Detroit disaster an anomaly for U.S. manufacturing

By James B. Kelleher - Analysis

CHICAGO (Reuters) - If there is any good news in this week's bankruptcy of General Motors Corp GMGMQ.PK, and of Chrysler's on April 30, it is this: the problems of carmakers say little about the health of the broader manufacturing sector.

In fact, U.S.-based goods producers are in better shape than ever before, analysts say, though they have not escaped unscathed from the current global economic downturn.

Indeed, a survey of the U.S. industrial landscape not only provides a reassuring portrait of the nation's manufacturers but says a lot about what is in store for the trimmed-down U.S. carmakers if their court-supervised restructurings work out.

"There is a lot of dynamism in U.S. manufacturing," says Sunil Chopra at the Kellogg School of Management at Northwestern University.

"One can look at the mistakes of GM and Chrysler -- or you can look at the companies that have done it well."

Tom Murphy, the head of the manufacturing practice at the consulting firm RSM McGladrey, agrees.

"The U.S. still manufacturers more than any other country in the world," Murphy says. "We're just making different things than we made in the past and we're making them differently. That's not going away just because of what's happened in the automotive industry."

SMALLER, LEANER

To be sure, manufacturing is no longer as important to the U.S. economy as it once was. Last year, it accounted for just 11.5 percent of gross domestic product, according to the Bureau of Economic Analysis.

That was down from 11.7 percent in 2007 and the all-time high of 28.3 percent in 1953.

Employment in the sector, which peaked at 19.5 million in 1979, has fallen steadily ever since and was just 11.5 million last year.

But many economists believe that shrinking is a good thing: a sign of the increasing sophistication of the U.S. economy on the one hand and the productivity gains the industry has racked up in recent years.

"That contraction is progress," says James Schrager, a professor at the University of Chicago Booth School of Business. "We have a larger output of goods and services than ever and we have a smaller number of workers doing it."

The manufacturers that remain, companies like Caterpillar Inc (CAT.N), Deere & Co (DE.N) and Cummins Inc (CMI.N) to name a few, are ferocious, feared global competitors -- the Toyota Motor Corp (7202.T) of their respective businesses.

They got there by doing what GM and Chrysler failed to do: They recognized, decades ago, the stark realities that came with growing globalization and made the organizational and operational changes needed to survive. They also embraced innovation and developed game-changing products -- the equivalent of Toyota's Prius hybrid -- before their rivals.