January 2013 / Volume 65 / Issue 1|
A tale of two companies
By Alan Rooks, Editorial Director
In early December, two companies announced plans to make substantial investments in U.S. manufacturing. One was Apple Inc. and the other was Detroit Diesel Co. Guess which one got more coverage in the media. I’ll help you. Even though Detroit Diesel’s investment was more than Apple’s and despite President Obama showing up at Detroit Diesel’s announcement ceremony, my casual Web review showed Apple beat Detroit Diesel in news references by about 7 to 1.
Mind you, I’m not complaining about media favoritism. Anything the most highly valued company in the world does is news. And Apple’s $100 million investment to build a line of Mac computers somewhere in the U.S. is big news because it currently assembles almost all of its devices overseas. Plus, while Detroit Diesel is investing $120 million, the products to be made are transmissions and turbochargers, which just don’t have the flash of iPods, iPhones and iMacs. (Detroit Diesel is building two new assembly lines for its existing plant in Redford, Mich., and the transmissions and turbochargers will go into trucks produced by Daimler Trucks North America.)
Of course, Apple’s $100 million plant investment is modest given that its annual capital expenditures are about $10 billion. And some observers have suggested that the investment is being made to distract attention from the well-publicized problems at Foxconn, Apple’s main Chinese supplier.
But something larger could be happening. Perhaps Apple is testing the waters to see if reshoring some of its manufacturing could make economic sense. And perhaps the move by an enormous, innovative company like Apple could inspire other companies to do the same.
Whatever the reasons, I found it heartening that two manufacturers, one highly visible and one nearly invisible to the public, came to the same conclusion: that manufacturing in the U.S. is a good idea. And while the numbers of jobs created will be modest—around 200 for Apple and 250 for Detroit Diesel—those plants will create more jobs and more investment by other firms serving the plants and their workers.
And the plants and their products will feature the very latest in technology. For example, Detroit Diesel will produce 12-speed manual transmissions with computer-controlled shifting and clutches that allow them to perform like an automatic with the efficiency of a manual, according to Detroit Diesel. Plus, this will be the first time Daimler has manufactured transmissions outside of Germany.
That echoes the news about another new U.S. manufacturing plant, this one built by DMG / Mori Seiki in Davis, Calif. It’s the first machine tool manufacturing plant ever built in the U.S. by Japan-based parent company Mori Seiki Co. Ltd.
These manufacturers would not be investing in the U.S. if doing so did not make economic sense. Waving the flag is a nice sentiment, but companies are, of course, more interested in making money and staying in business. The economic facts favor U.S. manufacturing right now. For one, U.S. factory workers are a much better deal than they were 10 years ago. According to a report by the investment firm T. Rowe Price, Chinese workers used to offer a huge cost advantage for American companies. But they’ve lost half of that discount to U.S. workers in a decade. Also, the shale oil and gas boom has dramatically reduced energy costs for U.S. manufacturing firms compared to their global competitors, and it should remain a long-term advantage.
Finally, it’s just plain easier and more efficient to design and make things in the same place. There are fewer communications problems and supply chain efficiencies grow. As President Obama said at the Detroit Diesel/Daimler ceremony, “By putting everything together in one place, under one roof, Daimler engineers can design each part so it works better with the others. That means greater fuel efficiency for your trucks. It means greater savings for your customers. That’s a big deal.”
Yes, it is a big deal. And it may keep U.S. manufacturing on the upswing for years to come. CTE
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