JOHN DALY January 15 1990



JOHN DALY January 15 1990




Just last month, Jeffrey Spence was looking forward to Christmas and a new decade promising even greater prosperity. A $39,000-a-year assembly-line worker at General Motors (GM) of Can-

ada Ltd.’s Oshawa, Ont., operation, Spence owns the nearby home that he shares with his wife and two stepchildren. But on Dec. 5, Spence, 27, became a victim of North America’s declining auto-sales market: he received a notice telling him that GM would be shutting down his plant for the first week of January. The company explained that the temporary layoff would help to clear a huge backlog of unsold cars and trucks. A week later, GM extended the layoffs by another week. Then, a few days before GM’s customary weeklong Christmas shutdown, Spence learned that the layoff had been extended even further, to four of its five assembly plants in Ontario and Quebec, affecting 17,600 employees. Now, he is not scheduled to return to work until Jan. 22.

Declared Spence: “Supposedly, it’s just a couple of weeks, but you hear all kinds of rumors—anywhere from two months to shutting down the plant altogether.”

After six years of near-record sales, a long-predicted overcapacity crisis has finally hit the so-called Big Three Detroit-based automakers—General Motors Corp., Ford Motor Co. and Chrysler Corp. At the same time, sales of imported and domestically built foreign cars continue to climb.

That was confirmed late last week when the Big Three, who employ more than 500,000 assembly workers in North America including 67,500 in Canada, released their final 1989 sales figures showing a dramatic 7.7-percent drop in their North American car and truck sales from 1988. While domestic automakers blame high interest rates in part for sluggish sales,

Japanese imports are continuing a decade of strong growth and are steadily taking over an ever-larger share of the total market. In fact,

Canadian sales of vehicles built by Japanese-owned manufacturers in-

creased by 7.7 per cent. And while the Japanese now operate 14 car and truck plants in North America, the domestic manufacturers complain that they are still largely assembly operations using made-in-Japan parts. Indeed, in Canada, they employ less than 2,000 workers at their four plants. But officials for the

Japanese manufacturers promise that employment will rise as they buy and build more of their parts in North America.

For the moment, many economists express concern that, if the plant shutdowns are extended, the effects may soon be felt in other sectors.

Thousands of Canadian jobs in areas such as steel fabrication and auto parts are now dependent on a healthy domestic auto-manufacturing sector. And the outlook, for this year at least, is bleak, with even Big Three industry spokesmen expecting continued slow sales throughout the year. In fact, 45 of all 79 auto plants across the continent will shut down at various times this month, idling more than 100,000 workers.

Analysts blame overconfidence by the Big Three for some of the current problems. When domestic auto sales began to slow last January, the Big Three continued building more vehicles than

the market could absorb and desperately tried to increase sales by showering consumers with large cash rebates and low-interest financing. Some dealers offered such incentives as 10cent hotdogs, free balloons for children and even free sides of beef with each car sold in an attempt to lure customers into their showrooms. Still, the aggressive grab for market share has failed to spur sales and stop the

consumer shift to the Japanese competition. Said Ford Motor Co. of Canada president Kenneth Harrigan: “You’ll be seeing, not only from GM, but from us too, a week of shutdowns here, or a week there.”

Overall, the auto industry in North America is still relatively healthy. While total North American car and truck sales declined six per cent to 16 million vehicles last year, it was still the seventh-best year on record. But Detroitbased auto analyst Arvid Jouppi said that manufacturer and dealer incentives are partly responsible for that sales number, which masks a decline in the fortunes of the Big Three. He added, “Not even early incentives on the 1990 models could turn the market around.” For their part, Japanese vehicles are bucking the trend. In a dramatic sign of the growing popularity of their cars, for the first time last year a foreign car—the Japanese Honda Civic—was the best-selling model in the United States. Meanwhile, across North America over the past two years, the Big Three have closed eight plants, while Japaneseand Korean-owned manufacturers have opened nine plants.

The Big Three automakers are not expecting an upturn until 1991. And even then, they say that Japanese and other foreign-owned manufacturers will continue to lure buyers away from the American companies. Since 1979, the Japanese have increased their share of the North American car market to 26 per cent from 16 per cent, through competitive pricing and by convincing consumers that their product is superior to that of domestically owned manufacturers. Undaunted by the cur-

rent overall downturn in auto sales, they are optimistically forging ahead with plans to increase their capacity to 2.7 million vehicles per year by 1994, up from 1.1 million last year.

And encouraged by their success in selling smaller cars, the Japanese automakers are now pushing into the lucrative luxury-car market. With the introduction to North America of Toyota’s Lexus and Nissan’s Infiniti, Japanese producers have begun a bold assault on the last segment of the car market that they have not yet invaded.

That could create serious poblems indeed for the Big Three. According to a report released last year by the authoritative U.S. auto-market research firm Autofacts Inc., North America’s auto industry now has the capacity to produce 2.2 million more vehicles than it can sell. And unless six or seven plants close, Autofacts predicted that the excess will remain until 1994. The report also identified 10 top candidates for closure over the next four years, including a GM of Canada van-assembly plant in Scarborough, Ont., and a Chrysler Jeep plant in Brampton, Ont.

Since the report was released, some of those factories have already become casualties. Last October, GM announced that it will phase out van production at the Scarborough plant, which employs about 2,700 workers, by 1991. And next month, Chrysler will permanently shut down its Jefferson Avenue plant in Detroit and phase out its line of small Omni and Horizon cars. Still, Maurice (Moe) Closs, 62, who retired as president of Chrysler Canada Ltd. on Dec. 31, declined in a recent interview to

speculate on whether or not any of Chrysler’s four Canadian factories, employing about

15.000 people, may be next. But he added: “Let’s not kid ourselves. Some plants are going to close.”

Aftershocks from the shutdowns are already spreading through the rest of the economy. The first to be hit by layoffs are some of the

85.000 Canadians employed by auto-parts manufacturing firms, 90 per cent of which are in Ontario. According to Stephen Van Houten, president of the Automotive Parts Manufacturers Association of Canada, at the time of last month’s layoff announcements orders for new parts were already lagging about 20 per cent behind their level of a year ago.

Until last month, however, the Big Three continued to try to sell their way out of trouble with rebates and low-interest financing programs. But now, they say that the incentives are seriously cutting into their profit margins. Said Ford’s Harrigan: “You’ve got to get in there and be competitive. But we’d just as soon be out of it, frankly.”

But while the competitive free-for-all is squeezing manufacturers and dealers, it is producing huge savings for consumers. According to Dennis DesRosiers, president of Toronto-based DesRosiers Automotive Research, North American car buyers can now choose among more than 600 models, compared with about half that number a decade ago. And even if sales recover in the mid1990s, DesRosiers predicts continued price competition, particularly as the Japanese and other foreign-owned manufacturers expand their North American production.

For their part, the Big Three, as well as the North American parts producers, claim that the Japanese transplants use few North Ameri-

can parts and that some government regulations allow them to escape import duties, giving them a built-in cost advantage over their domestic rivals. Said Chrysler’s Closs: “By and large, the transplants simply bring in the packages from some place else and bolt them together.”

This widespread use of imported parts allows the Japanese,essentially, to assemble cars, which requires fewer workers than a manufacturing operation. That may change if the foreign-owned manufacturers raise the amount of North American content in their cars in future,

as they have promised. The Japanese add that their plants, which are largely nonunionized, are more productive than their North American competitors because their workers are organized in teams, which blur the distinctions between labor and management, with workers performing more than one specialized task. But union leaders say that they are suspicious of management’s motives. Said Canadian Automobile Workers Union research director Samuel Gindin: “We are going to fight if the reason

for these work teams is to weaken the union, to try and put peer-group pressure on workers to spy on each other and to get [assembly line] speeds up.” Still, many workers say that they prefer the Japanese system. Dwayne Charette, for one, a 23-year-old engine assembler in Toyota’s Cambridge, Ont., plant, who worked

in a unionized aluminum-wheel factory for two years before joining Toyota, said, “It enhances the quality of the car, because if I know someone else’s job, I know what to do if something is missing.” He added that the team concept provides him with more variety, as well as

more opportunity for advancement.

Meanwhile, owners of the Big Three are trying to regain the leadership in innovation that for years allowed them to dominate sales around the world. For its part, GM, in an effort to halt a drop in its U.S. market share to 35 per cent from 46 per cent over the past decade, is scheduled to open a huge plant this summer in Spring Hill, Tenn. It will manufacture the new compact and subcompact-sized Saturn cars, the design of which GM has not yet revealed to

the public. In addition to having the most up-to-date robotic technology, the plant will also use the team concept. And last week, in another effort to maintain his company’s eroding lead, GM chairman Roger Smith unveiled a prototype of a new electric car in anticipation of stricter environmental standards. But he added that GM will not produce the teardrop-shaped two-seater until battery technology improves.

Still, as the Big Three respond to the Japanese challenge and dismal prospects for their own sales, most analysts agree that all three of them are better prepared to withstand the sales slump than they were during the intense recession at the beginning of the 1980s. At that time, Chrysler had to be rescued from bankruptcy by the U.S. government and Ford also lost billions of dollars. But, for the mo-

ment, further cutbacks and layoffs by the Big Three appear to be inevitable. And as the car glut builds, it is clear that consumers will emerge as the only real winners.