- The Washington Times - Sunday, February 22, 2009

The domestic automotive industry is a sizable element of our U.S. economy, with one of the largest economic multipliers of any sector. While the auto industry and first-tier suppliers employ about 800,000 workers, more than 6 million jobs are tied directly to the industry. A failure of the Big Three would cost not only the 225,000 jobs on their direct payroll but would likely result in a loss of 3 million over the first year, according to one news network.

A plan to reinvigorate the Big Three is not only vital to their survival but that of the nation. Any plan to revitalize the auto industry must include emergency measures to rescue the sector and then provide a path for future expansion and development relying on new technologies and an educated young work force.

The critical steps needed to ensure the survival of the industry will require an adjustment for the shareholders, the dealer network, employees of the companies, the supply chain and new domestics. The first step is to take a hard look at what the demand for autos will be for the next seven years. This estimate is essential to establishing a plan to drastically reduce the size of the companies to fit the realities of the market. It makes no sense for General Motors, Ford and Chrysler to continue costly rebate programs in an effort to maintain unrealistic shares of the U.S. market; they should downsize to the market that exists.

First and foremost, the government has to help the Big Three redo their balance sheets. As the Obama administration rolled out its Financial Stability Plan, I noticed one of the first elements helps the banks to restructure their balance sheets. We need to do the same with the auto industry. The industry has to stop selling assets to finance operations. It is a losing proposition.

Legacy costs, in the form of retiree benefits, should be moved to the government. Legacy costs resulting from contracts entered into in better years have left an unrealistic burden on these companies that do not contribute anything to their mission of designing and building products that meet the future needs of the market.

The companies must consider eliminating brands that are marginal at best. While tiered brands based on quality may be able to survive, setting up artificial competitors selling the identical car under different brand names is not a formula for success. Reducing brands would lead to a consolidation of dealerships that would in turn improve the profitability of the industry’s sales channels and reduce costs throughout the production process.

The auto companies should also eliminate parts-manufacturing operations at these companies and focus on the design, assembly and marketing of their products — the companies’ core competencies. The design and assembly would still include engine and/or some components of the powertrain manufacturing. This should be viewed as the differentiator between the Big Three and the New Domestics.

The Big Three must develop a new paradigm in their relationships with each other and their suppliers. An automotive version of the computer chip industry’s SEMATECH (Semiconductor Manufacturing Technology) is what we need — a precompetitive research-and-development consortium that brings builders and suppliers together to leapfrog today’s powertrain and fuel technology rather than incrementally improve.

The Big Three don’t need to catch up with the competitive technology but rather move directly into the future. SEMATECH is a research model that worked for America in the past and could work again for the automotive industry now.

These emergency measures will result in a leaner, smaller and more flexible set of plants managed by the Big Three, which will require a new relationship with their remaining employees and the United Auto Workers (UAW). These companies, as well as their supplier base, will require more of their workers than ever before. Workers will have to multitask to remain competitive with foreign labor. The two need a new contract that reflects these realities and looks forward to creating a supply of skilled labor for the industry.

The aging of our automotive work force is a fact that points to a time in the very near future when these companies, as well as their supplier base, will face critical shortages of skilled workers. We need to make the factory floor an attractive place to work and encourage young people to pursue jobs in engineering and manufacturing. We need a continuing education program that keeps the work force current in technology advances. The UAW could partner with other stakeholders, like the Association for Manufacturing Technology, to encourage the entry of new blood into this industry.

This new work force must be knowledgeable in dealing with the latest technology in both the machines they use to build tomorrow’s cars for America and in the cars themselves. A restructuring of an industry of this magnitude does not relieve it from the responsibility to create the next generation of travel for America. New fuels that reduce our reliance on foreign energy while addressing green issues must be explored. We need to make this a generation of personal travel that can only be built on tomorrow’s manufacturing technology.

Ron Schildge is president of Eitel Presses Inc. and chairman of the board of directors for the Association for Manufacturing Technology.

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