Often thought of as the heart and soul of a country's economy, companies within the manufacturing industry produce everyday, common goods on a massive scale. These companies typically engage in very labor intensive productions and employ over 60,000 people, who are in effect the farmers of industrialization. Labor Unions, raw materials, emerging markets, and globalization are factors familiar to most of the companies within manufacturing. The rising worldwide demand for energy and ensuing rise in oil prices has benefited companies that manufacture oil drilling and transportation equipment like US Steel (X) and hurt the automobile manufacturers that are lagging in hybrid technology like General Motors (GM) and Ford Motor Company (F). Additionally, the 2007 credit crunch caused by the subprime lending crisis has made cars less affordable and forced automobile manufacturers to either offer better interest rates on loans or not sell cars. Below is a break down of the companies within the manufacturing industry:
Due in part to the physical intensity of the work, sheer size of the labor forces working for each company, and historic financial success of the major manufacturing companies, Labor Unions have played an integral role in the costs associated with running a manufacturing company. Historically, successful manufacturing giants like the Big Three automakers, Boeing, and US Steel (X) have turned extravagant profits, inspiring the masses of employees to organize and demand higher pay, better benefits, and safer working conditions. Labor Unions drive up company's costs and cut into profits, making it tougher for the companies to compete in the global economy. Labor Unions are characteristic of the United States, which puts many U.S. manufacturers at a distinct disadvantage to manufacturers in developing countries where labor is cheaper. A lack of Labor Unions gives companies like Toyota Motor (TM) a comparative advantage.
Most manufacturing companies build their products, be it oil pipelines, cars, airplanes, or infrastructure, using large quantities of raw materials. An increase in the price of these raw materials directly translates into higher costs for the manufacturing company. Some companies, like US Steel (X), strive to vertically integrate their operations to such an extent that the price of raw materials does not impact their earnings. Some raw materials that impact manufacturing companies include:
For manufacturing companies that do NOT assist in either the drilling, production, or transportation of oil, rising oil prices means higher operating costs. US Steel (X) and Caterpillar (CAT) do not fit into this category as their products are needed by oil companies trying to meet the rising worldwide demand for energy. Manufacturing companies typically operate tons of oil and gas guzzling factories across the world that are hurt by rising oil prices.
For industry as a whole and the auto industry in particular, rising oil prices are creating high demand for energy efficient products, with added pressure from governments and environmental groups. Toyota Motor (TM) and Honda Motor Company (HMC) are leading the way in hybrid technology, contributing to the Big Three Auto Woes.
The 2007 credit market squeeze caused by the subprime lending crisis has made cars less affordable and forced automobile manufacturers to either offer better interest rates on loans or not sell cars. These lower rates cut into automakers' financial services earnings. Additionally, Caterpillar (CAT) is heavily dependent on U.S housing construction, which has been in accelerated decline due to the subprime lending crisis.