Friday, March 11, 2011

Before the Deluge, the Downfall of the Big Three

Avant le déluge--before the deluge--of Arab protest, I usually blogged once a week on a story that related to the book. Today's news may well bring another wave of stories about the Arab world, since it's Friday and young men will soon be pouring out of mosques after midday prayers across the region.

But, before the next flood of stories, consider another huge story that deserves our attention: the near-collapse of the American car industry. Paul Ingrassia's recent book Crash Course: The American Automobile Industry's Road from Glory to Disaster (New York: Random House, 2010) tells this story in compelling fashion, and it's worth spending some time highlighting some lessons from the book for those of us interested in the globalization of labor.

How did Chrysler and General Motors (two of the old Big Three) end up collapsing by 2009?

1. Both the autoworkers' union and car industry executives are to blame.
Ingrassia, a longtime reporter on the car industry for the Wall Street Journal, describes the craziness of the United Auto Workers' (UAW's) Jobs Bank, which paid assembly line workers up to 95% of their wages for not working during layoff periods. Lavish retirement pensions and health care benefits for retired autoworkers strained corporate coffers.

But the executive teams at the Big Three also invite some scorn in Ingrassia's tale--and not just because they repeatedly caved in to union demands. (Note: Ingrassia's story is primarily told from the corporate boardroom, rather than the assembly line, but even then it's still pretty damning of our corporate elites, and he does draw on interviews with one assembly line worker in Illinois.) Executives also played accounting games to generate paper profits (not unlike the disgraced energy company Enron). They also tolerated shoddy quality, turned to SUVs for easy profits, and failed to anticipate high oil prices. They got lazy and complacent.

2. The 1970s hollowed out the Big Three, exposing fundamental weaknesses
The book has an entire chapter that includes the fiascoes of the Chevy Vega and the Ford Pinto (perfect symbols of the excesses of the industry). The Vega was assembled at the GM Lordstown plant, where young workers, perhaps influenced by the hippie movement, rebelled against an attempt to speed up the assembly line from 60 to 70 cars per hour "to an incredible 100 cars an hour" (p. 52). The "Lordstown Blues" became a famous example of disillusioned industrial workers sabotaging their own products. The Vega engine also had design flaws (p. 53).

Meanwhile, the Pinto sedan had a design flaw, with the rear axle behind the gas tank. When rear-ended by a vehicle traveling thirty miles per hour or faster, this is what could happen:

"Ford engineers had known about this [design flaw] when the car was launched . . . [b]ut the company's cost-benefit analysis determined that the number of lives that might be saved weren't worth the additional $5 a car required to strengthen the design" (p. 59). Ouch!

3. Japanese innovations in production processes were never adopted by U.S. carmakers, despite their obvious benefits
In contrast to GM's failed experiment in collaborative work environments at the Saturn plant in Tennessee, Honda built a plant in Ohio that relied on Honda's research and development department, which "was funded by a share of the parent company's revenue and thus was safe from cost-cutting drives" (p. 66).

Honda's US operations started out with a motorcycle plant in Marysville, Ohio, where a 37-year old guy from Canton, Ohio named Al Kinzer was one of the first people hired, after an extensive interview process that tested potential employees for their attention to detail. The Honda manager would ask interviewees "to write their first name on a name tag and to place the tag on their left shoulder. Some applicants would put it on their right shoulder, and others even forgot to wear it at all. They were crossed off the list" (p. 70).  After being hired, Kinzer was unimpressed with the fact that all employees, both management and workers, were to wear the same jumpsuits. Nor would managers get assigned parking spaces near the front door. "At Honda, parking would be strictly first-come, first-served, regardless of rank" (70.) There was "no executive dining room, no separate bathrooms, and no separate locker room to change into their work clothes--all in sharp contrast to Detroit" (p. 70).  It was all about having a common purpose and minimizing hierarchy. The bosses needed to "explain the reasons for managerial decisions and to get consensus where possible" (71).

Once the Honda car lines were up and running, workers had to hustle:
working on the Honda assembly line was an aerobic workout that caused some associates to lose twenty pounds after a few months on the job. Factory discipline meant associates couldn't swig soda, smoke cigarettes, or munch on snacks while working, as the workers in Detroit's factories could do. But there were benefits. Instead of being told, in effect, to check their brains at the door, Honda's workers were being encouraged to contribute their ideas, as well as their manual labor, to the manufacturing process. If their suggestions produced efficiencies that eliminated someone's job, even their own, the person would be transferred to another job instead of being laid off. Workers were told they wouldn't be laid off, except as a last resort, and Honda's growing U.S. sales . . . meant layoffs never happened (pp. 74-75).
Shocking! And when the UAW tried to get Honda workers to unionize, the workers refused. This was not the American model of dysfunctional industrial capitalism, made famous in the Dilbert cartoon. And, sadly, the American model has never really been updated in car manufacturing. GM tried to imitate Honda in its Saturn experiment but that experiment failed.

In chapter 5 of the book, I highlight two examples of corporate innovation that tried to empower workers, but they seem like minor exceptions to an overwhelming trend of dreary American workplaces (as in the TV series The Office).

Chrysler's plant in Belvidere, Illinois was all too typical. The autoworkers' cushy safety net created a "who cares?" attitude that was reinforced by management, which claimed to care about quality but was more worried about keeping up quantitative production schedules.
Sometimes when workers pointed out defects, they were ordered to ignore them, because "it's just a Mexico car"--that is, bound for the Mexican market. Once when [one worker] suggested a more efficient method for installing windshield wipers--the sort of suggestion the Japanese welcomed in their factories--he was rudely rebuffed by his supervisor. After that he pretty much kept his mouth shut (p. 199). 
Ouch! And then we wonder why the US manufacturers have lost market share.

4. The 1980s and 1990s "comeback" of the US companies was illusory.
Although the American manufacturers learned from Japanese competition, they still failed to learn the deeper lessons. For example, in 1982, GM demanded that the UAW make concessions: a wage freeze through 1984, postponing some cost-of-living raises, and getting rid of some paid holidays. But on the same day they got this concession, GM announced a new plan that would make it possible for executives to earn bigger bonuses (p. 80). Chrysler's Lee Iacocca also launched a cost-cutting plan, but spared his company suite in Manhattan's Waldorf Towers, where the company paid $2 million for gold-plated faucets (p. 94).

As Ingrassia puts it, "Tone-deaf executive excess would be a constant in Detroit, right up until the Big Three boarded their corporate jets in 2008 to beg for a government bailout" (p. 94).

The 1990s were the decade of highly profitable SUVs. With low oil prices that worked for awhile, but it left Detroit unprepared for the future. For a long time, the Japanese companies were puzzled by the SUV trend and left Detroit to its own devices. Eventually, they caught up and started to out-compete the Big Three. Even in this protected corner of the market, the Big Three started to lose out.

5. A little virtue goes a long way
Ingrassia argues that William Clay Ford, the head of the Ford family, which still has a controlling stake in the family company, basically "fired himself" as CEO in 2006: "stepping aside required a portion of courage and self-awareness seldom seen in the corner offices of American companies. Changing the CEOwould prove to be the move that saved Ford Motor, while sticking with the CEO would be the decision that doomed GM" (pp. 188-89).

By contrast, GM stuck with Rick Wagoner for a long time, despite his failure to change GM's culture, which destroyed itself through "complacency, arrogance, and hubris" (p. 273).

6. The bankruptcy process might have saved GM and Chrysler (and UAW) jobs . . . but for how long?
As befits a former Wall Street Journal reporter, Ingrassia covers the financial maneuvers between the car companies and Obama's White House task force in 2009. Although there were some odd twists and turns in the process, it did help to force the companies to take steps that they wouldn't take on their own.

7. The old model of American industrial capitalism is in question
Ingrassia writes,
General Motors had virtually invented the modern corporation, with professional managers, as opposed to family founders, presiding over decentralized operations that were governed by central financial control. It had pioneered modern marketing, public relations, and the hierarchy of brands that made automobiles vehicles for social as well as physical mobility. It had set standards for everything from style to design to corporate healthcare plans (p. 273). 
What comes next? Will Apple, Google, Facebook, and the rest of Silicon Valley lead the way? Can they create thousands of jobs that allow ordinary workers to send their children to college?

It's not clear how we'll ever return to the boom years when what was good for GM was good for America.

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