BUSINESS

The auto industry’s uncertain future

Ian Brown November 22 1982
BUSINESS

The auto industry’s uncertain future

Ian Brown November 22 1982

The auto industry’s uncertain future

BUSINESS

Ian Brown

The scene was a massive demonstration of union solidarity. A crowd of 5,000 striking Chrysler Canada workers packed into the local racetrack in Windsor, Ont., last week in what resembled a giant pep rally more than it did a union meeting. Busloads of supporters snarled traffic; throngs of demonstrators cheered; and rousing speeches blared through the air. Then, Robert White, the United Auto Workers’ 47-year-old Canadian director, rose to speak. “Somebody asked me who those people are behind us,” he said, glancing over his shoulder at a handful of drivers exercising their horses in the background. “They’re [Chrysler] foremen and supervisors. They run around in circles and don’t do a God damn thing.”

It was standard strike invective. But it won a unanimous vote of confidence for White last week in what may prove to be one of the most symbolic labor standoffs in modern Canadian capitalism. The immovable object—Chrysler, which claims it cannot meet White’s pay demands and still survive—has met the irresistible force: 9,600 Canadian autoworkers who have granted the company three lifesaving wage and benefit concessions in the past three years and who now want some concessions of their own. The confrontation is symptomatic of the dilemma facing labor and management alike in the North American auto industry. The problems that landed Chrysler in a financial abyss four years ago—from which it is only now tentatively emerging—afflict the industry as a whole. Plummeting sales,

declining productivity and fierce foreign competition have called into question the ability of the continent’s automakers to survive. In Canada, the problems are even more severe than in the United States, a situation that has led one noted analyst to suggest that Canada get out of the automobile industry. Others say that in 10 years the industry will not exist in its present form. Caught in the tightening vise of a constricting industry, workers face pressure to moderate wage demands and, worse, the threat of increased job losses as the race for productivity gathers steam.

Against that backdrop, the defiant stand of Canada’s Chrysler employees takes on added significance. Most analysts think that White has chosen to strike at an inopportune time. Christmas is a season in which automakers like to make merry, not face picket signs. The union is demanding an immediate $3-an-hour increase (up from $9.07) to bring Chrysler workers up to parity with their counterparts at GM and Ford.

But Chrysler Chairman Lee Iacocca has insisted that the company “cannot afford a penny more” in wage concessions. Iacocca, the brilliant and charming Eddie Haskell of the automobile industry, maintains that the $1.1-billion

(U.S.) cash surplus the company has accumulated since its nearly bankrupt days in 1980—and which White is eyeing to fund wage increases with—is the company’s only line of credit. Analysts also point out that $239 million of the $266-million profit reported by the company in the first nine months of 1982 came from Chrysler’s sale of its profitable tank division last summer. Automobile production operations actually lost $156 million. White, however, did not buy these arguments and called the strike on Nov. 5. Immediately, Iacocca and every other pro-business voice in the United States claimed that the militant Canadian strikers would cost the company $15 million a week and sink it within months. “The strike is extremely painful and threatens to shut down North American operations completely,” says Arvid Jouppi, a Detroit auto analyst. “After losing about $3.4 billion in the past four years, Chrysler is entering the first really profitable quarter and is in fragile financial condition. It would take 90 days to destroy it.”

It is this fear that White is quite possibly counting on. With Chrysler desperate for cash flow a and the Canadian strikers facing the « prospect of a dreary I Christmas, Iacocca z and White may be shaking hands over a

bargaining table sooner than expected. “Both sides have really painted themselves into a corner,” says Jouppi. “Now they need to let the paint dry, walk across it and talk to each other.” Jouppi believes it could happen this week.

Even if an early settlement is reached in the Chrysler strike, however, the deeply imbedded problems of the North American auto industry will remain. For the automakers, the three years since 1979 have been a wrenching period. In relentless succession, the 1979 oil shock was followed by two severe recessions and an astounding surge in foreign imports, which have cornered 32 per cent of the Canadian market alone. In the United States the scars included operating losses at General Motors, Ford, Chrysler, American Motors and Volkswagen of America that totalled more than $7 billion in 1980 and 1981. In Canada, the Big Three automakers recorded losses of more than $3 billion in the same period and 20,000 employees are now out of work. Currently, although balance sheets are improving, car sales in North America are wallowing at 1961 levels.

Detroit optimists count on the expected 1983 economic recovery to boost slumping sales. They also claim that the industry’s long agony has made it leaner than ever and that the Japanese onslaught has forced it to adopt new standards of quality. Says General Motors Chairman Roger Smith: “We have learned our lesson once and for all. People are carrying around scars that are too deep to forget.”

The fact remains, however, that the Japanese enjoy a commanding lead in terms of productivity. Japanese factories produce a car for about $1,300 less than U.S. manufacturers do and about $1,200 less than Canadian firms. Former Chrysler executive James Harbour views Detroit’s drive to erase that gap as a matter of life and death. “I firmly believe that the Japanese will stop at nothing in this market,” he says.

The first casualties of the conflict will be workers. Says Alex C. Mair, a GM vice-president: “By 1990, we will probably have a work force about half the size of the one we had in 1979.” Similarly gloomy predictions are made for Canada, where some studies forecast a 30-per-cent drop in auto jobs by 1985.

This scenario is an alarming one for Ontario, home of Canada’s auto industry, which provides 67,500 jobs in the province. And, according to Industry Minister Gordon Walker, one in six jobs in Canada’s manufacturing sector is related directly or indirectly to

the auto industry. Walker believes that the industry will right itself as companies undertake serious efforts to improve quality and productivity.

But other observers believe that more drastic action is required. As in the United States, there is growing pressure for tougher measures to stem the influx of foreign vehicles. Canada now has a gentleman’s agreement in force that restricts Japanese imports to a set level. It expires at the year’s end and will have to be renegotiated. But other possible measures include higher tariffs and tough Canadian-content requirements. Still, protectionist measures would likely backfire on Canada as foreign firms retaliate against Canadian exporters. Another alternative has been suggested by economist Ross Perry. In a recently released study by the Canadian Institute for Economic Policy, Perry estimates that to match Japan in productivity Canadian autoworkers would have to reduce their wages by 38 per cent and “labor content per vehicle” by 63 per cent. Perry concludes that Japan has an insurmountable lead in things automotive and suggests that one option for Canada is to let the industry die.

The reaction to Perry’s report from other observers has been hostile. Ontario’s Walker, for one, termed it “nonsense.” Another dissenter is Percy Thadaney, an economist with Data Resources Canada of Toronto. As he points out, “It is not politically feasible to let the industry die out.” What Perry has done, he says, is to take recent productivity patterns and project them for the next 10 years. Adds Thadaney: “The issue Perry raises is applicable to the manufacturing industry as a whole. Does that mean that Canada should deindustrialize over the next 10 years?” Thadaney thinks not. Still, he believes that by the end of the decade “the auto industry might not exist in its present state.” To survive, he argues, auto companies must increasingly engage in joint ventures with foreign firms.

Arguably, the worst of the automakers’ agony is over, especially if sales pick up in the coming months. But the ordeal will continue as the battle for a share of the world market heats up. Currently, total global auto production capacity is 50 million cars per year, which far surpasses the 40 million cars demanded by consumers. Further productivity gains and increased quality will be necessary if North American car makers are to compete. For UAW leader White and the continent’s 1.3 million autoworkers, the 1980s will also be a time of reckoning with the exigencies of a changing industrial climate.

Leonard Michael

in New York, and

Carol Bruman

and

James Fleming

in Toronto.