“The Myth of Industrial Rebound” – New York Times, 26 January 2014

There have been countless rumors that manufacturing companies—like Master Lock and Element Electronics—will return to the US from overseas, to boost US manufacturing jobs and the unemployment rate. However, rumors are rumors: these jobs are trickling in at a snail’s pace, and many are being subsidized by local, state and federal government agencies. Moreover, the US must compete with low-wage countries, like China and Mexico, which means less benefits for US manufacturing workers.

Last year, GE opened a new assembly line in Louisville, KY, the first one in over 50 years. However, the baseline hourly wage started at $13.50 per hour, less than $30,000 a year. In 2011, Volkswagon also opened a new plant in Chattanooga, TN. While the plant brought almost 2,000 jobs with it, the starting wage for assembly line workers was $14.50 per hour, half the amount that GM and Ford pay their unionized employees. Volkswagon made the shift to America from Germany, where the median income for their employees is $67.

This effectively means that America is now a low-wage country. Since the end of the recession in 2009, wages for the automotive industry have fallen by 10%, and wages for manufacturing fell 2.4%. These wage trends are inextricably linked to the US’s sluggish economic recovery—with dropping wage rates, consumers won’t, and can’t, spend. Americans also pay for the subsidies that government agencies provide for companies like Volkswagon.

Since January 2010, the US has picked up 568,000 manufacturing jobs, a very small portion of the almost six million lost from 2000 to 2009 and a very gradual recovery in comparison to the growth of nonmanufacturing jobs. Competition with manufacturing countries like Mexico is growing—Mexico pays its workers less than the US, while producing more than the US. If the US wants to keep up, then production will have to increase. This means more efficient workers.

Other more advanced industries, like aerospace, are also losing to less developed countries: Bombardier is producing Learjets in Mexico and Cessna will begin to assemble Citations XLS+ business jet in China.

The US also can’t count on the energy boom to save manufacturing. A 2009 study reported that only one-tenth of US manufacturing came from the energy industry. However, we can count on our service industry, which provides gainful employment in education and medicine, and can also assist in the US’s balance of trade.

Research and development (R&D) is something that we should invest in—R&D lends to more innovation and jobs. Obama’s second-term goals for America was to create one million manufacturing jobs and special subsidies for manufacturing. While that seems fairly improbable, his goals of increased training for skills required by employers and spending on R&D were very wise.

Developed and Written by Dr. Subodh Das and Tara Mahadevan

March 25, 2014

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“Fuel-Efficiency Rules Are Already Raising Costs in Detroit” – Wall Street Journal, 22 January 2014

Even though GM and Chrysler have paid off their auto-bailout loans, they are still under the thumb of Uncle Sam; elements of Obama’s Climate Action Plan do not only extend towards power plants, but automakers as well. According to the Climate Action Plan, car companies’ products have to average 54.5 miles per gallon by 2025. This, however, requires huge design changes that are going to be a big blow to profit margins.

America’s best-selling vehicle, the Ford F150, is getting a complete redesign. from the inside out. It will be the first truck and large-volume vehicle to have an all-aluminum body, which will lower its weight and increase its fuel efficiency. Obama’s Climate Action Plan requires full-size trucks to have a better fuel efficiency, up to 30 mpg from the current 20 mpg.

Switching to aluminum, though better for the environment, is an expensive move. As we reported last month, converting to aluminum means higher material costs and new manufacturing machinery. While the price tag is high, Ford can’t fight the new regulations, and is instead doing all it can to effectively market the innovation behind its newly redesigned products, the F150 and Mustang—the latter redesign offers a never-before-seen turbocharged four-cylinder engine. Each sale of the redesigned F150 contributes an additional $10,000 to Ford’s bottom line.

GM, on the other hand, is creating a whole new midsize truck to meet Obama’s requirements, which they believe will be less costly. Chrysler, instead, is spending more on nine-speed transmissions and diesel engines.

Obama had hoped that the market for electric cars would increase; as a bid in that direction, an element of the Climate Action Plan allows automakers to acquire mpg credits for manufacturing zero-emission vehicles. However, the demand for electric vehicles is still low, proving that that kind of car is still a niche product. Pricing for electric cars start at $40,000 and only increase from there.

While it is always painful to have a winner and loser, the “materials selection war” (steel vs. aluminum) is a long-term societal consideration and climate change mitigation, where aluminum is the ultimate winner. These trends will force America to increase the recycling of post-consumer aluminum products—as opposed to landfill and scrap export—and to also increase the design and manufacturing of recycle-friendly alloys.

There is simply not enough expensive and energy-intensive primary aluminum capacity available to meet higher aluminum demand of 100 million, and growing, cars per year.

See also:
Will All-Aluminum Cars Drive Metals Industry?
A Clean Car Boom
GM Planning Strict Diet for New Pickup Trucks

Developed and Written by Dr. Subodh Das and Tara Mahadevan

February 12, 2014

Phinix LLC

Copyright 2013. All rights Reserved by Phinix, LLC.

www.phinix.net    skdas@phinix.net

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Novelis Sustainability Report 2013

In 2011, Novelis decided to strengthen their company by increasing their business’ sustainability and innovation. The most important component of their new vision is to use 80% recycled aluminum in all their products by 2020. Once they reach this goal, they will then halve their products’ embedded carbon.

In 2011, when Novelis set their intended goals, they used the average of fiscal years 2007-2009 as their standard. Some of their 2020 goals include:

  • Increase recycled metal content from the current 43% to 80%
  • Reduce energy usage by 39%, from the current 10 GJ/mt to 7.6
  • Reduce water usage by 25%, from the current 3.1 m3/mt to 2.7
  • Halve the absolute amount of GHG emissions, from the current 18 M mt to 11
  • Have zero landfill waste from the current 55.6 K mt

While the company is headquartered in Atlanta, George, there are also facilities in Sao Paulo, Zurich and Seoul, serving the beverage can, automotive and high-end specialty markets. There is a rising demand for aluminum in these markets, especially the automobile industry, since 2010 when Obama obligated car manufacturers to double their new-car average fuel economy by 2025. In 2013, the aluminum industry grew 25%, as aluminum allows for lightweighting vehicles, a crucial enabler in increasing fuel efficiency.

As mentioned before, another huge element of Novelis’ move to increase sustainability is to reduce the embedded carbon in their products, which can be done by boosting recycled content. By using more recycled materials and by creating fewer new materials, Novelis reduces their carbon footprint. They’ve recently invested almost $500 million in doubling their recycling space by opening two new recycling plants, one in South Korea and the other in Germany.

Novelis is directly addressing the global issue of climate change, particularly the current concern of the maximum safe limit for concentration of carbon dioxide in the Earth’s atmosphere. The company’s method to decrease their GHG emissions can best be described as a life cycle approach, with a goal of reducing their emissions by 50% by 2020. This idea, coupled with increasing their recycled metal content to 80%, will help them reach their target.

Novelis has also incorporated supporting recycling education into their new vision, as well as advocating awareness and policy initiatives, which will escalate recycling rates and increase the company’s supply of post-consumer aluminum scrap. We at Phinix are huge proponents of all of the above, especially recycling education.

Take a look at Novelis’ website and the full report.

Developed and Written by Dr. Subodh Das and Tara Mahadevan

January 28, 2014

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“Greenhouse-Gas Fight Escalates” – Wall Street Journal, 2 September 2013

The Obama Administration is seeking to increase prices on greenhouse gas (GHG) emissions, a move that has inevitably stirred up trouble in Congress, causing Congress to introduce new legislation.

In May, the DOE publicized estimates of how much a ton of carbon dioxide emissions costs the US — the estimate in 2010 dollars was $21, a decrease from the 2007 estimate, which was $36 per ton.

Carbon dioxide emissions fell out of demand, and prices plummeted, between those years because the administration did not lawfully require companies to buy CO2 stock. But Obama has found that those estimates are significant because the pricier carbon pollution becomes, the greater impact it can have on both the US environment and economy. The EPA is planning to introduce additional, similar regulations, which also include limits for new power plants.

This August, House Republicans passed a bill, prohibiting the use of those estimates; House Republicans would rather have Congress price out estimates, rather than the administration.

Energy Secretary Ernest Moniz has concluded that the 2007 $36 estimate is similar, or lower, than estimates used by major oil companies. Exxon Mobil Corp, for instance, has priced carbon dioxide emissions at $80 per ton by 2040, while BP currently prices carbon at $40 per ton.

The great assumption behind placing a price tag on carbon emissions is that climate change is rapidly developing, and that more CO2 in the atmosphere will give way to more natural disasters and growing sea levels. The Bush Administration was also moving to price carbon emissions, though unsuccessful. The Obama Administration has employed many computer economic models in order to ascertain current estimates, though such estimates are not trusted by all. A $36/ton estimate could surely lead to stricter regulations on coal-fired power plants, meaning higher electricity costs for consumers.

Yale economics professor William Nordhaus is the innovator behind the best-known climate change model. While numerous scientists have tried to deny the fact that climate change exists, Nordhaus, though “no climate hawk”, continues to present key facts as to why it is important that CO2 emissions be regulated. Read more here.

Developed and Written by Dr. Subodh Das and Tara Mahadevan

September 13, 2013

Phinix LLC

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www.phinix.net    skdas@phinix.net

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