The Automotive Industry, General Motors, and Genesee County A Report Prepared For The Charles Stewart Mott Foundation Flint, Michigan The Office for the Study of The Industrial Technology Institute Automotive Transportation, Ann Arbor, Michigan The University of Michigan Transportation Research Institute Ann Arbor, Michigan The Automotive Industry, General Motors, and Genesee County December, 1987 A Report Prepared For The Charles Stewart Mott Foundation Flint, Michigan David E. Cole Michael S, Flynn Project Director Principle Investigator Director, Senior Researcher, Office for the Study Industrial Technology Institute of .4utomotive TI-ansportation Sean P. McAlinden David Andrea Researcher, Research Associate, Industrial Technology Institute Office for the Study of Autolnotive TI-ansportation The Automotive Industry, General Motors, and Genesee County Executive Summary The past two decades have seen major shifts in the patterns of domestic industrial production. Manufacturing has declined as a percentage of our GNP, and our needs for manufactured goods are increasingly met by offshore production. The midwest region of the United States relies heavily on manufacturing for its jobs and economic activity, and Genesee County, with its central city of Flint, ranks as one of the middle-sized metropolitan areas of the United States most dependent on the manufacturing sector for its local economy. The midwest manufacturing base is heavily concentrated in automotive production, and Genesee County's manufacturing base is almost exclusively automotive. The automotive activities of the Genesee economy are virtually all concentrated in and supportive of one company, General Motors, and GM activity in Genesee represents almost the entire span of automotive manufacturing activities that the corporation pursues throughout the United States. The automotive industry has, since 1978, undergone a series of shocks that have fundamentally altered its structure and shape, and the full dimensions of these changes are not yet completely clear. General Motors has experienced these, and has also endured some particular shocks reflecting its own structure and circumstances. How General Motors reacts to its changed competitive environment, and how successful that reaction is will have major impact on the Genesee economy. There is little question that Genesee County is facing further serious economic problems as automotive competition increases; the real questions facing Genesee have to do with the seriousness, timing, and duration of those problems. This report highlights the results of our enquiries into the likely future of automotive activity and employment in Genesee County through 1990. While the report contains much detail on GM facilities in Genesee, it does not constitute a focused analysis of GM, and it should not be considered as such. ii I. Background, Production for the U. S. automotive market now is multinational, and this internationalization of production has profoundly impacted the traditional domestic industry. Increased import penetration, domestic production of foreign nameplate vehicles, nondomestic sourcing options for traditional U.S. manufacturers, and emphasis on quality and cost as bases of competition are all facets of this trend. Growing international competition in and for the domestic market is the major external circumstance influencing the future structure of the domestic industry, selecting which companies will play what roles in the future production of vehicles for that market. The viability of automotive manufacturing within the United States, and the future role of the traditional U.S. manufacturers and their suppliers of raw materials, parts, components, and production equipment in that domestic manufacturing activity will be determined by international competition, and played out under much more complex nrulesn than in the past. The major international competitor to the U.S. automotive industry, at least for the next fifteen years, will be the Japanese. The Japanese industry is structured quite differently from our own, and differs in some fundamental strategies for manufacturing a vehicle. It is clear that the U.S. industry must change in two major ways if it is to compete effectively with the Japanese. One of these changes involves the division of production activity between the manufacturer and its suppliers, and how that division is negotiated. If it is internationalization that sets the new rules of the game, it is the nature of the manufacturer-supplier relationship that arises in response to internationalization that will go far toward determining how well the traditional U.S. industry competes. The other change involves broad issues in the deployment and utilization of human resources. How effectively the traditional C.S. industry can deploy its human resources will largely determine how rapidly it can secure its competitive advantages and overcome its competitive disadvantages compared to Japan. There are five critical factors that influence the current competitive situation of the traditional U.S. automotive industry vis a vis Japan. Our mushrooming automotive --trade deficit with Japan reflects their "export-led" development strategy and our own domestically-led development. The twin -"oil shocks" of the 1970s impacted consumer preferences, providing the '~a~anesewith a market opportunity they successfully exploited, and have defended well. The differing "agreements" --that have governed -the importing -of Japanese vehicles since 1981 provide a political cast to automotive competition and arguably provided the impetus for the Japanese to move upscale. Differences -----in the basic costs of manufacturing vehicles in the two countries long favored Japan, and that has provided them further competitive edges. Finally, ----the nature of the competition between the two industries has changed -and blurred, as a variety of coproduction and sourcing arrangements have developed. The U.S. automotive industry experienced a lengthy and severe economic downturn from late 1979 through 1982. On some, but not all measures of performance the industry has recovered. There is no question, in our view, that the domestic industry still faces a major competitive challenge from the Japanese automotive industry. The traditional industry needs to make major improvements in productivity and to continue improving its quality. To accomplish these goals it must make major changes in the ways that the manufacturers and suppliers do business with each other, and the ways that human resources are deployed. The task of restoring competitiveness requires increased productivity in the manufacturing and support functions that pervade the complex work of producing an automobile. At given volume for a standard unit, increased productivity will inevitably involve the elimination of jobs. The pressures upon the industry to reduce costs are enormous, and its truly impressive efforts to date have not assured its competitiveness with the Japanese. Reorganization of the manufacturers, closings of older production facilities, improvements in design for manufacturing, introduction of new technologies for both production and support activities, and the offshore sourcing of vehicles and components all point to substantial reductions in the automotive workforce. Productivity comparisons for the Big Three indicate that GM now seriously lags both Ford and Chrysler, and it is apparent that GM has called back more of its workforce since the 1982 trough. That suggests that the bulk of employment reductions in the industry will occur at GM, and that, of course, is bad news for Genesee County. It is clear that the manufacturers intend to reduce the size of their supplier base, rationalize the flow of material, parts, and components from these suppliers, and move more work from their own facilities to independent suppliers, including new "transplant" facilities of the Japanese. The supplier base in Genesee is almost exclusively constituted of captive or allied GM facilities. These facilities are under extreme pressure as GM increases its outsourcing, but also from the general reduction in the number of suppliers and the reductions associated with tiering. These plants must now compete on a quality and cost basis with outside suppliers, and that is difficult for them to achieve. They are not well configured to compete for survival or position in a reduced, tiered industry: they lack the experience and often the engineering resources required. For Genesee, the shrinking of the supplier base and the advent of the transplant suppliers makes this a particularly difficult time to try to diversify the .automotive base of the county by attracting independent suppliers. While GM's dominance in the labor market may soon disappear as a barrier to independents locating in Genesee, the uncertainties of their own competitive futures are likely to restrict their interest in new facilities. 11. General Scenarios for Industry Employment. Three major factors are likely to lower levels of employment at the traditional U.S. automotive manufacturers over the next four to ten years. The first is decreased demand for its product, the second is improved productivity in its remaining operations, and the third is decreasing vertical integration, or increased outsourcing of the parts and components of the vehicle to independent suppliers. Each of these factors, independently and in combination, will result in lower employment at the Big Three. We see a market that will increasingly