Saturday, November 20, 2004

American auto manufacturers are losing their grip on the title of the world’s automotive powerhouse, costing workers thousands of jobs — including 1,100 in Baltimore.

General Motors Corp. announced on Tuesday that it would close its Baltimore minivan plant, the latest in a series of cost-cutting moves by U.S. manufacturers.

The long-expected announcement by the world’s largest auto manufacturer will cost the plant workers their jobs and will hurt the local companies that supply the facility on Broening Highway in Dundalk, an eastern Baltimore suburb.

In the past four years, the number of U.S. workers employed by GM, Ford and DaimlerChrysler dropped from 347,000 to 274,000.

“It’s been tough times for us,” said Larry Simmons, president of the United Auto Workers Local 7 in Detroit. “The foreign companies are eating the American manufacturers’ lunch.”

Last year, the unthinkable happened: Toyota Motor Co. topped Chrysler in monthly car sales for August.

For the first time since automobiles became a staple of American life nearly a century ago, the Big Three were General Motors, Ford and Toyota. Chrysler, now part of DaimlerChrysler, was fourth.

As the market share of American-made cars declines and Japan’s slice increases, the automobile industry is worried that it might be a death spiral, instead of a temporary dip.

The manufacturers are using outsourcing, advanced technology, a leaner work force and financing ventures to stay profitable.

General Motors earned a $440 million profit in the third quarter, but it came from its car- and home-loan business. Its automotive operations lost $22 million in the United States and $130 million worldwide.

“We have to find ways to run the business more efficiently,” GM Chairman and Chief Executive Officer Rick Wagoner said.

The Japanese auto companies “get more bang for the buck, so to speak, with every dollar they make,” said Treffen White, an automobile industry analyst for R.L. Polk & Co., an industry data-services company. The American manufacturers “are still trying to play catch-up.”

In essence, what’s true for General Motors is true for the U.S. manufacturing industry.

“It’s a pretty basic formula,” said GM spokesman Chris Preuss. “Build products that people have got to have and provide them at a price point that is appealing to them.”

The problem for U.S. manufacturers is that the Japanese are using the same formula.

Toyota and Honda Motor Co.’s half-year earnings reports showed continued growth in U.S. auto sales this year, while Ford reported results similar to GM’s.

Officials at Chrysler, which earned $269 million in the third quarter, say they are not going to worry about the numbers from the competition.

“The way we see it, we are really just trying to focus on Chrysler Group,” said spokesman Kevin McCormick.

Automakers’ woes hit home

Each percentage point of market share means jobs for autoworkers such as the employees of the GM assembly plant in Dundalk.

The plant makes the Chevrolet Astro and GMC Safari minivans.

Four years ago, the plant that opened in 1935 operated with two shifts.

“The future of the facility has been in question for several years,” GM spokesman Dan Flores said.

GM officials had planned to close the plant last year, but granted a two-year reprieve after negotiations and arm-twisting by local politicians and businesses. GM announced last week that the plant would close next year.

The plant’s closing represents “1,100 jobs and 1,100 families that depend on those jobs as well as vendors, suppliers,” said Fronda Cohen, spokeswoman for the Baltimore County Department of Economic Development.

Fifteen local suppliers, including Johnson Controls, Old Line Plastics and Tower Automotive, and 3,000 of their employees have contracts with the plant. Collectively, the plant’s economic impact on the region is about $1 billion per year.

As the plant downsized in recent years, some of the workers transferred to the nearby Allison transmission plant in White Marsh, which is owned by General Motors. The plant is so highly automated that many of the more than 400 employees work behind computers instead of assembly lines.

However, the smaller transmission plant can absorb only a small portion of the jobs that will be lost when the assembly plant closes.

“This day is not unexpected, but it is a very difficult day for me,” said Maryland Gov. Robert L. Ehrlich Jr. on Tuesday.

Jobs disappear

When DaimlerChrysler restructured its Detroit plants three years ago, about 2,000 members of United Auto Workers Local 7 lost their jobs in a downsizing that has become familiar to the union’s leadership.

“That was a lot of people,” Mr. Simmons said. He pins the blame on foreign competition and new technology, which increases productivity.

“Fewer people put the cars together,” he said.

The U.S. manufacturers are outsourcing jobs to suppliers in both the United States and foreign countries, including the U.S. branch of Germany’s Robert Bosch GmbH and Delphi Corp., the automotive parts maker that GM spun off as a separate company in 1999.

In addition, the automakers are opening factories in other countries, such as China, and importing components made with cheaper labor.

In the 1990s, mostly factory workers lost their jobs to automation. Now, even white-collar workers are finding their jobs “outsourced” or “right-sized.”

With each new round of layoffs, white-collar workers who spent years advancing suddenly find they must move to new cities to find work, switch careers or retrain for other industry jobs.

Rarely can they find the kind of salaries offered by the Big Three.

Their most common alternatives are to find work with automotive-parts suppliers or Asian automakers expanding in the United States.

Increasingly, the foreign threat is shaping the outcome of union negotiations. Labor leaders recognize their demands for higher wages and more benefits can mean layoffs as the companies seek to keep costs low.

“Unions right now are cooperating,” said George McGregor, vice president of Detroit-based UAW Local 22. “What we try to do is hold on to our jobs as long as possible.”

The common threat of foreign competition has diminished the “us against them” mentality of management and unions.

Over the years, Local 22’s membership of General Motors employees has dropped from about 15,000 to the current 3,800.

Big piece of the pie

The stakes are huge, both for the industry and the U.S. economy.

When all automotive and related jobs are totaled, the industry employs 13.3 million people in the United States directly or indirectly, according to the Center for Automotive Research, an Ann Arbor, Mich., research foundation for the automotive industry. The 6.6 million jobs associated with automobile manufacturing and sales generate a $240 billion annual payroll.

Suppliers and other automobile industry-related companies employ 2.2 million. Auto-industry employees support another 3.5 million jobs through the money they spend.

However, the trends are disturbing for the industry.

The Big Three have relinquished 3 percent of their market share in the past year to Asian competitors.

Meanwhile, Toyota, the world’s most profitable automobile manufacturer, is expected to increase its share of the U.S. auto market from the current 10 percent to 15 percent by 2010, said Sean McAlinden, spokesman for the Center for Automotive Research.

Toyota is increasing North American production from 1.48 million new vehicles this year to 1.66 million by 2006.

The American companies are just trying to hang on to what they have.

“Most experts in Detroit expect the Big Three’s share of the U.S. market to fall from 58 percent to 55 percent by 2007,” Mr. McAlinden said. “At that point, the three companies will either hold share on the basis of introducing many new models or quickly fall to 50 percent of the market by 2010, and one of the firms, Ford, then may fail.”

Question of culture

American automakers must overcome obstacles such as consistently better marks for Japanese models in government and consumer rankings, as well as perceptions that have existed since the 1970s that Japanese cars are better than American models.

At the top of the list of reasons given by American manufacturers for why they are losing ground to the Japanese are union contracts and their “legacy costs,” which refers to pensions, health care and other benefits.

In the American economic system, employers must pay for those costs. In more socialist systems, such as Japan, the government pays them, freeing employers to operate with lower labor costs.

“We spend over $5 billion a year in health care costs and the biggest pension costs in the world,” Mr. Preuss said.

The difference shows up on the price tags.

“It’s anywhere from a $1,000 to $2,400 price differential between an American vehicle and a Japanese vehicle,” said Brett Smith, director of product and technology forecasting for the Center for Automotive Research. “That’s got to hurt. It’s not their fault, but it’s still part of the equation.”

Wall Street investment firm Morgan Stanley estimates pension and retiree health care costs cost General Motors $1,824 per vehicle; Ford, $1,460 per vehicle; and Chrysler, $985 per vehicle.

Toyota pays $186 per vehicle.

Foreign automakers say legacy costs are not the major issue.

The Japanese automakers pay legacy costs on their employees in the United States, but continue to turn out high-quality products.

“I think a lot of it goes back to making smart business decisions,” said Art Baldwin, spokesman for Honda of America Manufacturing in Marysville, Ohio.

Another part of the equation is research and development, a budget item that consumes billions of dollars a year for all major automobile manufacturers.

“It’s the cornerstone,” Mr. Preuss said. “Technology both on the vehicle and in the manufacturing process has driven tremendous gains for us in productivity and quality.”

Legacy costs are taking away a big part of funding that could be used for research and development.

“If you only have so much to spend, and the system requires you to pay a chunk of it into a certain pot, there will be less to put into the other pots,” Mr. Smith said. “They need to spend money on the legacy costs, so they can’t spend it elsewhere.”

In addition, Toyota and other manufacturers are more productive than American companies, according to industry experts.

“Toyota is much more efficient at product development than the Big Three,” Mr. Smith said. “Even if the Big Three were able to allocate more funds for product development, there is no guarantee that this would lead to a more competitive position.”

Toyota officials say the productivity gap is caused by differences in culture.

“It’s emphasis on ‘kaizen,’ continuous improvement, continuous efficiency,” Toyota spokesman Steve Curtis said. “It’s a lot more than a financial issue, it’s part of the DNA of the company. It’s taught around the world.”

Mr. White called Toyota’s production system “the holy grail” of efficient automotive manufacturing.

Consumer product rating service J.D. Power & Associates said American automakers are making impressive gains in quality.

In the latest J.D. Power & Associates survey, 48,000 owners of 2001 cars and light trucks reported fewer breakdowns, less need for parts replacement or other glitches among American-made vehicles than in previous years.

First place still goes to Toyota and second to Honda, but the Americans are not far behind.

Leading American models were the Chrysler Concorde, Ford Ranger, GMC Sierra HD and Ford F-Series pickup.

The bottom line for consumers is the quality and cost of the vehicles they buy.

“We have three American-made cars in our driveway and they’re not worth much of anything,” said Karen Reed, a software engineer from Garrett Park as she looked over Subaru station wagons at Fitzgerald Auto Mall on Rockville Pike. “The transmission went out at 7,000 miles on my Dodge Caravan.”

This time, she has decided to buy a Japanese car.

“I have no clue why they’re better, but they are,” she said.

Among the reasons cited by Americans for buying American-made vehicles are styling and patriotism.

“I like American,” said Eric Hess, an Army captain from Rockville who drives a Mercury Cougar. “I grew up with them. I like the fast sports cars.”

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