Yesterday’s Wall Street Journal reported that Toyota executives have put the brakes on their American manufacturing plans. This rapid retrenchment comes against a backdrop of seemingly relentless growth in Toyota's U.S. market share. Sales of the Kentucky-built Camry are so high that Toyota is paying Subaru to build the model in Indiana. Thanks to generous incentives, the Texas-built Toyota Tundra pickup truck is keeping pace with the company’s ambitious targets. And just a few days ago, Toyota passed Chevy to become America’s top-selling automotive brand. So what’s up with the slow down?
First up: union troubles. Earlier this year, employees at the aforementioned Kentucky production plant unearthed a ToMoCo memo outlining plans to reduce wages and benefits in accordance with local compensation. The United Auto Workers (UAW) smelled blood. The union held “town hall” meetings and set up a “worker’s rights board” to “hear personal stories of Toyota workers and recommend appropriate remedies when necessary.”
In theory, the numbers favor the UAW. At Toyota’s Tundra plant in San Antonio, unskilled workers earn about $15 per hour, increasing to about $21 per hour after three years. Workers at Toyota’s new Tupelo, Mississippi plant will start at around $12 per hour, increasing to some $20 per hour after three years. If you include benefits (not an apples to apples comparison but there you go), the average Big 2.8 worker earns roughly $73 per hour.
In practice, Toyota pays bonuses to achieve parity with industry norms. And yet, as the leaked memo revealed, the wages they are a changin’. Toyota will now cap new hires’ salaries at 50 percent above the average local wage. That may seem generous, but Toyota understands the seductive power of union-inspired greed aspirations. And they know that a UAW stronghold in Georgetown would put them on a slippery slope to widespread unionization.
Toyota is also extremely concerned about its declining product quality. The company’s rep rests on the bedrock of reliability, which has been shaken by massive product recalls. The world’s largest automaker has more faith in its Japanese factories’ abilities to right that wrong than its American equivalents’.
This belief is NOT an ethnocentric condemnation of America’s autoworkers. It reflects the importance of experience and geography.
For largely political reasons, ToMoCo has spread its production facilities right across the North American landscape: Alabama, California, Indiana, Kentucky, Ontario, Mississippi, Missouri, Texas, Tijuana, Victoria and West Virginia. Back in Japan, the automaker clusters its factories in and around Toyota City (twinned with Detroit ‘natch).
While Toyota Motor North American Inc. has done a bang-up job mastering its long supply lines, it’s an expensive business prone to “complications” and “misunderstandings.” In contrast, Toyota’s Japanese centralization and the company’s longstanding relationships with its key domestic suppliers give the manufacturing mothership a distinct edge in quality and flexibility. At the risk of stoking xenophobic flames, an American-made Lexus flagship or Prius still seems… unlikely.
And then there’s the yen. Currency manipulation or no, the yen’s recent weakening against the U.S. dollar has made the economics of importation that much sweeter for the Japanese automaker.
Union agitation, quality woes and a yen for profit– it’s no wonder Toyota’s pumped-up the volume on its North American imports, from 762k vehicles in ’04, to 1.27m in ’06. Nor should it be any major surprise that Toyota has already started scaling back American production capacity.
Toyota’s Highlander-producing factory was scheduled to open in Tupelo in ‘09 with an annual production capacity of 200K units. The new plan: throw the switch in ‘10 with a 150K annual capacity. By the same token, southern states can put down their tax abatements; Toyota won’t be building any more new plants in the U.S. for the foreseeable future.
What if U.S. demand for Toyota vehicles outstrips their American production capacity? In the short term, ToMoCo could add additional shifts or assembly lines to existing plants, staffed by temporary workers. Or they could farm-out the work to friendly transplants or, gulp, domestic manufacturers. Or just call home for reinforcements.
In the longer term, Toyota has plenty of plants in countries with much lower production costs than the U.S. It wouldn’t be hard for them to import Chinese- or Indian-built Camrys for less than it costs to build America’s most popular car in America. Even with the 25 percent tariff on imported trucks (a.k.a. the “chicken tax”), building Tundras or Tacomas in Thailand, China or India would still be a price competitive proposition.
In the broader sense, Toyota’s American plants have already served their purpose. They’ve ingratiated the Japanese automaker to the American car buyer and insulated the company from a political backlash, should The Big 2.8 go Tango Uniform. And if these same domestics move the lion’s share of their automotive production overseas, what’s to stop Toyota from following suit?
” In theory, the numbers favor the UAW. At Toyota’s Tundra plant in San Antonio, unskilled workers earn about $15 per hour, increasing to about $21 per hour after three years. Workers at Toyota’s new Tupelo, Mississippi plant will start at around $12 per hour, increasing to some $20 per hour after three years. If you include benefits (not an apples to apples comparison but there you go), the average Big 2.8 worker earns roughly $73 per hour.”
I’d like to know where the numbers came from, and what the equivalent compensation is for the transplant workers – benefits included. I thought they were paying around $24 in Ohio. If they are really paying people $12, it’s now wonder the unions are at the door.
“Toyota is also extremely concerned about its declining product quality. The company’s rep rests on the bedrock of reliability, which has been shaken by massive product recalls. The world’s largest automaker has more faith in its Japanese factories’ abilities to right that wrong than its American equivalents’.”
It’s all about quality. That’s the only reason people buy Toyotas. I’m not suprised their growing pains are causing problems. I’m also not surpised their response is to slow down and figure out how to fix the problem.
The only thing certain is change, and it happens on a much faster cycle then before. Time was when a State or Town could pay tens of millions to lure an auto plant to build there and have the next fifty years to reap the benefits back. Now, nothing is sure. In 1980 Mack trucks moved from Pa. to Columbia SC with their main assembly plant. The UAW followed them down as the only auto assembly plant to be unionized in the South. The State of SC payed tens of millions for: highways, raillinks, job training, tax abatements etc. But by 2000 Mack was sold to AB volvo and the plant closed and moved to an existing volvo plant (non union) in Va. Some of these foreign owned Southern plants are also 20 years old and probably amortized enought that movement or closure is an option for foreign union escaping plants. Here are the 64K questions. If toyota gets the UAW challenge in Kentucky, will they start to close and reduce mfg. all across the US? Is the Southern style strategy valid with UAW Northern wages to pay? Is any mfg. of vehicles valid in the US for the long term?
Good article.
Toyota has such a long view. Quality concerns yes, but this probably has more to do with long term currency concerns and especially the whole Carbon discussion underway.
Toyota can see the writing on the wall that the Big 2.45345676 cannot. The future is energy efficient, and that means small cars and high technology. Small cars at a profit means low cost production – currently eastern Europe or Asia. High technology means in general not in North America. I’m talking batteries and electric motors. If there’s to be a major hybrid/electric push (has to be) then Toyota is going to be much more comfortable working with their partners in Japan.
Dynamic – I’ve seen number $37 to $42/hour for total compensation for the transplants. I think Honda in Ohio pays about $24/hour plus bonus. I am very familiar with the total compensation cost for the Detroit/UAW model. The $73 number is very real. (Side note – this number makes for low-hanging fruit in these plants. In other words I took out $2 million in labor cost 2005 over 2004 out of a single department. Good for the resume.) The $73 number is not only wages, health care and retirement, but really silly stuff like 17 paid holidays/year, up to 5 weeks of vacation, the huge HR organization required to coddle the union, of course the jobs bank, free legal services, a 10% daily absence rate that is simply accepted, and on and on.
If the current trend continues (currency, wage pressure, energy, etc) there will be little vehicle manufacturing in the States in 20 years.
Wow!!!!
Toyota figured out what we knew all along. If you can, buy a vehicle with a serial # that starts with a letter J.
Dynamic88: I’d like to know where the numbers came from, and what the equivalent compensation is for the transplant workers – benefits included.
Wall Street Journal, 24 May 2006:
In San Antonio, Toyota will use non-union labor and will start its 1,600 hourly workers at $15.50 to $20.33 per hour, which will grow after three years to $21 to $25. Harbour Consulting President Ron Harbour estimates Toyota’s total hourly U.S. labor costs, with benefits, at about $35 an hour — less than half of GM’s rates.
forums.motortrend.com, 14 May 2007:
But Toyota’s newly opened Tundra plant in San Antonio started its unskilled hourly workers at about $15.50 last year. After three years, the rates will increase to about $21 an hour.
Don’t forget, though, that the average hourly labor cost the Big 2.8 report includes retiree health care and other legacy labor costs. Toyota and the other transplants don’t have those costs (yet).
I have to admit that I would look for a VIN starting J (i.e. Japanese production) rather than 1 or 5 (US), 2 (Canada) or 4 (Mexico). I’m not so much xenophobic (not at all in fact) but happen to have some understanding of the Japanese work ethic, which puts pretty well everyone else’s to shame.
Besides, I own the most complex automobile built in the world (a Toyota Prius), and in order for the gasoline engine to stop/start multiple times every trip, I need 100% reliability 100% of the time, or else I’m on the side of the road.
So, I’m supposed to trust a workforce that is there 90% of the time instead of 99% of the time, just because they don’t feel like showing up, to build such a car (i.e. UAW)? I don’t THINK so.
I’m supposed to trust a car manufacturer which can’t even make windshield wipers park on cars with a few years under their belt (GM, I’m looking at YOU) to make a hybrid car? I don’t THINK so.
Re: labor cost – also keep in mind that UAW shops also have a MUCH larger proportion of “overhead” to “direct” labor. Overhead meaning skilled trades/maintenance, shipping/receiving/material handling, etc. This pushes average compensation up. The guys that worked for me made about $33/hour base wage as skilled trades men. We also paid guys $25/hour to cut the grass and empty garbage cans and swish some blue stuff in the urinals every night.
What a joke.
Frank what will prevent that from happening is that not every company such as Toyota is as stupid as GM and Ford in negotiting a long term unsustainable benefit to their retired workforce.
I am a unionized non automotive non UAW employee I have 8 federal holidays, 5 weeks paid vacation, 2 and a half weeks sick leave and employer matching 401K .
Those kinds of benefits are not the problem. As generous as my pay and benefits are, I do not recieve health insurance when i retire. I get medicare and if i want more than medicare I have to buy a health care supplement.
The problem is that the UAW retirees recieve private insurance coverage instead of medicare. That is killing the big 3.
Great article. When I first read of Toyota’s decision to halt US expansion, my immediate thoughts were how this might be related to the UAW’s recent attempted incursion. But, of course, I found no mention of this possible correlation in the main stream media. Which is why I come to TTAC, because at least TTAC provides insightful analysis and actually goes beyond the prima facie storyline. (prima facie… yes, I am a lawyer, who doesn’t make close to $73/hr. Perhaps I should have planned on assembling autos or sitting in a job bank instead of attending law school.)
The UAW got greedy and really screwed the pooch (US automakers) and I get pretty annoyed whenever I hear people with high-school educations complain about “living wages”. This is a new economy and welding doors on cars just isn’t worth $73/hour any more. I make $16/hour and get by alright, and I have a 4-year degree. The annualized rate of $73/hour? About $152,000. Doctors don’t make that much. You can blame mismanagement all you want, but part of that mismanagement was caving to outrageously greedy union demands.
Very good article Frank.
Toyota has been waving the US flag (albeit in a more subdued way than the Silverado ads)via its US manufacturing to score political points. They have been successful (people have gulped the kool-aid)as seen by several posts on this site that claim “my camry is as american as your malibu”.
Well—as I have said—whenver it is convenient—Toyota will retrench—and so they will. I am not rooting for this re-trench—on the contrary I hope they stay and prosper so the US can keep a semblance of a manufacturing base. I also hope that US based auto manufactures can find a way to keep manufacturing here as well. That said—I believe it is wishful thinking and agree with Sid Vicious that “If the current trend continues (currency, wage pressure, energy, etc) there will be little vehicle manufacturing in the States in 20 years” I do not think this is a good thing for the future economic security of our country.
I feel I need to make a clarification on the "$73/hour" wage rate. This is the automaker's hourly labor cost, not the workers' salary. The workers make about $25-27/hour (or a little higher, depending on seniority and job classification). This is what you should compare to your own hourly rate to. The $73 average figure includes benefits (holidays, sick leave, retirement plan, health coverage, etc.), overtime and other personnel costs that only Human Resource types understand. Unless you receive absolutely no benefits from your employer, your hourly compensation will be higher than your hourly wage (although not necessarily two to three times as much). Those who say "I only make $XX per hour" should find out what their total compensation package is worth. You might be surprised at what you're really costing your employer. (Your HR department should be able to tell what your benefit package is worth, if you're curious.)
Saying that Toyota is “falling out of love” with US manufacturing seems to be overstating it a bit. After all, a decrease in projected growth is not the same thing as a decrease in overall production.
It could be that Toyota is simply biding it’s time, confident that within the next few years one of the big 2.9 will fall. When they do, Toyota will be well poised to pick up the market share and maybe their choice of the displaced workers.
As for the threat of UAW organization, I think that’s an empty one. First of all, every Toyota NA worker knows that if they drive up the costs of production, Toyota can seamlessly shift productino overseas. Second, the UAWs biggest weapon is the strike – but such a weapon would be useless against Toyota, which has both the manufacturing capability and the cash reserves to weather any strike the UAW could call. So, without the ability to strike, UAW is a paper tiger, and all Toyota has to do to shut down any incipient unionization plans is to point that out to the worker (that is, if they don’t simply threaten to close the plant entirely.)
Or – here’s a crazy idea – Cerberus sells Jeep to Toyota. Somebody (maybe it was WWII vet Andy Rooney) made some rueful comments 10 years ago when Chrysler was bought by Daimler that “the Jeep is now made by a German-owned company.” Can you imagine what they’d say if the Jeep was made by Toyota?
“Can you imagine what they’d say if the Jeep was made by Toyota?”
How about: Finally, a Jeep I could stand to own for 10 years!
I can appreciate the difference between labor costs and hourly wage, but $25-27/hour is still mid to high $50,000 annual wages. This pay structure was negotiated in the heyday of the unions, back when unskilled labor still held the cards here in the USA. There are pretty much no unskilled jobs out there paying $55k with lavish benefits and an accepted 10% absence rate besides the auto industry, and it has doomed American automakers. The UAW still doesn’t grasp the new world economy and isn’t willing to own up to the fact that it’s members are ridiculously overpaid from an objective standpoint. For every auto worker making $27/hour here, there are 100 equally qualified Chinese ready to do that same job for $5/hour.
This is the new America – one income households can’t make it, people without education beyond high school don’t make big money, and that’s just how it is. The UAW no longer has the backing of society like they once did or big fat auto company profits to point to. These contracts need to be restructured to reflect the new economy, or the big 2.8 are going to become the big 0.
“There are pretty much no unskilled jobs out there paying $55k with lavish benefits and an accepted 10% absence rate besides the auto industry”
I have a treatise that was written by a Frigidaire guy in 1979 commenting on how GM was being driven out of the appliance business.
It took another 30 years to develop, but the car business has followed exactly the same path. If anybody on either the management or labor side acts “surprised” they should be flogged.
Toyota are doing what they can to survive. For some reason, Toyota are VERY sensitive to a political backlash to the success of them in the United States. I don’t know why they put SO much emphasis on this because I think it is totally unfounded. How stupid do they the United States customers are?! They buy their products and then boycott them! Totally illogical!
But I reckon the reason they are cooling on US production is what Mr Williams says, Unionisation. I’m not convinced about build quality because if Toyota are REALLY that concerned it would make more sense to send a hit squad of managers from HQ to the plants in the United States and re-enforce the build quality mantra, much like Nissan did in Mississippi.
If Toyota’s plants unionise, then they’ll lose the one REAL advantage they have over the (no so) big 2.8. Which is why Toyota HAVE to cool on the United States plants, to show that the Lord giveth and the Lord can easily transfer production back to Japan! This is essential to retain their iron grip on their plants and not make the same mistake the (relatively) big 2.8 by handing power over to the unions. Admittedly, this is a bit overkill, considering there are MANY more people who would LOVE a job at Toyota and would quite happily sign a clause in their contract that they won’t unionise for an extra 5% pay.
I don’t want to say that this is a masterstroke on Toyota’s part, because it was borne out of necessity and not planned, but the (rapidly shrinking) 2.8 should pay attention to what Toyota are doing in order to learn how to deal with an uppity union.
That’s what I think anyway……
Sherman, if your benefits aren’t the problem, please explain why Wal-Mart would rather shut down stores than accept unionization. (see the Quebec precedent for an example).
Also, this could also be a political lever. Not mentioned is the fact that Congress is debating the Card-Check law which would have drastic implications on unionizing shops. Why do you think the Unions are pushing tooth and nail for it.
Toyota is acting politically very savvy right now. Threats of lost plants while not directly attributing their loss to congress’ is smart politically but I am sure the politicos are getting the message.
Kazoomaloo hit the nail right on the head. Why should am auto worker make substantially more than the national average, especially when they are building less than average cars. They are putting together Cobalts, 500’s and Sebrings NOT 747’s or F-22’s.
In an interview in the WSJ a few months ago the CEO of Fiat stated that labor costs were only about 5% of the final cost of the car, which is why he didn’t cut wages while turning around the company.
Can anyone verify if this figure is accurate for NorAm manufacturing?
bfg6k: What matters is the labor costs of Fiat (or GM, or Ford) versus the labor costs of the competition. If labor costs are 5 percent of the total vehicle for GM, but only 3 percent for Toyota, that is still a big competitive advantage. Don’t be fooled by the low percentage numbers.
Remember that Fiat receives considerably more support from its government than GM does from the U.S. government. This gives it more of a “cushion” than that enjoyed by GM and Ford. I’m sure that, in exchange for that support, the CEO avoided the subject of wage cuts, as those Fiat workers are also voters.
Finally, note that disparity in wages is not the chief problem for GM and Ford. It is work rules and health care benefits.
Oh, and while we are bashing GM for stupid decision (on another thread), remember that one of those stupid decisions was buying into Fiat, and then having to give Fiat a huge cash settlement to avoid being on the hook to purchase the whole company (which was the basket case of Europe at the time).
I’m sure that injection of cash helped Fiat’s CEO avoid any wage cuts. Wonder how the company would have fared without that money.
Geeber,
Great point about Fiat, you really can’t compare a Euro producer with a NorAm one, especially if that Euro producer is in Italy. The regulatory environment is completely different as well as the universal healthcare and the gov’t “effect”.
Detroit automakers have historically claimed that labor is about 12% of the cost to produce a vehicle. I do not believe this includes labor in purchased components. Outsourcing and efficiency gains have been offset by increasing costs (health care.)
The Fiat # seems really low, but with nationalized health care and a large percentage of purchased parts (powertrains?) this could be true.
So people always say “Labor is only 12% of the cost so why can’t they afford to pay what they pay them?” But a 1% swing in profit/loss in this industry is huge as in billions of $. So if you can improve your labor costs by 10% it makes a night/day difference.
I find it fascinating how so many people here think they should be able to dictate labor costs for private industry.
$20/hour is too much money for a mind numbing assembly line job? How many of you know that cops in North Jersey average $100K/year? That’s $50/hr + benefits that would make a third world dictator envious. Some cops who work for the Port Authority of NY&NJ took home $250K+ last year. Why don’t I hear anyone complain about this blatant rape of the taxpayer who has no choice but to pay taxes?
Artificially depressing labor costs will harm a business just as badly as raising them above their equilibrium level. In 1914, Henry Ford raised his daily average wage from $2.50/day to $5.00/day and not because a union forced him to do it. Wall Street hated Ford’s new pay rates. The stock swindle thieves said the Ford was on his way to bankruptcy and would spoil worker/management relations for other industries. Guess what? Ford became more profitable after raising the worker wages. It seems that the improved wage attracted a better, more productive, class of worker.
With labor, as with almost anything else, you get what you pay for.
Re Sid Vicious on union benefits:
…up to 5 weeks of vacation, the huge HR organization required to coddle the union, of course the jobs bank, free legal services, a 10% daily absence rate that is simply accepted, and on and on.
Attendance and (very short notice) vacation policies are absolute killers when it comes to managing a complex enterprise. Hell, even for small non-union workplaces, you need a sharp, firm HR manager to keep welfare-mentality goldbricks from from bankrupting the firm.
My guess is Toyota is not concerned with unionization. Toyota must be strong worldwide, but in the US, they will limit sales to prevent a political backlash.
Toyota very much wants to be a good neighbor.
Re: political sensitivity
Toyota realizes that Clinton crony Erskine Bowles was added to the GM Board in anticipation of Hillary! 2009
Re: overpaid Jersey cops
they have a natural monopoly enforced via law
GM/F/C have to compete with T, H, etc……
However long term – high cost of living states ARE losing out to lower cost ones
skor:
Your example of Ford raising wages proves true in many work environments, provided they are non-unionized. If you give the big giant UAW mouse a cookie…
Henry Ford actually hired spies in the factories to prevent unionization in the late 30s.
Overpaid Jersey Cops. Another response.
Unions and Gubmint mix like nitro and glycerin – very dangerous. That is why they should be illegal. If it takes almost OR actually banrupting a private business to reign in unions, it is prety much inconceivable that a politician of any stripe would be able to do anything about them in government.
To compare auto salaries and goverment salaries is a complete waist of bandwitdh on this site and will have gotten us nowhere except mad at eachother in the end. It’s like comparing apples to gold bricks.
skor: In 1914, Henry Ford raised his daily average wage from $2.50/day to $5.00/day and not because a union forced him to do it. Wall Street hated Ford’s new pay rates. The stock swindle thieves said the Ford was on his way to bankruptcy and would spoil worker/management relations for other industries. Guess what? Ford became more profitable after raising the worker wages. It seems that the improved wage attracted a better, more productive, class of worker.
Some historical perspective is needed here.
First, Ford did not take this action out of the goodness of his heart.
His new assembly line methods were causing tremendous worker turnover. Workers hated the monotony of the assembly line. The $5-per-day wage was his way of reducing turnover and, as you noted, attracting the “cream of the crop.”
Second, Ford largely had the bottom of the market to himself in 1914, and for almost a decade after that date. (Chevrolet really didn’t begin boring into Ford’s market share until about 1923.)
At one point, Ford had 50 percent of the TOTAL new vehicle market. He could afford to raise his workers’ wages, as he had NO real competition. A monopoly can dictate the wage rate in that field.
That is certainly not the case for GM, Ford and Chrysler today. (Although one reason the UAW workers enjoy such good benefits is because for years GM, Ford, Chrysler and AMC, with over 90 percent of the new vehicle market, constituted an oligopoly. They could simply pass the increased costs of the UAW contract on to customers, who had nowhere else to go. Imported cars were inferior to the U.S. makes in many ways, so they weren’t a viable alternative for most American buyers until the mid-1970s.)
Second, while hiring good workers is important, as you noted, the second component of that equation is being able to FIRE – or at least discipine – the slackers. That is much harder for the employer to do in a union workplace.
If you doubt that – think Honda and Toyota would tolerate a 10-12 percent daily absentee rate, as is common in the GM, Ford and Chrysler plants? I highly doubt it.
Re: Henry Ford’s $5 wage: what a lot of folks don’t know, is that it wasn’t a wage, but a bonus, IF you lived your life according to Henry’s morals. The wage was $2.40; you could qualify for the $2.60 bonus if Henry’s social dictator goons came to your house and inspected it, and felt like you were worthy (white, married, kids, non-drinker, etc.) It was his way of “ethnic/moral cleansing” of the workforce to make them docile. How would folks like that today?
Henry had a strong record of being the first to hire black workers. Henry Ford did not discriminate against blacks.
mat51: Henry had a strong record of being the first to hire black workers. Henry Ford did not discriminate against blacks.
Yup. He also paid them the same wages as Whites. Ford the “anti-Semite” also employed thousands of Jews. Ford rewarded people for good work, and fired slackers and troublemakers. Today, because of unions/government EEOC laws, businesses are not free to do either.
A bit more historical perspective:
-The inventor of the (much-loathed) job classification was none other than Henry Ford. These were an integral part of the assembly line from the very beginning, long before there was a union.
Second, while hiring good workers is important, as you noted, the second component of that equation is being able to FIRE – or at least discipine – the slackers.
As much as I dislike poor workers, this statement vis-a-vis traditional automaking is actually incorrect.
The entire idea behind the original assembly line was to eliminate the randomness and unpredictability of craftsmanship, which varied quite a bit from individual to individual, hand-made part to hand-made part and day to day. The old build-it-by-hand-and-hope-for-the-best system that had existed for millennia was replaced with predictable part tolerances and workers with very limited, repetitive jobs that required a minimum of training and, in most cases, no craftsmanship of any kind.
In other words, the quality of the individual worker didn’t really matter. His skills were largely irrelevant. What did matter was his ability to mimic a machine, to perform the same repetitive tasks over and over and over again, without complaint.
Thus, the Ford production method, which was adopted by every mass automaker until Toyota developed “lean production,” was specifically and intentionally designed to eliminate the value of the individual worker’s role in the process. So to now blame the worker for the US automakers’ woes, when his function was specifically designed by management to reduce the influence of the individual on the production result, exhibits a misunderstanding about what American automaking was all about.
The crisis facing the American automakers is that most of their brands are so bad and most of their products so off the mark (the few with a reputation for reliability tend to be in dying segments, such as the traditional frumpy land yacht ala Buick and Lincoln) that they can’t sell most of their inventory at a decent price.
Between the fleet sales and the substantial incentives and giveaway financing, they simply can’t sell the vehicles for the same net price that the transplants can command. It’s ultimately a revenue and market share problem, not a problem with costs. And with brands this bad, it can only get worse.
Hi, Im from the UAW, Im here to help.
What is really bazaar is that if not for labor laws and taxes/redistributions and other government corruption, America would still be the manufacturing powerhouse of the world and there would be more jobs than people to fill them. Dont like your working conditions? Take another job down the street. Employers would have to pay more and make for better working conditions to attract the best workers. Collective barganing (at gun-point – aka law) just forces employers offshore – lowering wages/working conditions for manufacturing workers.
Bazzar that people can’t understand simple economics and basic human nature.
Pch101: The inventor of the (much-loathed) job classification was none other than Henry Ford. These were an integral part of the assembly line from the very beginning, long before there was a union.
It doesn’t matter who invented it…what matters is who is now defending it, and it’s not management. The system doesn’t work as well as it once did, and needs to be heavily modified, and the UAW has resisted this effort for as long as it could.
I’m sure that UAW leadership knows who invented the job classification system; that hasn’t lessened their resistance to modifying it.
Another example – the Jobs Bank was actually proposed by Ford management in the early 1980s, as it had closed more factories than GM during the 1979-82 recession. It wanted to hurt GM with this provision, as GM had not closed down factories.
Who is now defending the Jobs Bank, and has said that it will not be on the table in the next round of contract talks? The UAW.
Pch101: As much as I dislike poor workers, this statement is vis-a-vis traditional automaking is actually incorrect.
Sorry Pch101, can’t buy it.
When you say that the “quality of the individual worker didn’t really matter” – that is not accurate.
It’s true that, with the assembly line, individual workers no longer have to be craftsman, or even skilled workers.
The assembly line requires a new defintion of what constitutes a “quality” worker – namely, one who will show up regularly and be conscientious about his or her job.
The assembly-line based factory still needs quality workers – it’s just that what constitutes a “quality” worker has changed from the old system.
Those machines still require workers to operate them, and the factory as as whole still requires workers to make it function. If one worker – or 10-12 – percent fail to report to work on a daily basis, it disrupts the process.
Absences require either that everyone else take up the slack (causing disruption) or the company have redundant staff (which increases costs).
Assembly-line factories are concerned with speed and productivity and “good enough” quality. This requires discipline.
Incidentally, I have said that the lack of discipline in the factories is the fault of both management and the union. They BOTH have tolerated it for too long, for different reasons (laziness and a feeling that what goes in the factories is beneath the MBA-degreed management; a desire to keep dues-paying members on the payroll for union leadership).
Pch101: So to now blame the worker for the company’s woes, when his function was specifically designed by management to reduce the influence of the individual on the production result, exhibits a misunderstanding about what American automaking was all about.
The problem is that costs have gotten out of line, primarily because of overstaffing, work rules, and health care benefits.
This isn’t related to the function of individual auto workers. This relates to their collective costs to the company, and while the union isn’t entirely to blame, it has shown no inclination to reduce these costs and instead has defended the status quo, which doesn’t work anymore.
I claim that the US manufacturers’ problems are neither labor nor price related – they are all about excess capacity, which hits them on both labor costs and pricing.
Look at what Toyota is doing – demand for their cars is growing (and to such a great extent that many analysts believe management is sandbagging sales growth estimates to avoid political backlash), but rather than grow-grow-grow their manufacturing capacity they are playing it safe. So if growth doesn’t match expectations, they won’t be in the position of producing way more vehicles than they can sell without huge price cuts.
Contrast this with GM, Ford and Chrysler, all of whom overexpanded their fixed capacity during the boom times and, unable to reduce their production during slow times, are forced to sell their vehicles at a loss just to keep it moving. Forget unions, branding and quality – this is the biggest problem they have.
Yes, one of the reasons they can’t reduce production now is the unionized jobs, but it was management who engineered the disastrous expansions and hired all the additional unionized workers in the first place.
It doesn’t matter who invented it…what matters is who is now defending it
You shouldn’t ignore the fact that the traditional manufacturer first created the mindset, and their managers aren’t exactly eager to scrap it. (This is one reason that Roger Smith created Saturn as a separate subsidiary — he knew that traditional GM management would not buy into lean production.)
American manufacturers have, in large part, not adapted well to lean production. First, they scoffed at it; later, they only adopted aspects of it, when lean production methods require an all-or-nothing approach for them to work effectively.
True team production requires a less top-heavy organizational structure. When management is filled with people who have such contempt for the team members, don’t be shocked if the troops aren’t rallied or motivated to join in the half-assed effort to finally learn a thing or two from Deming and Toyota.
When you say that the “quality of the individual worker didn’t really matter” – that is not accurate.
It is absolutely accurate. Along with achieving scale economies, that was the entire point of mass production! Craftsmanship and individual initiative were the enemy.
The goal of scientific management was to automate the worker so that he functioned like a machine — a strict routine and part tolerances were the foundations of the assembly line. As long as the worker showed up and faithfully performed his repetitive and simple task, at the pace at which the line was set, that was good enough.
The problem is that costs have gotten out of line, primarily because of overstaffing, work rules, and health care benefits.
No, that’s an easy scapegoat that misses the fundamental business problems that see Toyota and Honda prospering in the same market in which the Big 2.5 (or whatever they are now) are failing. Reducing those costs will not result in increased sales, more satisfied customers, better branding or higher prices.
Here’s the economic reality: Even if GM has the same exact benefit cost burden as does Toyota, GM would still be a poorly performing company that would be losing money on its North American sales. If you can’t answer why that is, then you’re missing most of the equation.
Pch101: You shouldn’t ignore the fact that the traditional manufacturer first created the mindset, and their managers aren’t exactly eager to scrap it. (This is one reason that Roger Smith created Saturn as a separate subsidiary — he knew that traditional GM management would not buy into lean production.)
I’m not ignoring that fact. That is why I brought it up, and also noted that the widely reviled Jobs Bank was a management idea (from Ford).
I’m merely pointing out that the UAW is now defending a system that was invented by managers in the first place. The UAW is still the system’s most vociferous defender, and it has got to go.
That is what matters today, in 2007, as these companies fight for their very lives.
As for the Saturn experiment – in the 1990s, I spoke to the UAW leader who worked on the Saturn project for the union. He said that both GM management AND the UAW leadership hated Saturn and what it represented, even though it initially worked well.
The UAW wasn’t anymore enthusiastic about lean production than GM management.
The UAW and management remind me of spouses in a dysfunctional marriage – it isn’t working anymore, who is at fault long ago ceased to be relevant, there is a better way to make the marriage work, but neither side wants to give up anything to progess to something better.
Pch101: American manufacturers have, in large part, not adapted well to lean production. First, they scoffed at it; later, they only adopted aspects of it, when lean production methods require an all-or-nothing approach for them to work effectively.
Very true. I recall reading a quote from a Toyota executive. When asked why the Americans don’t quite “get it” when it comes to lean production, he said that they view it primarily as a way to cut costs, while it is really a way of life.
Pch101: True team production requires a less top-heavy organizational structure. When management is filled with people who have such contempt for the team members, don’t be shocked if the troops aren’t rallied or motivated to join in the half-assed effort to finally learn a thing or two from Deming and Toyota.
True, but read what the UAW says about the Toyota method in publications such as Solidarity and in various public statements. Union leadership doesn’t like it either, primarily because it is a threat to their leadership (more satisfied workers won’t feel the need to run to the union for everything).
Pch101: It is absolutely accurate. Along with achieving scale economies, that was the entire point of mass production! Craftsmanship and individual initiative were the enemy.
Mass production did not eliminate the need for discipline over the workforce. The disciplinary measures the automakers took to keep the lines rolling – especially during the Depression, when profits evaporated – where why workers organized in the first place.
And one reason GM had better quality and profitability through the early 1960s, when compared to Ford, Chrysler and the independents, was because it maintained far better discipline over its production lines than its competitors.
Mass production had the THEORY of making the individual worker unimportant, but it never reached that level of implementation, and it still hasn’t, almost a century after Henry Ford I installed his first assembly line.
Look at how carefully Honda and Toyota screen their blue-collar workers. That tells me that they still view individual workers as very important.
Pch101: As long as the worker showed up and faithfully performed his repetitive and simple task, at the pace at which the line was set, that was good enough.
And that’s my point. Showing up regularly and on time were now the measures of what constituted a quality worker, and extremely important to the overall discipline maintained in the factory. The worker was still an important part of the equation, as the factories still relied on human labor, even with the machines.
The level of discipline impacted productivity, which in turn impacted profits.
If the worker doesn’t show up, it causes problems. If 10-12 percent of those workers don’t show up on a daily basis…you have Ford, GM and Chrysler. Which spells disaster when compared to the 1-2 percent absentee rate at the transplants.
Pch101: No, that’s an easy scapegoat that misses the fundamental business problems that see Toyota and Honda prospering in the same market in which the Big 2.5 (or whatever they are now) are failing. Reducing those costs will not result in increased sales, more satisfied customers, better branding or higher prices.
If the reduced costs in labor are used to improve interior quality, install a superior drivetrain, or improve paint finish, the result will most certainly be higher sales, more satisified customers and higher transaction prices.
Now, if they are used to line shareholders’ pockets or pay higher bonuses to management, you are correct.
Pch101: Here’s the economic reality: Even if GM has the same exact benefit cost burden as does Toyota, GM would still be a poorly performing company that would be losing money on its North American sales. If you can’t answer why that is, then you’re missing most of the equation.
GM’s cost benefit burden is just one factor in its poor performance, and I certainly have not denied that, nor has anyone else I know.
I have never said that all of GM’s problems can be laid at the feet of its labor costs.
But to ignore it and say that it is not hampering the company’s performance is missing an important part of the equation.
“Those who say “I only make $XX per hour” should find out what their total compensation package is worth.”
Typically double it. $15/hr wage costs your employer about $30/hr. If you are self-employed (IRS 1099) or a business owner, you will know the actual costs of conducting business.
So at $15 you have to produce $30 in added value to maintain your wage…And the gov’ts take about half your wage in total taxes/fees/inflation. So for $30 of value add, you receive about $7.50 in actual buying/trading power…Sucks dont it? Makes one want to go back to subsistence farming.
Look at how carefully Honda and Toyota screen their blue-collar workers. That tells me that they still view individual workers as very important.
Yes, because lean production requires workers with individual initiative. Mass production was designed around a very different principle — the mechanized worker. These two systems are very different from one another, and the differences help to explain why Toyota and its proteges continue to thrive, while Ford and those who continue to follow its methods, do not.
The only reason Henry Ford hired people is because the humans were assigned to tasks that could not be automated. Had he had the opportunity, he would have likely replaced everyone with a machine, but the technology of his day was too limited for that degree of automation.
The role of the worker is a fundamental difference between Ford-based mass production and Toyota-based lean production.
A primary reason that the Big 2.5 have had difficulty in implementing lean production is because the management team devalues the importance of the individual worker. When labor is regarded as an expense (as is the case on a financial statement) to be slashed, rather than as an asset in which to invest, then lean production can’t work.
But to ignore it (labor costs) and say that it is not hampering the company’s performance is missing an important part of the equation.
Labor costs are absolutely irrelevant to understanding why there is a business problem. The costs only assign a number to that problem, and eliminating those costs won’t make the real problem — the problem that is causing the loss of market share and the erosion of the customer base — go away.
Focusing on labor costs, as if that’s the heart of the problem,. is akin to focusing on the point spread of a losing football game instead of on the coach of the losing team. Yes, a bigger point spread is a bit more embarrassing than would be a smaller one, but losing the game by 20 points, rather than 30 points, is really immaterial to the fundamental problem with the team’s playing and, ultimately, its management.
In that scenario, fixating on the 10 point difference at the exclusion of everything else ensures that you continue to lose more games. The “legacy cost” rhetoric is really just a shell game from management to keep you distracted from all of the incompetence at the top, the sort of ineptitude that makes those in Detroit believe that a Cobalt has any business trying to compete head-on with the likes of a Civic or Corolla. The fact that management would effectively benchmark the 1995 version of the competition for your 2005 product launch provides a lot more insight into the future of these companies than does the amount of vacation time accrued by an employee.
“Not mentioned is the fact that Congress is debating the Card-Check law which would have drastic implications on unionizing shops.”
Actually it is the Orwellian-named “Employee Free Choice Act of 2007″…Labor Union members will have “free choice” to join the unemployment line. Toyota – No Doubt – Is responding to this legislation.
I like how UAW refers to themselves as “UAW International”…It sounds so Stalinesque.
Redbarchetta:
Kazoomaloo hit the nail right on the head. Why should am auto worker make substantially more than the national average, especially when they are building less than average cars. They are putting together Cobalts, 500’s and Sebrings NOT 747’s or F-22’s.
That they are building less than average cars is management’s fault, not theirs. Management has the power. If they had the vision, US workers could do every bit as good a job as Japanese workers. (I’m not necessarily arguing with you about the wages.)
I'm sure the general sales slump of mid to large SUVs has something to do with the delay and scaling back of the new Highlander plant, although sales of the Highlander have actually been up slightly recently, possibly due to increased sales of the hybrid version. And as for the theory behind the Wall Street Journal article (which is behind a subscription-only firewall)-did they actually quote anybody within Toyota by name, or did they just say "sources within Toyota say" and "people familiar with the plans say"? If it's the latter, it's not much better than rumor.
Oh, and one more thing: Toyota already builds Lexuses in North America (they build over 90% of the RX 330s sold in the US in one of thier Canadian plants). Total sales for May of the RX 350 were 8,052 (note that the line on the sales chart includes 1,746 RX 400hs, the breakdown of which was mentioned in the text, which are all made in Japan), 7,259 of which were built in Canada.
http://pressroom.toyota.com/Releases/View?id=TYT2007060159103
“Oh, and one more thing: Toyota already builds Lexuses in North America”
Mr. Williams specifically referred to “Lexus flagship,” which I take to mean the LS series, rather than the dressed-up Toyotas in their range.
a 10% daily absence rate
You’ve got to be kidding.
Hell, even for small non-union workplaces, you need a sharp, firm HR manager to keep welfare-mentality goldbricks from from bankrupting the firm.
I didn’t realize how true that was until a friend joined the HR department of a small building supply company. Even infrequent no-shows and illnesses can wreak havoc with their scheduling. I can only imagine what it must be like to deal with thousands of people.
Anyway, if the people in the transplants are smart, they will tell the UAW to bugger off. Why start the Big 3 death spiral all over again?
“the average Big 2.8 worker earns roughly $73 per hour.”
That is insane!!!!
hmmmmmm. i see that toyota at last admits that even they can`t keep high quality manufacturing standards if they have to operate factories in USA using american workers. so you see, it is the whole attitude and engineering education level in usa, not just big 2.5. unless they replace the top echelon and engineers with japanese ones, they will never attain the highest standards. imagine LS assembled by the same people who just a week ago idled around streets playing rap music and basketball. draw similes to germany. your family is your family. they now the best how to do things. today i saw a program on mtv and those very rich rappers showed their rigs starting from bentleys to ferraris. and what struck my mind, how little effort they had put in order to get these cars, and how smart and educated( and much elbowgrease) had to be those people that created those cars. i imagine those rich rappers even aren`t able to open the hood.this shows how far modern society of america veers away from clever people and engineering,…. even in music , less and less effort and talent is needed to sell. you see american standards of ~enough good~ are not good enough for europe, that`s why it`s hard for american car companies and other to crack up european market. sorry for being so critical.
democracy is like frame of a picture, you can loosen it so that the glass of the picture wouldn`t crack of the tension, and if you loosen it too much, the picture falls out completely. democracy is knowing the right tightness in that frame. What it has to do with toyota factories? those whom it refers to, will understand.
We also mustn’t forget that Toyota HAVE one plant with UAW workers in the USA – or at least, 50% jv in such a plant – NUMMI in California.
So they know first hand what UAW workers are like.
As for the business about this “labor” law being pushed by the unions and Dumocrat socialists to force unionization – well, that worked once in the 1930’s but guess what Toyota, Nissan, Subaru, and all the other transplant companies will do?
Suddenly, the US plants will scale down gradually, work will move out by attrition and eventually, due to the NAFTA deal, not only will most “US” brand cars come from Canada and Mexico, but most “transplant” brand cars will, too.
People, you get and deserve the government you vote for.
Wake up. Having 3/4 of your “real world” pay check taken up by taxation, which doesn’t even come close to taking care of the national debt in the multiple trillions, is going to kill this country unless we the people take power back from the powers-that-be.
Don’t vote Dumocrat or Republicrat. Don’t vote for them! Vote Constitution Party or Libertarian, two parties which actually have members who can actually read and understand the United States Constitution, and we may have a nation which can be preserved.
It’s up to us. And it’s far larger than one industry. We all know it, deep down in our heart of hearts, don’t we? Otherwise, how to explain the Congress’s 14% approval rate? Lowest ever.
If the average ‘Merican makes 1/2 the wages of the guys that assemble the cars, can the average ‘merican afford the car ? I know a lot of Hyundai owners that simply could not afford any other new car. Sure, it would be nice to bring a ton of money home each week for installing bowtie windshield wipers, but the ‘merican auto worker must realize that they cannot price themselves out of the range of the average ‘merican (which they have). Of course Toyota wants to control costs. Their cars are already too expensive. In the 70’s, the big 2.75 had a 3-way monopoly on the ‘merican car buying public. Now there is real competition., vastly improved quality, and more choices. Americans like to breg about their competative spirit until someone else kicks their a$$es.
Pch101, you’re being a little obstinate in your debate with Geeber! You keep framing his argument to suit your rebuttals, but all he is saying is that a “quality” employee is redefined in the mass production paradigm, versus the previous hand-built paradigm. You two actually agree on what is required of an employee, you just don’t know it!
Let me use an analogy. You have a pair of welding robots by different manufacturers. They both do the same job. One breaks down five times a year, the other breaks down every other week. Both have similar MTTR (mean time to repair) numbers.
Would you not say that the welding robot that breaks down only five times a year is a higher quality, better performing robot? Of course you would.
Now pretend we’re talking about people. Jerry calls in sick, on average, five days a year. Henry is taking a sick day, or personal time, or his car is breaking down, on average every other week. Both fellows install dashboards, and have similar training and time on the job. Would you not say that Jerry is a higher quality employee, even though he has no particular TQ? Of course you would!
That is Geeber’s point.
Dean, I’d prefer to refer to it as having an interest in truth and an appropriate historical perspective.
For one, I have seen no verification provided here for either the absentee rate that Geeber claims, or how it compares to industry in general. For what it’s worth according to this source, the GM NUMMI plant in Fremont, California, which operates with UAW labor saw its absentee rate drop from 20% when GM was (mis)managing the place to 2% under Toyota’s leadership: http://www.executivedynamix.com/Motivating_Performance.pdf
For another, even if the absentee rate is both that high and above the norm, I see no analysis being provided as to why it would be at such a level. Generally speaking, if a workplace is poorly managed, its absentee rate will increase, and I think that we can all guess why that would be.
Speaking of leadership, the quality of management is what makes all of the difference in operating a successful production facility, and helps to explain why some companies win while others lose. Read that link, and see how disgruntled workers can often become good workers when they are given half a chance, some genuine responsibility and decent leadership.
Have you been to a traditional Big 2.5 facility? I have (in this case, a GM distribution center), and it’s amazing to witness a management-labor structure built along such strict lines that create a divide between worker and manager that would make a Klansman segregationist blush. Separate breakrooms, separate bathrooms, even separate parking lots…quite an amazing thing, an automotive throwback begging for a civil rights movement.
Geeber’s point misses the mark, because it fails to address why the workers are upset and why the customers are fleeing. It’s the type of philosophy that pays bonuses to the coach, while beating up on the water boy for yet another losing game.
The Big 2.5 can’t make it to the playoffs, let alone win the Series, because they don’t know that winning the game comes down to playing better than the other guy, not by fixating on the point spread. If you build products that people are willing to buy at regular prices, the revenues and market share will follow, and the fixed cost structure will be more manageable. And if you manage people well, they are more likely to show up to work.
When the team loses games, you blame the coach, not the guy who mows the stadium. This is common sense, folks, and it’s wrongheaded to allow one’s political philosophy to blind one to the realities of how successful businesses generate earnings. Cutting costs won’t help if the products themselves are not desirable in the first place.
Perhaps the report of Toyota’s US manufacturing demise was a bit premature –
Toyota says U.S. market solid, growth strategy intact. See: http://biz.yahoo.com/rb/070622/toyota_us.html?.v=1
Love the team sports comparisons. The players are just as overpaid.
jolo:
As the Brits put it, well he would say that wouldn’t he?
“Love the team sports comparisons. The players are just as overpaid.”
Are the players unionized? In other words, do they hold a gun to the owners head?
Understand where the US vs. Them mentality originates. Would you not be resentful of someone holding a gun (law) to your head? How about if some thieving Marxist scum like Buzz Hargrove publicly threatens to take GM Corp. down by violent means?
Rick Wagoner has a fudicial responsibility to GM shareholders to move production out of Canada after little Buzzard’s threats.
FrankWilliams
Thank you for the info.
The UAW is not the major problem. Poor engineering, insufficient refreshes, are not the fault of the UAW. UAW could make some concessions that help the 2.5 survive, such as making all retirees at age 65 go on medicare/medicaid. That would provide huge relief to the auto companies.
I used to work at the Allison Engine company when it was sold by GM back around 1993. The factory workers there had a true paradise – because of poor planning and work flow, the average shop worker only worked 1.5 hours per day (again, not their fault, a management failure) according to the Air Force who were responsible for the plant.
Many of the workers wanted to stay with GM – and were allowed to fill openings at the Indianapolis stamping plant.
The next day, these workers were begging for their jobs back at Allison – at the stamping plant, there was no air conditioning, it was very noisy, there was a lot of sharp edges cutting their hands, they had to lift heavy parts, and they had to work hard all day long.
UAW said no, the fact they had to work hard was the same as the other auto workers, and they could not have their old jobs back.
Most UAW workers work hard and are dedicated. Many care more than the management I have seen.
Yes there need to be concessions, but Mitsubishi in Illinois, Mazda in Michigan, Toyota in California, all have UAW plants with no major problems.
There doesn’t seem to be a point in discussing the UAW/CAW with the anti-union mentalists. Their hatred is visceral and probably rooted in envy (the nerve of those guys making as much as some someone with a bachelor’s degree!)
Once again, I’ll point out that the Big 3 aren’t competing on price, but rather on quality.
In compact cars, consider that Civic and Corolla both have higher MSRP than Focus or Cobalt. All are made in the US. Somehow, the non-union labor didn’t result in a lower price. How is it Toyota and Honda can charge more ?
Or consider Mid sized cars. Ford’s Mexican made Fusion is cheaper than a US built Malibu, but by less than $500. The Camry and Accord are both built in the US and by non-union labor, yet are more expensive than the US produced Malibu. Surely Ford could drop the price on the Fusion, given that Mexicans work cheaper than folks from Ohio or Kentucky.
It’s hard to make the case that unions make the big 3 uncompetitive when Japanese models which outsell their American counterparts are more expensive.
One not motivated by hatred might conclude that the big 3 are being outclassed in terms of quality/reliability – not being beaten by lower prices.
Hardly seems worth pointing out given how polarised the debate is but Japanese and German car plants are all unionised and Japan and Germany have remained manufacturing powerhouses. The real problem is an insanely expensive health system in the US which is the biggest competitive disadvantage US industry faces right now.
The right to organise (free association) is fundamental.
Pch101: The only reason Henry Ford hired people is because the humans were assigned to tasks that could not be automated. Had he had the opportunity, he would have likely replaced everyone with a machine, but the technology of his day was too limited for that degree of automation.
Workers were still important, and the QUALITY of workers hired still mattered, it was just a different kind of quality (skilled craftsman versus people willing to show up regularly and perform the duties they are instructed to perform).
He may have WANTED to replace the human element with machines, but he never did, and we still haven’t almost a century later, so the quality of workers still matters.
Theory is nice, but what matters is what happens in the real world, and in the real world auto makers still need real, live humans to staff the plants and make the machines work, no matter what Henry Ford I ultimately desired.
Pch101: Dean, I’d prefer to refer to it as having an interest in truth and an appropriate historical perspective.
No, I think it’s called too much reliance on theory and not enough knowledge of how things work in the real world, regardless of how one prefers to see it.
As someone who has worked in both the private sector and government, all I can say is that your theories don’t mesh with how things work in the real world.
Dean’s analogy is absolutely correct.
Pch101: For one, I have seen no verification provided here for either the absentee rate that Geeber claims, or how it compares to industry in general.Detroit News articles, as well as articles in Fortune and Forbes, and the UAW has never denied it. It’s a fact.
Anyone discussing this subject should know this.
Pch101: For what it’s worth according to this source, the GM NUMMI plant in Fremont, California, which operates with UAW labor saw its absentee rate drop from 20% when GM was (mis)managing the place to 2% under Toyota’s leadership.?
Please note that Toyota does not manage GM’s other plants (or the plants of Ford and Chrysler). And the UAW agreed to work with Toyota because this plant was in danger of being shut down in the early 1980s. It essentially had no choice.
The UAW has, historically, not cooperated until either a plant was in danger of being shut down (as this one was), or the entire company was in danger of going bankrupt (Studebaker in the late 1950s, Ford and Chrysler in the early 1980s).
Pch101: For another, even if the absentee rate is both that high and above the norm, I see no analysis being provided as to why it would be at such a level.
As I’ve said, it is poor management on the part of the company, and a desire on the part of the UAW to maintain the status quo.
Pch101: Generally speaking, if a workplace is poorly managed, its absentee rate will increase, and I think that we can all guess why that would be.
Again, I have never denied this, but you continually underestimate the influence of the UAW in the plants, and its desire to maintain the status quo.
Pch101: Geeber’s point misses the mark, because it fails to address why the workers are upset and why the customers are fleeing. It’s the type of philosophy that pays bonuses to the coach, while beating up on the water boy for yet another losing game.
No, you keep missing the point, because I have never placed all of the blame on the union, but you keep absolving them of ANY of the blame, which is just not how things work in the real world.
Pch101: If you build products that people are willing to buy at regular prices, the revenues and market share will follow, and the fixed cost structure will be more manageable.
Except if your competitors have a lower cost structure, and their products essentially set the upper limit for what people are willing to pay, companies with a higher cost structure will eventually go out of business, unless they can migrate to the upper reaches of the market, or develop niche products with little or no competition (which works until the niche grows, and competitors start to enter).
And saying that every car maker has to develop “special” or “gotta have” products – that’s not quite feasible in the mass market. It’s like telling every high school girl that all she needs to achieve inner peace is become Homecoming Queen (or, at least a candidate for Homecoming Queen).
Which, of course, is impossible, as not everyone can be the Homecoming Queen.
Pch101: When the team loses games, you blame the coach, not the guy who mows the stadium.
Again, I see no one absolving Big 2.5 management of blame. We are merely taking a more holistic approach
Pch101: This is common sense, folks, and it’s wrongheaded to allow one’s political philosophy to blind one to the realities of how successful businesses generate earnings.
I think someone is letting his political philosophy color his view, and it’s not me.
Pch101: Cutting costs won’t help if the products themselves are not desirable in the first place.
But, as has been noted, if the reduced costs achieved through cuts are used to make the products more desirable, the company will succeed.
Geeber, you keep avoiding some basic issues here —
-Street prices for American cars are below those of the transplants. Why is that? (Answer: The marketplace doesn’t care for them as much as they do for the transplant alternatives.)
-Rebates and incentives for American cars are substantially higher, and offered more frequently, than they are on the transplants. Why is that? (Answer: The marketplace doesn’t care for them as much as they do for the transplant alternatives.)
It’s very simple — the Big 2.5 products just aren’t competitive. Companies that make uncompetitive products tend to lose money, irrespective of how low their costs are.
Businesses are ultimately revenue driven. If you can’t sell your products, it doesn’t matter how low your costs are. Reducing costs, in the absence of failing to improve products, service and branding, is a sure ticket to bankruptcy.
But, as has been noted, if the reduced costs achieved through cuts are used to make the products more desirable
What you don’t seem to understand is that the Big 2.5 absolutely don’t do this. When profits are good, this is what they do with them:
-Invest in FIAT (loser)
-Invest in Isuzu (took a modestly successful brand in North America, and effectively destroyed it)
-Invest in SAAB (loser)
-Invest in Subaru (dumped it with no benefit)
-Invest in Mazda (turned its once-successful midsized sedan, the 626 / 6, which was once able to compete effectively in one of the highest volume segments in the US market, from a genuine contender into a fleet special)
-Invest in Jaguar (oops)
-Build and destroy Saturn in a matter of a couple of decades (oops)
-Create an import badge (Geo), fail with it, and dissolve it (Goodbye marketing dollars)
-Invest in Daewoo (a loser before the acquisition, and I predict that it will be GM’s next loser down the road)
-Introduce one losing nameplate after another, the sorts of cars that only Rick Wagoner’s mother (or a fleet manager) could love.
I could go on, but I believe that this incomplete list makes the pattern fairly clear. These “managers” (if we dare call them that) are so utterly incompetent, at the core of their beings, that they turn a dollar into two cents every time that they’re given half a chance to do so.
I’d no sooner give excess profits to a Big 2.5 management team than I’d give a million dollars to a junkie. If I was a line worker in a Big 2.5 plant, why would I possibly want to sacrifice my pay and benefits package to someone who is practically guaranteed to squander it?
I must speak for the “Lexus RX 350” which is made at the Toyota Plant in Cambridge, Ontario (Near the home of the Black Berry). For years the CAW has tried to unionize this plant without much success! The CAW is so much like the UAW, not a Union I like as I was involved in a Canadian Union(not in Auto sector)The CAW is a top down Union, not really helping the working person imho!
Orders are taken from Buzz Hargrove the CAW President.
Here is how the UAW union affects the appeal of a product.
Take any product plan. You forecast product sales, learn the fixed and variable costs, including plant overhead, labor and parts/components. The plan quickly yields an average price and cost target per vehicle in order to be profitable.
Guess what? The higher the labor, the less you can spend on nice materials or better made parts. Of course, as the big 3 are finding, the cheaper the parts and materials, the harder it is to command your asking price for the end product.
So sure, the UAW does not design vehicles nor do they pick the materials or components that go into them. That said, please do not suggest that labor costs do not factor into the final appeal of the product.
Guess what? The higher the labor, the less you can spend on nice materials or better made parts. Of course, as the big 3 are finding, the cheaper the parts and materials, the harder it is to command your asking price for the end product.
That would be a terrific theory…if we had examples of effective actions previously taken by Big 2.5 management to turn previous profits into better products. But we don’t.
While Ford was churning out healthy profits selling Explorers and trucks, it acquired Jaguar, Land Rover, Aston Martin, Mazda and Volvo, and allowed the Taurus to languish and both Lincoln and Mercury to die on the vine for anyone who isn’t a cab driver under the age of 70. Bold moves…if red ink on the income statement was your long-term objective.
Those bungled acquisitions and the subsequent losses that they generated burned tens of billions (yes, that’s a “b”) dollars. You want legacy costs? See how much Rick Wagoner lost on FIAT alone, and then ask yourself why his job classification doesn’t involve a toilet brush and a broom.
While GM was generating strong profits selling Suburbans and the like, it acquired FIAT (oops), SAAB (what’s “oops!” in Swedish?), etc., etc., etc., while creating negative brand equity for the existing lineup and driving Saturn into a wall.
Wake up, people — the Big 2.5 management has **no** history of turning truck profits into better cars. If they had, they wouldn’t be in the mess that they are in today. That’s why most of you haven’t driven a Ford lately, and why the Heartbeat of America resides these days in Marysville, Ohio.
Toyota is also extremely concerned about its declining product quality.
Since this is their major selling point (plus the fuel efficiency when we are not talking about trucks), they really have to keep the quality high. Japanese quality (of the lean production method) was built around the values in the japanese society. The importance of these values can be thought to out-of-country workers, but that takes time. Mass production needed machine-minded workers . Lean production needs puctuality, never missing a workday, making things better by small incremental adjustments etc. – things that are highly valued in a japanese society and are linked to honor for example.
This belief is NOT an ethnocentric condemnation of America’s autoworkers. It reflects the importance of experience and geography.
Definietly. Americans can adapt to any foreign system and they can replicate it, but the best thing would be to make something more than just a replica of a foreign system. A replica will only be a replica and at best match the original. (Nobody wants a replica just like nobody wants a chinese car). One needs to take the concept and adapt it to his own mentality (much like taking mass production invented in America and adapting it to japanese mentality created the lean production) and then add the strengths of its own culture to it. Americans are individualists. They are bold, they are free to dream big and be daring, and they are inventive. So what is needed is to take the lean production and make it into something better, something that builds not only on values that we learn to prioritize as necessities for replicating lean production but something that incorporates those values where Americans excel. And by doing that, create a system which is better than lean production.
This would be a path to make sure that America remains a manufacturing powerhouse, which, as a previous post suggested, is essential for the economy. Imagine a Toyota that builds in America not because it wants to earn political goodwill points, but because its american plants can do something that the japanese can’t. Call that dreaming big, but I think dreaming big should be the order of the day in this country.
Taking Japan’s lean production and making it better in America will only happen AFTER they learn it in and out and are able to duplicate the success that Japan has. Since they won’t take the time to duplicate it and only do a half assed job of making it seem like they are duplicating it, the domestics will never be able to improve on the lean production methodology. They don’t have the patience to learn it completely and integrate it into every facet of their manufacturing process. Once they do that, then they can look at all the pieces and try to make impovements where it will be to their advantage. Sad to say, the American automakers won’t take the time, and they are fast running out of time.
No rational person would deny that management is to blame for letting design and engineering lag so far behind but to grant the UAW a full pardon is ridiculous.
When things are bad, they had no part in it. When things go right, they’re always right there to take credit. You can’t have it both ways.
If the product is bad and you blame design and engineering, then fine. But don’t go sticking your chest out, waving a UAW banner when some quality product starts coming off the line because that credit goes to management, the designers and the engineers. After all, you’re just diligently doing your job as you always did, right?
But boast they do:
speech given May 31, 2007, by UAW President Ron Gettelfinger:
On these topics, UAW members and our employers have a compelling story to tell.
For example, as we all know, GM won Car of the Year and Truck of the Year at the Detroit Auto Show. Ford is outperforming the Japanese competition in customer surveys. And Chrysler has the freshest vehicle line-up in the industry. – Auto Spectator 6/1/07
also,
Nick Kottalis…said news of Wixom’s honor made him…proud. He was a union official with Local 36 in Wixom and now is a district committeeman and an alternate bargaining representative with Local 600 in Dearborn.
“It feels very ironic, because we’d been telling Ford that we had the top-quality assembly plant in the country. We’d been telling them that for years, for years,” he said. “The UAW membership was right when we told Ford not to close this plant, because our quality is the best.” – Detroit Free Press 6/7/07
I’ve bought various brand new domestics that had mis-aligned bumpers and panels, carpet and headliner edges not properly tucked where they should be, a loose wire that left my wife stranded, and various other fasteners either missing or loose causing squeaks and rattles. Who is more likely at fault – the engineer or the assembly worker. That’s not to say that the management, designers and engineers didn’t make their fair share of mistakes but let’s be fair.
If you wash your car and someone tells you that you missed a spot, do you tell him it’s because you weren’t properly managed?
If you wash your car and someone tells you that you missed a spot, do you tell him it’s because you weren’t properly managed?
If you are a grunt worker at a car wash and you screw up, then of course, management is responsible. The customer didn’t get what s/he paid for, and delivering customer satisfaction is absolutely the manager’s responsibility.
The job of a manager is to manage. Many managers are incapable and confused, believing that the focus here is on pushing people around (i.e. barking out orders and commands like a two-bit drill sergeant on Viagra).
What they are actually supposed to do is manage the quality and quantity of output, with the ultimate aim being to satisfy the customer. In the process of doing so, they should adapt a style of dealing with people that gets the job done and motivates the worker to produce as effectively as possible.
If a manager isn’t responsible for output, then by definition, that person is not a manager. Don’t get into management if you don’t want to be responsible for, er, management…
So basically, workers are just meat robots. They accept no responsibility for their actions at any level. Just program ’em and plug ’em into the line. So explain again why they deserve such inflated compensation?
The mission of a business should not be to apportion blame for the mistakes and deliver mediocre results, but to deliver products that satisfy customers. If they can’t accomplish the latter, the business will eventually fail.
Of course, workers need to do a good job. But ultimately, it is up to the manager to ensure that those workers perform. Refer above to the article that I linked that discussed the NUMMI plant in Fremont, CA as an example of what an effective management team could accomplish, even with a union workforce.
Show me a facility with poor product quality and a high rate of absenteeism, and I’ll show you a poor management team that needs to be changed out. It always goes back to management, management and management.
I don’t dispute that good management is essential but management can’t be effective when it’s hands are tied with the current labor contracts. NUMMI is a special case and the UAW took concessions to stay in there.
A successful business needs to be flexible according to what the market demands. No matter how good the domestics could have been, if they did everything they could/should have done, a loss of market share was inevitable due to the increasing quality and availability of imports.
Of course you might be of the opinion that if the domestics stayed strong they could have beat back the flood of imports but it likely would have only delayed it unless protectionism prevailed.
So if your market is shrinking you have to shrink with it. That’s hard to do when you need UAW approval to close a plant or take any other measures.
No matter how good the domestics could have been, if they did everything they could/should have done, a loss of market share was inevitable due to the increasing quality and availability of imports.
Thirty five years ago, the Big 3 of the day had absolute brand dominance, had deeper local market knowledge, and dominated distribution. GM owned half of the market, and should have been able to relegate the imports to minor niches, ala Porsche and the early Volkswagen.
But thanks to hubris and incompetence, they didn’t, while Toyota had a solid business plan and a superior manufacturing model that reinvented the game. Instead of learning from that model, the large players ignored it, mocked it, then copied only bits of it, resulting in a second-rate result. Today’s excess capacity, excess inventories, and rebate giveaways are all just symptoms of the root cause, namely managerial ineptitude.
Here’s an exercise for you: Assume for a moment that the oft-quoted “legacy costs” quoted by GM of $1,500 per vehicle per year produced by GM is accurate, and apply it to both their and to Toyota’s 2006 annual income statement. Hold on to your seats: If TMC were to assume the entirety of GM’s total annual “legacy cost”, dollar for dollar, Toyota would still be a profitable company, while GM would barely achieve breakeven. Ask yourself why that is.
That $1500 is a little modest:
“…in a report prepared by the Detroit consulting firm Harbour-Felax, first released back in October and updated for Fortune…
…A big reason is the cost of labor. As analyzed by Harbour-Felax, labor costs the Detroit Three substantially more per vehicle than it does the Japanese.
…Health care is the biggest chunk. GM (Charts), for instance spends $1,635 per vehicle on health care for active and retired workers in the U.S. Toyota (Charts) pays nothing for retired workers – it has very few – and only $215 for active ones.
Other labor costs add to the bill. Contract issues like work rules, line relief and holiday pay amount to $630 per vehicle – costs that the Japanese don’t have. And paying UAW members for not working when plants are shut costs another $350 per vehicle.
…the exchange rate is another uncontrollable factor that plays into the hands of the import brands. When the yen got cheaper in 2005, Harbour-Felax figures it was worth $1,054 per vehicle to Japanese manufacturers”
Of course managment deserves blame (mostly, for ever signing those labor contracts) but I still haven’t read anything here or anywhere that justifies the compensation UAW members receive. Jobs bank? Explain that to someone who’s never heard of it and they’ll think you’re joking.
The much-aligned jobs bank was an insurance policy for the workers to keep getting paid and trained if management was so inept that it couldn’t build cars that people wanted to buy.
The problem is not the jobs bank, per se, but the fact that management isn’t capable of creating products that the marketplace wants, which keeps the workers idle but paid.
If the Big 2.5 were capably run, there would be no workers in the jobs bank at all, because the factories would be busy pumping out vehicles and selling them at retail prices to happy customers. But when you are so lacking in talent that the best you can do is produce Cobalts and Malibus, instead of something that can beat a Civic or Accord, then yes, your workers will be able to cash in on their insurance policies.
The jobs bank is just another symptom of a deeper problem. The core problem is with a management team that is out of step with the American consumer, and can’t use those factories to produce anything that we want to buy at a retail price.
Those workers would be too busy working if they had bosses who knew what they were doing. No one has yet explained why should the grunt worker should be eager to sacrifice his pay when you can bet that his management will continue to run the company into the ground, no matter how cheap the labor is.
This disscussion is beginning to circle back around on itself (and has probably made a few laps already). The worker wouldn’t have to sacrifice his pay if it wasn’t so bloated to begin with.
I’ve conceded that management shares the blame but you continue to argue that workers are pure beings incapable of any greed or wrong-doing. If a guy gets a jelly stain on his uniform, that’s management’s fault for not providing stain resistant shirts.
The Jobs Bank is cruel and unusual punishment to the company for not providing a job. It’s like being executed for jay-walking. “Just don’t do it and you’ve got nothing to worry about!”
The sense of entitlement of union members and supporters never ceases to amaze me. Some argue that the auto workers just got the pay and benefits they deserved back when times were good and profits were rolling in. Share the wealth.
But why did they deserve more and more compensation? They weren’t the ones conceiving and engineering the product. They just screwed them together like they always have. They had as much to do with the success as you say they do with the failure.
Was it because of the profits? Well, that money belonged to the owners and stockholders. The workers had no right to it because it wasn’t theirs. They had nothing to do with those decisions and designs, remember?
Anyway, the time for a correction has finally come and I’m sure everyone is anxious to see what happens with the pending negotiations.
This is my last post but I’m sure it won’t be the last word ;)
you continue to argue that workers are pure beings incapable of any greed or wrong-doing.
I never claimed this. What I am pointing out is that even if you fixed every real and perceived evil about the UAW, these companies would still be destined for failure. The labor issues are symptoms, and fixing them won’t cure the disease.
Imagine a poor driver who is more than a bit collision prone. He continually has accidents, so as a result, the car looks awful and can’t track a straight line, and his insurance premiums are through the roof.
Now, if that driver was Rick Wagoner, he would be complaining about the body damage and the outrageous insurance costs. Rick’s solution is to demand money out of your paycheck to fix his car, even though he broke it. He will assure you that if you would just pay for the repairs, everything will be lovely.
Rick is partially correct — the car is broken and probably needs to get fixed if you want to continue traveling. But the real problem isn’t with the car or the insurance, but that Rick is a horrendous driver. Everything else in this equation is a symptom that ultimately leads back to him.
Unless Rick gets some driver training, or better yet, a replacement driver, you’d be a fool to repair his car, because his track record makes it clear he will just wreck it again and again and again. Unless you have a plan to ensure that Rick stops colliding at every turn, fixing his car with your money is a waste of your cash, and you may as well build a bonfire with it, if but to deprive him of the opportunity to burn it for you.
That’s the situation that we are in today. The job banks only highlights how poorly these companies are run. Again — Toyota could pick up the tab of these alleged “legacy costs” and **still** make more money than GM. The costs are a symptom; the real problem is revenue, and you only earn revenue by selling products to people who want them.
“Re: labor cost – also keep in mind that UAW shops also have a MUCH larger proportion of “overhead” to “direct” labor. Overhead meaning skilled trades/maintenance, shipping/receiving/material handling, etc. This pushes average compensation up. The guys that worked for me made about $33/hour base wage as skilled trades men. We also paid guys $25/hour to cut the grass and empty garbage cans and swish some blue stuff in the urinals every night.
What a joke.”
And just how much per hour did you make and what were your benefits? How much did the one make that was directing people swishing blue stuff in the urinals and cutting the grass? Yes a lot of overhead…
“That $1500 is a little modest:
“…in a report prepared by the Detroit consulting firm Harbour-Felax, first released back in October and updated for Fortune…
…A big reason is the cost of labor. As analyzed by Harbour-Felax, labor costs the Detroit Three substantially more per vehicle than it does the Japanese.
…Health care is the biggest chunk. GM (Charts), for instance spends $1,635 per vehicle on health care for active and retired workers in the U.S. Toyota (Charts) pays nothing for retired workers – it has very few – and only $215 for active ones.
Other labor costs add to the bill. Contract issues like work rules, line relief and holiday pay amount to $630 per vehicle – costs that the Japanese don’t have. And paying UAW members for not working when plants are shut costs another $350 per vehicle.
…the exchange rate is another uncontrollable factor that plays into the hands of the import brands. When the yen got cheaper in 2005, Harbour-Felax figures it was worth $1,054 per vehicle to Japanese manufacturers”
Of course managment deserves blame (mostly, for ever signing those labor contracts) but I still haven’t read anything here or anywhere that justifies the compensation UAW members receive. Jobs bank? Explain that to someone who’s never heard of it and they’ll think you’re joking.”
Jobs Bank: I would simply tell them it is a way for the UAW to help keep jobs in the USA. Is it not a fact that the companies like to send operations overseas or to Mexico and South America?