BUSINESS

Detroit’s head-on course

Ian Austen September 10 1984
BUSINESS

Detroit’s head-on course

Ian Austen September 10 1984

Detroit’s head-on course

BUSINESS

ECONOMY

Ian Austen

Ever since executives at the three major North American car makers awarded themselves a total of $263 million in salary bonuses in 1983, Owen Bieber has had a surefire topic for his frequent speeches to members of his union, the 500,000-strong United Auto Workers (UAW). Bieber, 54, is president of the UAW, which last week opened contract talks with Ford Motor Co. and General Motors Corp. The union rank and file claims that it wants a share of the North American auto industry’s rediscovered prosperity, and Bieber and his colleagues went into the negotiations with a Sept. 14 strike deadline in place and definite objectives in mind, including substantial wage increases and improved job security.

Less than four years after some analysts declared the North American auto industry to be a dying giant, the car makers are thriving again—and helping to stimulate the entire U.S. economy. The major manufacturers’ sales are running 10 per cent higher than last year’s, and their six-month profit totals climbed to $6.5 billion from $2.9 billion a year earlier. At the same time, the industry forecast $11 billion in profits by December. The workers—who suffered layoffs as well as wage and benefit reductions during the hard times from 1979 to 1982—now want to catch up again. But management maintains that the current upturn is cyclical and that it cannot last in the face of foreign competition. As a result, the negotiations began with no management wage rate offer and no assurances that Ford and GM would limit offshore production of cars and parts. According to Bieber, if a new contract does not contain job security measures, “We’d be the suckers.” Indeed, foreign manufacturers of parts and cars are playing almost as great a role in the current round of auto talks as GM and Ford themselves. (The UAW contracts with Chrysler Corp. do not expire until next year.) Bieber insists that an agreement can only be reached if the companies agree to stop the practice of buying parts and even finished cars outside of Canada and the United States—a practice which they contend is essential if the companies are to continue making even modest profits. And there were no indications last week that any such concessions would be made prior to the U.S. union’s strike

deadline. As a result, the union membership authorized Bieber to select one of the companies as a strike target.

In Canada the UAW’s 50,000 workers at General Motors Canada Ltd. and the Ford Motor Co. of Canada Ltd. also endorsed strike action last week —after union leaders held preliminary discussions with management. But Canadian UAW director Robert White, who must decide when and whether or not to call a walkout, said that he would first await the outcome of the U.S. negotiations. White, too, contends that the growing internationalization of the industry is an issue that will have an

impact long past the life of the next contract. He added, “These negotiations are about where we are going in the future.” For their part, the U.S. automakers have been quick to complain about Japanese competition, which accounted for 20.7 per cent of the U.S. market and 21.1 per cent of the Canadian market last year. And they vociferously support the continuation of quotas that restrict foreign imports to North America. But in order to meet the foreign competition, they have increasingly made use of overseas plants themselves.

Still, industry observers agree that increased internationalism is crucial if the industry is to turn the current sales boom into long-term stability. Said Martin Anderson, a Boston-based automotive consultant who led a four-year study on the international industry for the Massachusetts Institute of Technology (MIT): “What we’re seeing right now is a process everyone else in

the world has gone through except North America.” According to Anderson, the low gasoline prices that prevailed until the mid-1970s allowed

North American car makers to produce large autos which had little sales potential abroad. That left the continent’s industry as the only one in the world that could supply all of its own parts. But now, he says, the situation has changed, and North American makers “must do business in a complex market with international trends.” But, unlike Bieber, Anderson rejects the contention that development will necessarily lead to joblessness

among North Americans. The key to preserving domestic employment, he says, is for North American manufacturers to direct part of their efforts toward creating export markets, especially for parts. “Even though you may be importing engines from Brazil, portions of that engine, especially hightech parts, could well come from here,” Anderson said. He noted that at a time at which exports from North America are virtually nonexistent, almost half of West Germany’s auto-parts industry is based on export markets.

But David Cole, director of the University of Michigan’s Office for the

Study of Automotive Transportation, declared that some job cuts will occur in North America. Said Cole: “You have many societies with highly motivated, high-quality people who want this business. To keep it, we are going to have to make sacrifices. And the main sacrifice is less employment.” But the job loss can be limited, Cole argued, if both the car makers and the UAW realize that in the future auto workers “may not be building cars.” Cole pointed to a daring move by GM: its June, 1984, $2.5-billion purchase of Electronic Data Systems (EDS), a huge U.S. information processing company. The move was made with more than just an eye on EDS’s annual revenues of $651.6 million (U.S.) last year. Among the tasks EDS will likely tackle for GM is reorganizing its data system and helping to develop new production and design methods. .

Behind the acquisition is GM chairman Roger Smith, 58, who was originally known for his caution (Smith wears a seat belt even when riding in the back of his company limousine). Few industry

observers expected him to make major changes when he took GM’s top job in 1981. But Smith made the decision to acquire EDS and, in January, he massively reorganized the company’s structure. The five car divisions and General Motors of Canada Ltd. have been made into two corporate groups—one overseeing the production of less-expensive cars (Chevrolet and Pontiac) as well as the GM Canada operation, the other handling production of the high-priced Buick, Oldsmobile and Cadillac lines. The old names will remain for marketing, but the two groups will become streamlined umbrella organizations for

design, engineering and manufacturing.

Much more risky, however, has been the move into information processing—the biggest step to date in Smith’s drive to buy or develop new technologies. Another U.S. corporate giant, Exxon Corp., bought 15 electronics and data companies and announced that it was going to enter the office automation market. Half a billion dollars later, the oil giant has very little to show for its efforts. But Michigan’s Cole is confident that GM will avoid Exxon’s mistakes. Said Cole: “They’re not looking for their bottom line contributions but for the other things those businesses will allow GM to do.”

Lacking the much larger financial base of GM, but still flush with

cash from the recent sales boom, Ford and Chrysler have both been actively pursuing development of new model lines. But that task will be easier and less costly than the “downsizing” of autos in the mid-1970s. Now, none of the North American producers will have to tie up time and money replacing largeengine rear-wheel-drive trains with lighter front-wheel-drive technology. Instead, the major changes in future models will largely be related to styling.

For Canada, those corporate developments are encouraging. Canadian auto plants enjoy a sizable cost advantage over U.S. operations, only part of which stems from the current weakness of the Canadian dollar. According to MIT’S Anderson, the automakers have found Canadian facilities much more flexible in adapting to change because, for the most part, they did not become “megaplants” with high fixed costs like many U.S. operations. As well, Cole believes that the federal and Ontario governments have played a major role in the success of the Canadian industry. Said Cole: “They both are considerably more knowledgeable on auto issues than the U.S. government. They’re much more eager to know what’s going on.”

With the Canadian industry in a relatively strong position, the UAW’s White is taking a somewhat different stand than Bieber toward the contract talks. While Canadian negotiators have yet to see any proposals from the Canadian arms of GM and Ford, White made it clear last week that increasing base salaries (Canadian Ford workers currently make about $13.06 an hour while the rate at GM Canada is $13.07) is as important as job security. He was also quick to reject management offers—made in the United States—of lump-sum payments and profit-sharing proposals in lieu of salary rate increases. Although Bieber’s bargainers will set the timing for talks in both countries, as of late last week White had not set a deadline for a walkout by the Canadian membership.^