Monday, November 8, 2010

Solyndra's Dilemma

I know that I'll probably catch it for confessing this, but I do occasionally listen to Rush Limbaugh. He told a story today that I want to touch on, but go a different direction. This is not about the government loan to a company, this is about the ability of this country to recover economically--to have real productive jobs that actually have an end result and are not just pushing paper from one side of the desk to the other.

The story is about Solyndra, a company that manufactures solar energy equipment in California. Solyndra received a $535 million loan guarantee from the federal government to help build a new plant and expand their business making solar cells and other solar energy equipment. They are going to lay off some 40 employees, not take up the contracts of about 100 others and shut down one of their plants. The reason given is that they cannot compete with the prices of the companies manufacturing similar equipment in China. Here's a link to an article in the Los Angeles Times--I didn't just take Rush's word for it.

Now, let's do a thought exercise. Let's engage our imagination for a minute. Imagine a group of people perceive a demand for a certain widget. The type of widget is not really important--just that it is an actual object that needs to be made from raw materials. The group of people gather some money together--let's make it all private money--and start a company that manufactures widgets--Widgets Incorporated. They get a building, the fabricating equipment, the material, a couple of employees and start making widgets. Lo and behold, the widgets find a market and sell reasonably well. It costs our imaginary company some amount--say $8--to make each widget, but the price they can sell at covers costs, returns a small profit and still attracts customers.

All is well until we find out that Chow Mein Heavy Industries decides it wants to make widgets too, either under its own name, or under the name of a conglomerate--you know one of those makes everything from A to Z things. Any how, Chow Mein works its numbers, and makes widgets. At $5.50 a piece, since their labor costs are much lower. They price the widget accordingly on the market. Lo and behold, people start buying Chow Mein's widgets, because they are cheaper.

This means trouble for Widgets Incorporated. Widgets Inc. has lost market share, and is not selling enough widgets to be cost effective, and keep going in their current state. What to do? Cut wages? Cut staff? Change marketing? Major on service with and after the sale? Manufacture in China with General Tso's Manufacturing Company? Just keep going but make less money per unit? Close up shop altogether and leave the making of things to the peasants of China?

This is the life of Solyndra right now--forget the federal loan situation for now--how are they to proceed? And what is best for our country? Should that be a consideration? Or did they just miscalculate and tough for them?



Capt. Schmoe said...

Whats the end game Observer? Are we all destined to be living in huts made from old garage doors, covered in blue tarps? Will Chinese missionaries come to the U.S. and build us 16'x32' three room homes?

I still think globalization, a concept endorsed by the leaders of both parties, as a loser for the U.S. middle class.

Thanks for the post.

Bob G. said...

You bring up some good points, and I've followed Limbaugh since the early 1990s...but I'm not AS conservative as he is.
I just like his style of presentation and Beck and O'Reilly.

What I find amusing is that all these huge solar "windmills" being tossed about...
ALL the 122 ft. BLADES are made in BRAZIL, and shipped to the USA on ships.
We couldn't make them HERE an save the cost of shipping???
What the hey?

It's not JUST America that's being undecut by cheap labor...a LOT of Europe has also taken a hit.
But at laest they had the sense to chide US for OUR actrions with our economy...if only this administration would listen for once.
Capt Schmoe:
Yes, globalization IS bad for this TOO many ways.

WE need to set the standard (HERE), not bow to it from afar.

Good post.

Ann T. said...

Dear The Observer,
Well, heck. Two of my favorite people are against globalization here.

Me, I just think it is unfinished. And I blame the unions!! Not for holding out for a living wage, which--unbelievable!--isn't that what they're supposed to do????

but for not going worldwide. As soon as they start agitating in China for decent living conditions, then stuff is going to equal out.

In the meantime--there's actually China-style work being done in the U.S. But it's on the down-low. We've regulated some things too much. People are already working for pennies, for barter, et cetera. Shoot I could go on forever.

Anyway, everybody that's written here, post and comment, has a very valid point. We need to figure out how to jump-start the next big wave of commercial might. I keep trying to think how.

And I do share the feeling that U.S. middle class has been screwed.

Ann T.