Last updated 7-19-24
WHY IS THE JOHN DEERE NEWS about moving jobs to Mexico so surprising? (See ‘It’s the Margin, Stupid!’ blog below from April 18, 2024). Union heads bring employers to their knees on 6-year contract, and then the trends for manufacturing/labor costs and customer demand cross in opposite directions – as most knew it would. That margin that kept equipment “made in America” is now eroding with changing labor, COGS and demand dynamics. Be careful what you ask for, because short-term entitlements can lead to this very result… -- Mike Lessiter, Editor/Publisher
Originally Posted April 18, 2024 as "Steelmaker Woes, CNH &Pyrrhic Victories … It’s About the Margin, Stupid!"
I was struck by the April 13 Wall Street Journal. Page 9 of the 12-page “Exchange” section had two stacked-up articles on America’s steel situation. First was an article on Japan’s Nippon Steel’s $14.1 billion deal to acquire U.S. Steel. Directly underneath it was another article on German steelmaker ThyssenKrupp’s plans to cut steelmaking jobs and capacity.
No one is happy about the fate of U.S. Steel, a 123-year-old industry icon. Included is the United Steelworkers union, suddenly fretting about the future of its 10,000 hourly workers. President Biden is showing concerns over a foreign entity’s ownership of a key industry so important to national security and infrastructure. I’ll admit it’s a legitimate concern and one that I dwelled on during the foundry industry’s rough days in the 1990s. I recall a specialized American tank part that could only be sourced via France, which brought concerns of what happens when that capacity was threatened. While it’s a last-ditch argument, one could say the same for ensuring the future of our farm equipment manufacturers, who so quickly changed their production facilities to help prior generations’ defense production needs.
That’s a rant I’ll take up another time.
Something else that got to me in that same Wall Street Journal edition was the front-page story on Amazon’s aggressiveness in all of the markets it competes in (which is to say anywhere a dollar is spent.) The article shared the famous quote by Amazon founder Jeff Bezos at a 2006 gala that writer Dana Mattioli said included a list of attending retailers that “now reads like a bankruptcy docket.”
Bezos, standing in the bar, was asked what he was doing there. As legend has it, he uttered the words, “Your margin is my opportunity.” And 18 years later, he made good on his word.
“Your margin is my opportunity.” Let that sink in for a moment…
So why do we see U.S. Steel and ThyssenKrupp making doomsday headlines on the same day? And what do they have in common with the April 17 news out of Racine, Wis.? You know, that one-third of the CNH’s 660 workers are being laid off (and more to come if you believe the United Autoworkers and up-for-election senators like Tammy Baldwin). News of the layoff came 15 months after a new labor contract was awarded in January 2023 that ended a 9-month strike.
You didn’t ask me, but I’ll answer anyway, especially since the UAW is burrowing in on Volkswagen this week. The unionization of labor forces, at least during my time in the workplace, gets an F grade, and not just for their scandal and dishonesty. Here’s why:
- Labor unions have stopped technical innovation in its tracks for fears of a work force unprepared to do anything else (ask me about this one)
- They’ve commoditized the workforce to the lowest common denominator
- Their job descriptions with guaranteed pay structures rob individuals of the upward mobility attainable through work ethic and personal investment in formal knowledge and skill development that employers do want to see
- They decide the individual’s worth vs. the other way around
- They force manufacturers to yield the playing field to more employer-friendly states in the south, or worse, new competition in other nations
- They’ve forced employers into arrangements that aren’t sustainable when the world changes around them
But I digress. Back to the word “margin” and Bezos’ commentary. These companies’ margins, which are maintained only by managing one’s expenses, sit there for someone else to lick their chops over. Had the United Steelworkers inked a labor deal that was fair and allowed its ownership group to reinvest, why be concerned that a new owner would fail to maintain the contract?
Then there’s ThyssenKrupp, operating in one of the nations most in free-fall on the IMD World Competitiveness rankings. Germany’s expensive “cost of doing business” social programs are anchors around business’ necks.
And closer to our livelihoods, what about CNH? See the examples above. When cost structures grow out of balance and aren’t sustainable in a global economy, what do you think is going to happen?
It’s time that our elected officials, labor unions, governments and yes, weak-spined businesses, stop spending as if they are playing with Monopoly dollars.
It’s time that union leaders, and the individuals who sacrifice their wages to support their lifestyles, understand the term “Pyrrhic victory” when it comes to proudly inking contracts that have brought the employer to their knees. To paraphrase, it’s a “victory” that inflicts such a toll on the victor that it becomes a “loss” for all.
RELATED: Lessiter's "To the Point" column also spurred a separate article from machinery dealer and Rural Lifestyle Dealer columnist Tim Brannon. Click here to read Brannon's take on the subject.
