Creating permanent jobs sure is expensive!
In what appears to be a somewhat controversial move, the Obama administration is expected to award a $730 million loan to OAO Severstal, a Russian steel manufacturer that will use the funds to upgrade its Dearborn, Mich., factory. The upgrade, according to sources that include Democrats Representative John Dingell and Senator Debbie Stabenow, is needed so Severstal can help U.S. automakers develop and build more fuel-efficient advanced technology vehicles.
Indeed, Severstal does supply various steel products to the Detroit Three but there was no word on what types of new advanced steel products the company will supply with the award. Nor what new technologies will be employed. The loan is expected to create 2,500 construction jobs and 260 permanent jobs when the upgrade is completed.
$730 million divided by 260 resulting permanent jobs = $2,807,692.
Creating jobs via government sure is costly!
Here is link to Detroit News coverage.
Beware of stories claiming larger numbers of jobs- temporary jobs aren’t the same as permanent employment.
Automotive Newswire contributed to this story.
Jeff says:
MIles, I will take a buy out at $2,000,000 and save the government $807,692 right now.
Harry Moser says:
By far the most productive way to create jobs is to reshore manufacturing. The Reshoring Initiative believes we can bring back “permanent” manufacturing jobs for $1,000 each, a tiny percentage of the $250K+ per one year government job created by the Stimulus Program and far better than the case mentioned in the article. I will present the reshoring program in detail at the PMPA 2011 Annual Meeting in Dallas on October 22.
The economic trends are already favoring a revitalization of a broad range of U.S. manufacturing. Boston Consulting Group and Accenture recently reported: Chinese net unit manufacturing costs are rapidly converging on U.S. costs. For the economic trends to have a rapid impact on the behavior of major U.S. companies and thus continue the strong U.S. manufacturing trend, however, the companies will have to calculate their total cost of offshoring. Unfortunately, most companies’ calculations are rudimentary, rather than complete, mainly comparing prices rather than the entire costs of offshoring. As a result, companies have offshored more than is in their own self interest.
To help these companies make better sourcing decisions the non-profit Reshoring Initiative, http://www.reshorenow.org, provides for free a Total Cost of Ownership (TCO) software that helps them calculate the real offshoring impact on their P&L. With clear evidence of the fragility of global supply chains, Chinese and other LLCC (Low Labor Cost Country) wages rising rapidly, the U.S. $ declining and oil soaring, this is the perfect time for U.S. companies to reevaluate their offshoring strategies and bring some of the sourcing home.
Readers can bring back jobs by asking their companies to reevaluate offshoring decisions. Suppliers can use the TCO software to convince their customers to reshore.
You can reach me at ten.tsacmoc@resom.yrrah.
Joshua Hoyt says:
this math is only right if the loan isn’t repaid. If it is repaid, there is no cost, as the interest rate of the loan is below the rate of treasuries.
This seems like cheap job creation, though that isn’t really the point. The point is that the loan facilitates the production of high strength steels that will allow automakers to meet more stringent milage and emissions goals. This will help our environment and reduce our dependence on foreign energy by increasing fuel efficiency.
The Jobs are the icing, not the cake. Isn’t it nice that this loan gives us both icing and cake?
speakingofprecision says:
We’re behind you on that Harry!
speakingofprecision says:
As my friends would say HEH, heh, heh…
speakingofprecision says:
Thanks for the thoughtful comment Joshua. Details regarding the “new capabilities” seem a bit sparse. It takes a bit of optimism to think that a foreign owned steel maker would in fact last the length of the term of the loan, in my experience. And it still seems an expensive way in terms of todays available cash to create jobs, which is certainly a primary goal of the administration that made this announcement. No matter how good the deal, I don’t think we ought to be out there on 2.75 times GDP… Thanks for the thoughtful comment!