Deck stacked against Big Three

As I write, Ford, General Motors, the Chrysler unit of DaimlerChrysler, along with Delphi and Visteon, are in the process of wrapping up contract talks with the UAW/CAW. We’re all familiar with the routine that governs this triennial exercise in collective bargaining: Union announces strike target, strike target expresses gratitude at being chosen, union and company officials shake hands and disappear issuing an occasional statement implying everybody’s hard at work and enjoying each other’s company. Only when things are about to hit the rocks do we begin to pay attention to these pronouncements, and only then, perhaps, does it again occur to us that these negotiations, so critical to our business and economy, actually involve only a fraction of the known automotive universe. No Toyota, no Honda, no Nissan … no BMW, Subaru or Volkswagen.

The party line is that the “new domestic” manufacturers have kept the unions at bay by offering their employees wage, benefit and pension packages that are “similar” to what workers get at the Big Three. Similar they may be, but they aren’t the same. Here similar is a euphemism for less costly, more competitive. Management in non-union assembly plants also enjoys far more flexibility to move workers between different jobs.

The Big Three appear to be buckling under these restrictions and cost pressures; pressures which fairly or unfairly, are not shared by the competition. Arguably, it’s this difference in operating conditions that is the root cause of friction between the Big Three and its suppliers. It’s also one of the main reasons there will be more plant closings at GM, Ford and Chrysler as the carmakers struggle with billions of dollars of pension and health care costs, as well as over-capacity.

One can’t pin the entire blame for the Big Three’s predicament on the union. Ford, GM and Chrysler set the precedent for high-cost benefit packages and unproductive work rules in a series of cushy labor contracts negotiated in the ’70s and ’80s, a time when Japanese and German carmakers were dim blips on the radar screen. There is also the aforementioned over-capacity, a result of declining market share.

At one time, you could infer that the declining North American market share of the Big Three was largely due to inferior quality. Today most of that quality difference between the products of the Big Three and its competition has been erased. Consumer preference for car brand then comes back to the question of cost, as well as performance and styling.

No doubt many of the models produced by the Big Three, especially in the mid-size to compact range, have failed to capture the public’s imagination. But there is also some evidence of a media bias for Japanese and German car models and companies. The influential Consumer Reports so consistently gives the best ratings to Toyota and Honda brands, the Big Three have begun to send camouflaged vehicles to the magazine’s test facility. General Motors chairman Bob Lutz was so irritated by a recent Toronto Star road test that rated the Nissan Maxima superior to the 2004 Pontiac Grand Prix, he requested a re-test. In the re-test, under measured conditions, the Grand Prix outperformed the Maxima in nearly all categories.

Neither is the comparative cost of cars just a result of wages. The Japanese government has pursued a low-currency policy for decades. Yet, whining won’t help the Big Three. The companies must work harder to cut true internal costs, increase productivity, build more exciting products and fight the perception that its cars and trucks are inferior in quality. They must also convince the unions that cooperation is in the best interests of all parties.

Michael LeGault, editor
e-mail: mlegault@canplastics.com