More On Toyota

Everybody wants the world's biggest automaker to put a new factory in their locale. It's great for everyone. Why did Toyota decide to put their new plant in Ontario? It came down to two things: educational attainment levels of prospective employees, and health care. Canada won on both counts. This comes from Paul Krugman's piece today.

But last month Toyota decided to put the new plant, which will produce RAV4 mini-S.U.V.'s, in Ontario. Explaining why it passed up financial incentives to choose a U.S. location, the company cited the quality of Ontario's work force.

What made Toyota so sensitive to labor quality issues? Maybe we should discount remarks from the president of the Toronto-based Automotive Parts Manufacturers' Association, who claimed that the educational level in the Southern United States was so low that trainers for Japanese plants in Alabama had to use "pictorials" to teach some illiterate workers how to use high-tech equipment.

But there are other reports, some coming from state officials, that confirm his basic point: Japanese auto companies opening plants in the Southern U.S. have been unfavorably surprised by the work force's poor level of training.

There's some bitter irony here for Alabama's governor. Just two years ago voters overwhelmingly rejected his plea for an increase in the state's rock-bottom taxes on the affluent, so that he could afford to improve the state's low-quality education system. Opponents of the tax hike convinced voters that it would cost the state jobs.

But education is only one reason Toyota chose Ontario. Canada's other big selling point is its national health insurance system, which saves auto manufacturers large sums in benefit payments compared with their costs in the United States.

You might be tempted to say that Canadian taxpayers are, in effect, subsidizing Toyota's move by paying for health coverage. But that's not right, even aside from the fact that Canada's health care system has far lower costs per person than the American system, with its huge administrative expenses. In fact, U.S. taxpayers, not Canadians, will be hurt by the northward movement of auto jobs.

To see why, bear in mind that in the long run decisions like Toyota's probably won't affect the overall number of jobs in either the United States or Canada. But the result of international competition will be to give Canada more jobs in industries like autos, which pay health benefits to their U.S. workers, and fewer jobs in industries that don't provide those benefits. In the U.S. the effect will be just the reverse: fewer jobs with benefits, more jobs without.

So what's the impact on taxpayers? In Canada, there's no impact at all: since all Canadians get government-provided health insurance in any case, the additional auto jobs won't increase government spending.

Ouch. They had to use pictorials to train their employees? That's not good. I'd bet that Michigan could offer a workforce that could do better than that.

The healthcare issue is another story. I sat in a meeting with a local member of the U.S. House of Reps. earlier this year, and he suggested that a national health care system would be in the works within the next five or six years. It's becoming pretty obvious that business in the U.S. will no longer be able to foot the bill for health care pretty soon. But will a system of nationalized health care get here early enough to take pressure off of U.S. businesses and stop the drain of manufacturing jobs? Five years may be too long to wait.

Time To Get With It Big Three

The greening of Detroit? Only if the green refers to money. What a fantastic scenario Daniel Akst paints in his article from the Sunday Times.

Imagine that you are running a domestic automaker. Rising gasoline prices threaten your lucrative S.U.V. sales, a glut of car-making capacity promises ever more competition, and burdensome union contracts limit your ability to cut costs. Then there are the Chinese. They're beginning to put together the parts they've been making for years, and sooner rather than later, whole cars from China will arrive at scarily low prices.

What do you do? The easy answer is to follow the path that Detroit has taken for years. Grind out well-made but ho-hum vehicles and offer them at huge discounts. Let your debt rating fall below investment grade. And when California tries to impose mandatory reductions in greenhouse gases, you sue, even if some other states want the same stricter standards - and even if some consumers are lining up to pay hefty premiums for energy-saving hybrid vehicles that run on both gasoline and electricity.

Now I'm the first to acknowledge that without a C.E.O.-sized paycheck, I am far from qualified to run a major manufacturing business. But isn't it possible that Ford and General Motors are on the wrong path?

As long as the big domestic automakers focus on short term gains and meeting earnings projections, I doubt that any of the big three will become "green" soon. But it does seem likely that the local automakers are on the wrong path. Michigan's governor, Jennifer Granholm, seeing the competitive advantage that companies like Toyota have in the hybrid car market, is travelling to Japan this week to try to convince Toyota to locate their next North American plant in Michigan. She may be tired of seeing Toyota choose her native country Canada over her current state Michigan, as the next great place to locate manufacturing operations. Canada does have its benefits, but more on that in another post.