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Best U.S. factory jobs in rising jeopardy

As productivity abroad rises, US manufacturing is competing by trimming workers and wages.

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Exports have been growing steadily, and have been a key factor behind a narrowing trade deficit, seen in new numbers released Thursday. This gap by which America's imports exceed its exports fell to $712 billion for the 2007 calendar year, down from $759 billion the year before.

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"We believe we are in the early stages of a manufacturing renaissance," David Rosenberg, an economist at the investment firm Merrill Lynch, wrote in a recent report to clients.

Foreign investment in US manufacturing facilities jumped in both 2005 and 2006, he notes.

The auto industry has long been at the forefront of foreign investment. Global carmakers, pushing for access to US consumers, have set up much of their production in the US. That has prodded the Detroit Three, in turn, to seek much of their profits from overseas operations.

The Big Three are all aiming at a common strategy: Cut labor costs to become profitable again in the US, while also looking overseas for growth opportunities.

The worker buyouts, analysts say, could do a lot to help them get back toward profitability again.

At the heart of GM's $38.7 billion loss for 2007 were North American challenges.

But company executives say the new labor contract with the United Auto Workers (UAW) creates the possibility of big improvements ahead.

It transforms retiree healthcare benefits – resulting in cost cuts starting around 2010.

And the worker buyouts, GM chief executive Rick Wagoner told CNBC this week, can help in two ways. First, "we get the opportunity under the new labor contract to … substitute from jobs which have traditionally been paid at the full assembler rate to a lower tier."

Now, in fact, starting pay for a Big Three job will be about $14 an hour, barely half the previous level.

Second, Mr. Wagoner said the new contract allows GM to better adjust its staffing to demand levels. It can buy out some older workers and not replace them at all.

The new UAW contracts also put new limits on how long the automakers must keep workers on their payroll after their jobs have been eliminated. Workers will no longer sit indefinitely in a so-called "jobs bank."

New labor flexibility for GM

These changes, for GM and its peers, open a new era of flexibility in managing their labor force.

That could mean even more job cuts for an industry that has already been downsizing. The pace of auto sales has been slowing in recent months, and could cool further if the economy enters a recession.

Almost immediately after the new contract was ratified, Chrysler announced plans to shed 10,000 jobs, following on a cut of 13,000 that was already under way.

Many Chrysler workers felt betrayed by the move, since they had just made pay and benefit concessions, in the hopes that their job security would be enhanced.

Now, in this industry at least, the tough times could even lead to downward pressure on wages in nonunion factories owned by Toyota, Honda, and other foreign firms that operate in the US.

"I think you'll see a ... cut in those wages, too," says Chris Kutalik, editor of Labor Notes, a union movement newsletter based in Detroit.