D-day for the American auto industry
Monday, negotiations begin between the United Auto Workers and Ford, Chrysler, and General Motors.
Ostensibly, they are negotiating a new master contract between the union and the domestic auto companies.
In fact, they are negotiating the existence of the American automobile industry.
Given the agendas of each negotiating entity, and their track record from the past, the chances that the industry will survive are not very good.
Within the next month, we could be seeing the end of the industry that made America what it is today.
The American automobile industry.
Indeed, it will take exceptional vision on the part of both labor and management to prevent that from happening.
Both the union and the automakers are in retreat, on every front.
Domestically, the UAW has failed to organize auto workers at any plant in the United States owed by a foreign auto manufacturer, such as Toyota. It’s not just that those manufacturers located plants in the Southeastern part of the country, an area never particularly hospitable to organized labor. It is that the workers at those plants saw unions only as a disadvantage. One look at what the union had done in Detroit was enough to convince them that real job security depended on the success of their employer. The United Auto Workers, with much justification, exist as a means of destroying the employer.
And that is the problem which both the UAW and the car companies face today.
The UAW has only one chance of remaining relevant: keeping the Detroit automakers alive.
Historically, that is not the role it has played. It is not the way that its officers got elected. It is not the culture of the organization. And it is not what it has accustomed its members to believe.
It is going to be very difficult for the UAW to deliver the bad news to its members.
Whether it can do so will determine whether, a decade from now, there will be automobiles manufactured in the United States.
That is not an exaggeration.
It is a fact.
General Motors, in particular, is committing its resources to emerging countries, not to the United States.
This is not outsourcing to other countries the production of components used in cars sold here.
This is abandoning the United States as a market. It is investing capital where return on the investment is the best.
China, for example.
You may find it hard to believe, but General Motors is the largest automaker in China, and China is the most rapidly expanding auto market in the world.
Within the decade, more automobiles will be sold in China than are sold in the United States.
If it were your money, where would you invest it?
Sure, the United States is still a pretty big market and what GM sells here isn’t all that great, though there are promising indicators, such as the Saturn Aura and next year’s Chevrolet Malibu. But the cost to the Detroit manufacturers of being in this market are becoming prohibitive – not because they’re paying “legacy” costs to the union, but because they can get a much larger return on their investment elsewhere.
That’s the real reason that they sell a better Buick in China than they do in your local showroom.
General Motors is merely maintaining its presence in the United States. It is maintaining its dealer network and its facilities. This will, after all, ten years from now still be the second largest market for automobiles. It’s worth maintaining a presence, even if that means treading water for the next few years.
And this is where it gets really, really interesting.
Monday, the UAW will, as it always does, attempt to negotiate a contract with the entire domestic auto industry. It has always pitted one automaker against the others.
But things have changed.
This time, the interests of each the three Detroit automakers are different.
General Motors has the least to lose and the most to gain. Even though it is popular to disparage the company, it still owns 25% of the American market. It makes money everywhere but here. It has the strongest dealer network in the United States and a hiatus in manufacturing would not slow down its product development for an instant. A strike would just remove the drag on earnings of the union “jobs bank.”
Ford, on the other hand, can’t handle a strike. Even the UAW acknowledges that.
Ford is a disaster.
Though it has a large presence in Europe, it has made little effort to be a player in emerging auto markets. That means it has to make money from American operations and those in Western Europe. And those are the most expensive places in the world in which to manufacture an automobile.
Moreover, the company desperately needs capital. Ford has a history of hiring ‘whiz kids’ that know nothing about cars to save it from its undercapitalized status – that’s how Ford ended up with Bob McNamara as its president, a mistake from which the company was only rescued because Mr. Kennedy chose him to be the Secretary of Defense. So, instead of being the architect of Ford/s defeat, he became the architect of America’s defeat. Ford survived. McNamara’s absence let a guy named Iacocca into the executive suite, and he knew how to sell cars.
He created the Mustang.
Later, in a different role, he recognized the potential of the “mini-van.”
In the automobile industry, vision is both that which is most rewarded and that which is most punished.
Get it right and the rewards are limitless. Make even the slightest mistake, and the costs are enormous.
But the one thing that has never worked is being conventional.
Tomorrow, the men who run the union and the men who run the car companies will be doing more than negotiating a contract.
They will be doing more than deciding the future of the American automobile industry.
They will be defining themselves.
They will either be men of vision, or men who could not see.