Struggle in Detroit

Can the nation's Big Three automakers break bad habits and reshape themselves to innovate and succeed in an intensely competive marketplace?

September 24, 2006|By Allison Connolly | Allison Connolly,Sun Staff

In a series of startling announcements last week, the managers of America's Big Three automakers conceded that a business model that had long produced enormous profits and sparked emulation around the world was no longer working.

Facing billions in anticipated losses, GM and Ford executives announced sweeping layoffs of both production workers and managers and an array of plant closings, while DaimlerChrysler unveiled significant production cuts, with the declared intention of transforming their failing companies into smaller, more nimble organizations better able to compete for the dollars of increasingly fickle consumers.

Ford is offering buyout and early retirement packages to all 75,000 of its employees as part of its "Way Forward" turnaround plan, with hopes of eliminating 44,000 salaried and hourly jobs and saving $5 billion a year. In April, GM offered all of its 113,000 employees buyouts worth up to $140,000, of which 35,000 accepted, the company said, saving it $1 billion a year. DaimlerChrysler AG had already reduced its work force by 26,000 jobs and said it would avoid another round by shutting down plants for one-week intervals as it scales back production in the second half of the year.

Still, the fate of these three corporate icons, burdened with heavy pension and health care costs, remains uncertain. Some Wall Street analysts are questioning whether the steps they have taken are radical enough.

But, with understanding and sympathy for the economic dislocation now faced by hundreds of thousands of Big Three employees, many experts argue that the role of cars in the nation's economy will remain vital, providing thousands of new jobs and contributing significantly to economic growth.

Continuing evolution will produce a brighter future for the industry, they say, as a growing legion of automakers competes to offer consumers an array of smaller, fuel-efficient vehicles.

"The consumer has more and better choices today than they ever have," said Bram Bluestein, senior vice president of the global auto practice at Booz Allen Hamilton in Chicago. "Every automaker wants to offer their product here. It's really becoming a global industry."

Overall, the number of U.S. auto industry jobs has hardly changed in more than a decade - with nearly half a million direct employees of the car companies and many more at thousands of suppliers - because foreign automakers and suppliers have built plants in the U.S. Those numbers will fluctuate this year as Ford and GM shed 70,000 jobs through buyout programs while the foreign companies expand.

Japan's Nissan Motor Co. is building its new North American headquarters in Tennessee while another Japanese company, Toyota Motor Corp., is building an $800 million manufacturing plant in San Antonio.

The expansion of foreign automakers' operations in the United States is a mixed blessing, said James Kitman, New York bureau chief for Automobile magazine, because they typically pay less than the union wages offered by American automakers. And workers displaced from GM or Ford would likely have to move out of state to find work.

Still, international automakers - Germany's BMW, South Korea's Hyundai and Japan's Honda, Nissan and Toyota - employ more than 100,000 in the U.S. and have invested $36 billion in those plants, according to the Washington-based Association of International Automobile Manufacturers.

They plan to continue to expand and are not weighed down by the same pension and health care costs as the traditional U.S. automakers. By 2009, these "new American automakers," as they call themselves, expect to invest another $3.3 billion and add another 10,000 jobs, the association said.

Japanese automakers are spending $1.7 billion on four new auto and parts engineering plants in the U.S. this year, bringing total investment by the Japanese to $30 billion by 2008, according to the Japan Automobile Manufacturers Association.

This first wave of foreign automakers from Japan and Europe are looking over their shoulders and seeing the next wave, which includes Hyundai and possibly some Chinese car makers.

Hyundai said it is spending more than $1 billion on its plants in Alabama and California and a new engineering center in Michigan.

"It's a swift kick to say there's not much time to make a turnaround" for the Detroit car makers, said Alexander Edwards, president of the auto division at Strategic Vision, a San Diego consulting and research firm.

American automakers have been making poor strategic decisions for decades, analysts say, failing to innovate and update popular models and depending for profitability on an increasingly narrow sector of the light vehicle market.

"It's been coming a long time," said Kitman, of the American automakers' decline. "It's like a disease, where the symptoms didn't manifest themselves until the patient got sick. In this case, the patient was the auto industry."

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.