probably stays in China.  However pp5 -7 has to give us some hope for the US economy and demonstrate out sheer size......we are more diverse and households spend more than the entire China GDP!  And, as 3D printing takes over, it looks like a lot of MRR stuff could come back to the US......

Moreover, the costs of offshoring production are becoming increasingly onerous for U.S. companies. Given the insecurity of intellectual property in China and other factors, many businesses are discovering that it makes more sense to keep production capacity at home.

Last year, Manufacturing Trends and News concluded that “changes in the economic environment are making homeshoring more and more attractive, with a number of manufacturers actively moving their offshore operations back to the home turf.”

Instead of simply looking at cheaper labor costs, manufacturers now look at the “total cost of ownership,” or TCO. This relies on a comprehensive view of the manufacturing industry, taking into account the cost of quality, delivery, transportation, energy consumption, labor monitoring, carrying stock, freight, packaging, and all other aspects of production.

In addition, Chinese labor costs are rising an average 15 to 20 percent per year, compared to only 2 percent increases in the U.S.

More importantly, the overall U.S. economy is considerably more diverse and less dependent on a handful of major industries than China’s, meaning that growth can continue despite slowdowns in individual industries.

“America's household consumption alone generated $10.7 trillion of economic activity in 2011 – $3.5 trillion more than China's entire gross domestic product,” the Atlantic observes. “This, despite the fact that our population is one quarter the size.”

Despite China’s accelerating growth, the U.S. continues to lead in top-end manufacturing and smart technologies. And if additive manufacturing, or 3-D printing, expands as forecast, America is likely to further solidify its position as the world’s leader in advanced production capabilities.

[nkalanaga]

Also, don't forget that China has four times our population, which makes them a much bigger market, if their wages rise to where the workers can afford "nonessentials".  That's what the Chinese government is hoping for, by more than doubling the minimum wage over the next few years.  They hope to reach a point where their factories can survive on domestic consumption, rather than just being the "cheap labor" for wealthier countries.  At that point they'll be at about the same place as the US, Canada, Europe, Japan, etc, and things will either level out, or the factories will all move to a new source of cheap labor, as happened to Japan and Taiwan in the 60s and 70s.  Eventually the sources of cheap labor will run out. 

The question is whether automation will eliminate the NEED for cheap labor first.  If that happens we'll need an entirely new economic system, not based on "rationing by income", or the mass-production system will fail, due to a lack of customers.  If nobody is working, and one has to work to have money, nobody will be able to buy the goods.

[Rossford Yard]

In addition to a minimum wage, China would have to concede to some environmental restrictions/protections to truly level the field.  High tech manufacturing isn't just in the molds, etc.  It's also in the lesser carbon footprint the western world strives for.

I view China as about the same mindset the US had 100 years ago in its industrial revolution.  Full speed ahead and damn the torpedoes!

[nkalanaga]

China is working on their environment.  They're trying to reduce coal consumption, and investing heavily in wind, hydro, and solar power.  Having visitors die from smog in Beijing is bad for the economy, and causes China to lose face.  But as you said, they really are about where we were 100 years ago.  They can't afford to buy the cleaner technology, and are still building the industrial base to make it.  That's part of the reason they want to buy American coal.  It burns cleaner than most of theirs.  It wouldn't reduce the carbon emissions, but at least the smoke would be cleaner.

Much like the Soviet Union, China isn't "communist" in the true Karl Marx sense.  It's really just the latest dynasty in the Chinese Empire, which has been around for at least 3,000 years.  They have a long tradition of taking the long view, and part of that is doing whatever it takes to stay in power.  Right now, that means trying to keep the workers happy.  They have to improve living conditions, because even the rural peasants can see what material life is like in other countries.  But they also have to try to protect the environment, at least enough to protect farm production, because food shortages have brought down a lot of previous dynasties. 

[eric220]

And turtles.

[nkalanaga]

Turtles - the original four-wheel-drive.  Ever watch a terrapin (Eastern Box Turtle) climb wooden steps?  Our resident (not pet) turtle could barely reach the next step standing on its hind legs, but it would carefully stand, reach, then pull itself up.  Very odd, actually, because the steps go up a sloping bank, and the critter could have simply walked up the lawn.  And it's about 20 steps, so a long hard climb, but it did it more than once that I saw.  I haven't seen it for a couple years, so don't know if it died, moved, or just gave up climbing the steps.

Watching onc cross a railroad track is also fun.  At least they don't get hit by the train.  They don't stay on the rail long enough, and don't sit high enough between the rails to be hit.  Unlike on highways...