Wednesday, December 3, 2008

Reviving Detroit must start with the UAW

By: Jack Fitzgerald
December 2, 2008

At their Nov. 20 press conference, House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., said they wanted to help the auto industry if the industry helps itself.

They requested a plan for success from the Detroit 3 that would convince Congress that the domestic automakers can become and remain viable after the assistance. If the plan, due Tuesday, Dec. 2, shows that the Detroit 3 would be viable with whatever aid is necessary, Congress will reconvene.

Pelosi and Reid may have to reach out to UAW President Ron Gettelfinger because there will be no success without strong leadership from the UAW — think of the Chrysler loan guarantees of 1979 and UAW President Doug Fraser leading the way.

The Detroit 3 are in trouble because for more than 25 years, they built products that ranked poorly in Consumer Reports' ratings, cost billions in warranty and recall expenses and caused extraordinary losses of market share.

Detroit must produce competitive products to be viable. To do that, it has to start with a competitive overhead. That will require a huge change in the interaction between the UAW and the Detroit 3.

Cut pay and benefits

Toyota is the No. 1 competitor worldwide. The Detroit 3 must benchmark Toyota. They must install the Toyota Production System, work rules and job classifications — which will eliminate the paid positions of union officials in the plants that do no productive work. The Detroit 3 must use Toyota's pay scale for everyone from the CEO down.

That will mean lower pay and reduced benefits for directors, officers, managers and active and retired employees. And there must be no Jobs Bank or make-work projects for UAW members, who must run the plant as if they owned it.

Management must design the vehicles and the production process with UAW input, but the UAW must lead the effort on the shop floor to produce the highest quality worldwide. Quality is better than it was but not what it needs to be. Management and the UAW must unite in a partnership dedicated to that goal, just as they did at General Motors' Saturn plant in Spring Hill, Tenn., in 1990.

For four years, Saturn produced cars with top reliability scores as measured by Consumer Reports. Unfortunately, the plant reverted to a standard UAW contract, and Saturn's reliability scores suffered.

By contrast, the New United Motor Manufacturing Inc. plant in Fremont, Calif., is a great success. It has been a GM-Toyota joint venture since 1984. Currently, it builds the Toyota Corolla and Tacoma and the Pontiac Vibe. GM, Toyota and the UAW produce high-quality products that are very competitive. The vehicles earn high marks in Consumer Reports every year.

Get GMAC back

Toyota, Honda and BMW export vehicles from American plants. Why can't the Detroit 3 do that? Why can't we make inexpensive cars here and ship them to emerging markets?

Congress is offering to help if the industry will help itself. The UAW must seize this opportunity and run with it. Management will have no choice but to go along. Both will make considerably less in pay and benefits. But if they fulfill their responsibilities, they should do well and make more in profit-sharing. Plus a competitive company offers real job security.

Something that should not require additional action from Congress is the restoration and strengthening of the Detroit 3's captive finance companies. Cerberus must sell GMAC back to GM, and Chrysler must own Chrysler Financial.

I can't get the front page of the Nov. 19 Baltimore Sun out of my mind. There is a picture of a man sitting in his kitchen wondering what's going to happen to him after 32 years with GM. He's 52 years old. On the same page is a picture of the Detroit CEOs, each one a millionaire, asking Congress for assistance.

We must do all that we can to keep our people on the job. The UAW can and should lead the way.


Jim Caughorn said...

You are spot on with your perspective and the Big 3. It is unfortunate that the Big 3 did not listen to Mr. Charles Deming back in the 1950's. Their arrogance was the sole reason that Toyota leads they way today. Congress will not be able to wave the majic wand and fix because culturally The Big 3 are behind over 50 years. Thanks for your perspective and for many peoples sake including your staff of employees, I hope process improvement along with better business decisions by executives will lead the way to a profitable and prosperous entity of our economoy.

Anonymous said...

Don't forget that the Subaru manufacturing plants have excellent pay and benefits for their workers, but the main difference is that the plants are newer and the employees younger. As soon as Subaru has plants open for 30 years and 50-65 year old employees, then they too will be shelling out large amounts for health insurance and retirement, equal to what the big 3 offer today.

Everyone respects Deming and the Toyota Production System aka Kaizen, but there is a much simpler answer to Toyota cost differences in the USA- they have almost no retirees they're paying a pension to.... YET.

FitzWay said...

As usual, the devil is in the details. Its not simply the difference in pay, its also the work rules.

Mr. Logan Robinson, a law professor and writer, recently wrote an article in the Wall Street Journal on December 30, 2008. The title Why Detroit Has an Especially Bad Union Problem

He states "It is perhaps the mode of doing business in a unionized company that remains a crippling disadvantage..." and "the collective bargaining agreement with the UAW is a heavily negotiated document the size of a small telephone doesn't exist at all in their U.S. competition, the nonunionized transplants" in explaining how when GM, Ford and Chrysler leave our shores they compete well in foreign markets.

This is a revealing article that notes that "not only work rules, but fundamental business decisions to sell, close or spin-off plants are forbidden without permission. That permission may come, but only at a price."

Mr. Logan even states that the CEO's of the Detroit three "indulge the head of the UAW as they would a boss, because, like a boss, he can make or break their careers."

He makes the case that the industry needs congress to step in because it isn't capable of saving itself. Why? Because it isn't capable of dealing with the legal impediments that have grown up around it, like franchise and CAFE laws, and it's not capable of dealing effectively with the UAW."

Thanks for your feedback.