Business

THE BIG THREE FIGHT BACK

Roy MacGregor,Ann MacGregor September 1 1980
Business

THE BIG THREE FIGHT BACK

Roy MacGregor,Ann MacGregor September 1 1980

THE BIG THREE FIGHT BACK

Business

Roy MacGregor

Along Highway 3, dipping south and east from Windsor, the rigs charge toward Leamington and the canning factories. Over the dry ring of crickets they sizzle, past the ripening tomato, cucumber, past Mexican pickers rippling in the August steam, on past Cottam and downshifting through a wide turn leading farther south. On the tuck of the turn a dust cloud lifts from the shoulder, momentarily teasing the freshly painted FOR SALE sign Norm Zorzit carries from his garage toward the produce stand at the end of his driveway. Tomatoes $1.25 a basket, “pickles” a buck—a small goose to the $140 a week the Unemployment Insurance Commission provides. Back in the garage waits a half-finished beer, an unfinished conversation. Talk of April 12,1980, the day Norm married Betty, a widow with four children, the eldest 11, memories of the dream honeymoon, and finally the sting of the morning he awoke in Hawaii, April 20,1980, the day he was officially laid off from a $9.66an-hour job in the Canadian automobile industry. A hell of a wedding present. It might help if he only knew what went wrong and why, but though he lifts his cap thoughtfully to look for an answer, there is only sweat there, and it, too, prickles. “I honestly don’t know who to blame,” he says. “Do you?”

In a plush Windsor office the thumb of a Chrysler Canada Ltd. executive presses the fast-forward button of a television video system. The set was supposed to catch yesterday’s evening news, a lead item concerning the ‘K’ car, Chrysler’s fingernail grip on the future, as the first one came off the Detroit assembly line, but as the thumb eases

up on the button, the video slows to the tail end of an old black-and-white adventure film starring Tony Curtis. It is Taras Bulba and the infidel has the heroes backed to the wall.“Now,” he growls in a thick, threatening voice, “who wants to die first?” The thumb comes down hard on the fast-forward.

To understand the current nervous state of the North American automobile industry, it is necessary to return to late 1978. Not because the industry was nearing its all-time production record of 9.3 million vehicles, but because a distant country that produces a mere .038 per cent of the world’s oil was in revolution. That was Iran. On Jan. 16, 1979, the shah left; on Feb. 1, the Ayatollah Khomeini arrived; and on May 9 the first gasoline rationing took place in California, soon spreading to other states. In a turn that was psychological even more than logical, the bottom fell out of the bigger-is-better North American auto industry. With the oil hikes came recession, then higher interest rates.

Today, nearly a quarter of a million auto workers in the United States are laid off, a further 27,000 in Canada, and estimates of auto-related layoffs reach as high as 800,000. As militancy grows in union ranks, it’s easy to understand

the workers’ fears. Sales are off more than 30 per cent from a year ago and losses are nothing short of staggering (in the second quarter of 1980 alone, Chrysler lost $536.1 million, Ford $467.9 million, General Motors $412 million and American Motors $84.9 million). Paradoxically, in Japan, Toyota and Nissan (makers of Datsun) set all-time production records this summer, with

July imports to the U.S. reaching 224,000—also a record. “It’s a crisis,” says Canada’s minister of industry, trade and commerce, Herb Gray. “There’s a major restructuring going on.” It is easy to see how Washington’s respected Worldwatch Institute, when reporting on the auto industry last year, was able to conclude: “. . . things will never be the same again.”

“It happened almost overnight with the Iranian situation,” adds Gray. “It reached the point where it wasn’t enough for a car to be fuel-efficient, the car had to look fuel-efficient.” With analysts claiming 75 per cent of all cars will be four-cylinder by 1990, Detroit finds itself in the unenviable position of having to sell the cars the consumer doesn’t want in order to finance the building of a car the consumer is eager to buy today. And it happened so quickly that it seems only Ripley could

believe that little more than a year ago GM—whose ‘X’ cars, Citation and Phoenix, are suddenly the example everyone else is chasing (see box)—was actually toying with the idea of converting one of its small-car plants to produce yet more Oldsmobiles. Or that only last year Ford committed $313 million toward a special automatic transmission plant designed solely for V-8s, the industry’s instant dinosaur. Ford, like troubled Chrysler, had chosen to fight an earlier recession this decade—ironically also brought on by oil hikes—by trimming budgets for product development, and that has much to do with the fact that the industry suddenly needs $75 billion (1V2 times the cost of the space program) to retool, down-size and somehow get back in competition.

Unfortunately for Ford shareholders, there is one event that stands out above all others. Immediately following the 1974 energy crisis, a senior Ford executive was able to talk Henry Ford II into heavily financing a subcompact car with front-wheel drive and a small Honda power train. In 1975, however, Ford changed his mind, convinced the North American consumer would never be attracted to a car that didn’t look like it needed hair on its hood. This decision was, says the executive who was later fired, “the single largest tactical error in automotive history.” His name: Lee lacocca.

If there is a lead in this melodrama, it goes to lacocca, mastermind of Ford’s Mustang, Maverick and Pinto, and current chairman of the deeply troubled

Chrysler Corp. No one should be surprised that Moe Closs, head of Chrysler Canada, should refer to his boss as “probably the smartest automobile man in the world today,” but it is a view shared by, among others, Herb Gray and Windsor union head Ray Gignac. That Iacocca is a brilliant salesman is beyond doubt. For the deathly ill Chrysler he talked $1.5 billion out of the U.S. government, $200 million in loan guarantees out of Ottawa, $10 million out of Ontario and, when he settled with the United Auto Workers (UAW) on Chrysler’s latest contract, he left the table with $457 million in concessions—the first time in 42 years one of the industry’s Big Three has failed to match UAW contracts with the others.

But the company needs all the sympathy Iacocca can rouse. Tipping over the edge of bankruptcy for the past year, there have been those who would have preferred push to pull. “Chrysler is not a winner,” says former international trade minister Michael Wilson, who would have had much say in the Canadian loans had the Tories stayed in power. “What we are doing,” says U.S. Senator William Proxmire, chairman of the Senate banking committee, “is rewarding bad management, ignoring the decisions of the marketplace and distorting the forces of competition.” But Iacocca still won the day.

“The company is one of Canada’s largest corporations of any kind,” begins Herb Gray’s defence of Canada’s action. “It buys $400 million worth of goods and services from over 2,000 Canadian suppliers every year. It provides about 40,000 jobs directly ... and maybe five times as many indirectly. So, not providing the opportunity for its survival would have meant immediate harm to the economy, which would have been much more costly than its assistance. We estimated that the first year of a Chrysler failure would have cost the taxpayer $700 million to $1 billion....

What we did, without spending a penny, was to prevent that.”

The Canadian deal involves no money until 1982 and a commitment by Chrysler to invest $1 billion in Canada over the next five years. But the key, for Gray and cabinet, was written job commitments, to which Iacocca was extremely reluctant to agree. For 1982-86, Chrysler Canada must employ at least 11 per cent of whatever number Chrysler employs in the U.S. This would mean, Gray announced last May, “an employment level of 15,900 by 1984.” Gray and Chrysler both concede this figure was supplied by Chrysler. In January, however, the U.S. department of transportation was assigned to undertake a detailed six-month study into the viability of Chrysler. This still-secret report—much of it prepared by Transportation Systems Center of Cambridge, Mass.—is already two months overdue, and it may be because much of the news is not very good. A portion of the preliminary study was recently obtained by Maclean’s. It involves worst and best scenarios for Windsor, where Chrysler Canada (as well as Gray’s rid-

ing) is located. Apart from complete Chrysler bankruptcy, the worst Windsor scenario involves only 3,000 jobs. But the very best Windsor can hope for, the report contends, is 7,300 jobs—less than half the number on which Gray based the $200 million in government aid.

Windsor’s mayor, Bert Weeks, sits in his office, his fingers pinching a clipping from the Ottawa Citizen as if it were dubious toilet paper. It is another story on the agony of Windsor and a friend has mailed it along with a short note: “Why must the national media always be picking on poor Windsor?” Weeks shakes his head in disgust, riffles through the papers on his desk and turns up an argument. It is a report from the Windsor-Essex Development Commission, and it covers Windsor’s employment levels from 1975 to 1984. “This is based on hard facts,” he says as he reads the figures out: 46,138 in 1975; 48,000 today; 64,000 in 1984. “Temporary reverses,” he says of the current auto dilemma. The turnaround, as he sees it, “will become pronounced by mid-1981.” And then the Windsor tragedy stories will stop. There will be fewer national reporters at his door, fewer explanations of why he keeps a couple of koala bears on his wall. Not real, he says, the work of a local artist. They sit there, staring, peculiar animals who have but a single source of industry, who survive today only because of government protection, who are unlike any other animal in the world in that the cub must feed from the mother’s anus before daring to venture out on its own.

If Herb Gray had his way, the Canadian auto industry would grow up a bit, shake itself free of so much foreign dependence. Gray is delighted as much by the investment commitments of Chrysler as by an agreed restructuring of Chrysler Canada that will include, among other things, a government official moving to the corporation’s board of directors. Canada has been paying heavily for U.S. parental-company decisions, and Gray is determined there will not be a repeat of the 1978 Canadian government grant to the Ford Motor Company of Canada, when Ottawa and Ontario gave $68 million toward a new engine plant only to have Ford turn around and close down its old plant, resulting in a net loss of 500 jobs, according to the UAW. Much of that infamous grant, incidentally, was negotiated by Lee Iacocca, one of his final acts as president of Ford. “We learned some lessons from the Ford agreement, which I applied,” says Gray.

But Canada has been playing second fiddle to the U.S. since 1904, when Henry Ford ferried 177 chassis across the Detroit River to the Walkerville

Wagon Works, where bodies and wheels were attached and the cars sold to Canadians. Oh, there were glory years, say 1923, when Canada was the No. 2 autoproducer in the world and sold 47 per cent of its vehicles abroad. But a more telling story is to be found in 1979, when the auto deficit hit a record $3.1 billion.

Since 1965 the Canadian automobile industry has been ruled by the U.S.Canada auto pact, a controversial, complicated document that might be best described as a “Canadian content” rule for automobiles. It got off to a shaky start—Lyndon Johnson referred to Lester Pearson as Harold Wilson at the formal signing—but the early effects were mostly to Canada’s benefit (since then, car production has almost tripled and employment nearly doubled). Canada forced the agreement with wellplaced hints at high tariffs to protect its fledgling industry, and the pact cut this talk off with a duty-free zone and a promise that Canada would have a “fair and equitable” share of the lucrative North American auto market, which was a great boost to branch-plant assembly operations, but excluded replacement parts and accessories. Initially the Americans felt taken, and were soon eager to change it. But Canada would have nothing to do with it. When the balance of trade began to shift heavily in favor of the Americans in the mid-’70s, thanks to a booming car market everywhere, the Americans stopped complaining. And though Canadians did complain, particularly the parts manufacturers who were simply unable to compete with mass-produced, in-house parts from the Big Three, a 1978 federal commission still recommended against trying to rearrange the pact.

But the fact that in 1980 Herb Gray has officially invoked the renegotiation clause is indicative that all is not well. A Science Council of Canada report has given evidence that Canada has been a huge loser in areas like research, development and design (losing out on 1,400 engineering jobs, for starters), and that it has been a “dangerous illusion” for Canadians to go on believing a freetrade pact could open up opportunities for new facilities in Canada. The parts

producers are easily the biggest losers, with a $4.1-billion trade deficit last year and some 10,000 lost jobs since 1979, and they, naturally, are most eager to see it changed. Gray may be finding, however, that the Americans are no more interested in talking today than Canadians were a decade ago. The Big Three like the pact just fine as it gives them more room to operate, more control, more profits that can’t be sucked off by tariff duties.

In hindsight, it can be seen that the “Canadian content” of the pact also has its pitfalls, despite impressive gains in Canadian automobile production. To bring up over-all percentages, the companies have found it advantageous to produce a disproportionate number of large cars in Canada (Oldsmobiles coming from Ste-Thérèse, Que., Ford LTDs from Oakville, Ont., Chrysler Cordobas from Windsor). And as the industry

clearly moves toward what is being called the “world car”—one smaller car for all countries, with interchangeable parts produced in a far-ranging variety of nations—panic is setting in among Canadian parts manufacturers. “Not one of the parts in these new world cars is scheduled to be built in Canada,” says Desmond Donaldson, chairman of the Automobile Parts Manufacturers’ Association of Canada.

And there are indeed worrisome signs. Chrysler originally scheduled the old V-8 engine plant in Windsor to be converted to a V-6 plant, but when the small-car mentality burst onto the scene a new decision was made to pour $110 million into a four-cylinder engine plant in Mexico. The Windsor plant was closed completely and the workers laid off. And a week after the first “car-ofthe-future,” the ‘K’ car, rolled off the Detroit assembly line, Chrysler Canada unveiled its new ‘Y’ car. With Gregory Peck looking on and Frank Sinatra there to pick up the keys to the first car, the full glory of the ‘Y’ emerged: a $23,000 luxury Imperial, complete with a 318-cubic-inch V-8 engine and rearwheel drive. A beautiful car, to be sure, but hardly the car of the future. Windsor can only pray LeRoy H. Lindgren, vice-president of the Massachusetts consulting firm Rath & Strong, is dead wrong when he says: “Basically, anything spent on rear-wheel drive in the past two years is a writeoff.”

Ray Gignac, union head of Local 1498, Chrysler Office Workers, remembers the day he went home and practically put his fist through the fence. With only 380 of his 620 members working, each

new day holds only the promise of further frustration, yet another desperate phone call. “The patient was sick,” he says slowly. “Then it got pneumonia. Unfortunately, it’s been the workers who’ve had to take the penicillin.” There are few laughs these days, not from the sign on his office wall, UNEMPLOYMENT-MADE IN JAPAN, certainly not from the placard he saw recently at UAW convention: “IF YOU’RE HUNGRY, EAT YOUR TOYOTA.”

Moe Closs, head of Chrysler Canada, calls the import invasion “a blip,” but one wonders whether that is'an overly optimistic appraisal of the $1.9 billion worth of imports sold in Canada last year (16.7 per cent of the Canadian market), or the stunning 29.2 per cent of the American market imports snared in July, which was more than homegrown Ford and Chrysler combined could muster. Detroit, incidentally, is no longer the world’s leading automaker. For an entire year now, that honor has belonged to Japan. And while they may fare poorly in the crash tests, imports— particularly Japanese ones—are coming out of customer tests without a scratch. In the U.S. Environmental Protection Agency’s 1980 list of fuel-misers, the first 45 are all imports. Consumers Union has branded them more dependable, trade-in value is significantly higher and even Lee Iacocca will concede that, “in fits and finishes, they’ve done better.”

The Americans are so worried about imports that two Democratic senators from Michigan have introduced Senate legislation to give the president legal power to restrict the Japanese flow. Re-

cently, Ford and the UAW joined them, calling for a ceiling limit of 1.7 million cars, which would be 600,000 fewer than were sold in the U.S. last year. The Americans point to their automobile tariff wall—2.9 per cent—and then to Italy, which allows only 2,000 Japanese cars a year to enter. What the Americans would really like is for the Japanese to locate plants there, as Volkswagen of America has and as Honda is currently doing in Ohio. But with Toyota and Nissan showing only lukewarm enthusiasm, Jimmy Carter—long in favor of free trade and long angry at Detroit’s failure to respond to the energy crisis—may be about to change in favor of actual restrictions.

Canada, which sells $4 billion worth of raw materials each year to Japan, would like to avoid the sticky side of regulations. Gray’s recent trip to Japan

was to persuade the Japanese automakers to act out of good faith and at least involve the Canadian parts manufacturers if full-scale plants are not immediately possible. But so far, no action.

Frankie Del Greco wraps his fist around a fresh Blue at Hadley’s, a Windsor pub near the Chrysler plant, leans forward to overcome Bob Seger’s Against the Wind and confides how glad he is to have been hired on at GM recently to sew Buick seats after more than eight months as a laid-off Ford worker. “Sure, sewing’s not very macho,” he says. “But I love it. They’re so friendly, happy. They come up and compliment you. Not like at Ford. They were on my ass there, ’cause the boss was always on their ass.” Del Greco, like many other workers and not a few analysts, thinks the tide has not turned, that only GM, with its cash reserves and proven success with the ‘X’car, can roll confidently toward 1990. Chrysler’s troubles are a matter of public record. In Washington, they are calling Ford “the Chrysler of 1983.” “My uncle, eh?” Del Greco says. “He works on the line at Dearborn, so he hears a lot. He says, ‘You think this is bad, you ain’t seen nothin’ yet.’ ”

The decade ahead, says U.S. Secretary of Transportation Neil Goldschmidt, will be “one of international competition unlike anything we have witnessed before.” He speaks of “shock tremors” to come, as the industry restructures itself, smaller probably, far less steel, far more plastics, alloys, computer chips. More robotics. Fewer workers.

In Windsor, however, the mayor looks forward to the 16,000 jobs the WindsorEssex Development Commission has predicted between now and 1984. Herb Gray, told of the American report that casts water on the future 15,900 Chrysler Canada workers, refuses to comment, saying he retains his full confidence. “Not a chance,” says the NDP’s auto industry critic Ian Deans of the 15,900. Adds union head Ray Gignac: “There are those who’re laid off now who’ll never come back, I’m afraid. We’ve got to quit kidding ourselves.”

Down at Leamington, at the Canada Farm Labour Pool, general manager Ernie Neuman says that, so far, none of the laid-off auto workers have signed on to pick tomatoes at 37 cents a hamper. But that does not mean they’re remaining optimistic about getting back on the assembly line soon. Back at the University of Windsor, sociology professor Seymour Faber and his eight student helpers are trying to assess the impact of the auto crisis on a select group of 350 laid-off auto workers. Unfortunately, some can’t be found to be interviewed: they have left for Alberta.

With files from Ann MacGregor