JANUARY/FEBRUARY 1990 - VOLUME 11 - NUMBERS 1 AND 2
E C O N O M I C S
Transplanted to the U.S.A
by Mike Parker
Faced with a hemorrhageing U.S. auto industry in the early 1980s, the United Auto Workers (UAW) union mounted a campaign demanding that foreign auto makers build cars in the United States. The theme of the UAW-backed, proposed domestic content legislation was "If you sell here, build here."
In the ensuing decade, spurred by the decline in the value of the dollar and seeking to increase their flexibility by producing closer to important markets, foreign auto companies did invest in the United States--but now it is unclear how beneficial this investment is to workers or the U.S. economy. Seven Japanese auto companies and one Korean firm built automobile assembly plants in North America. By 1992, the new Japanese-owned or managed auto assembly "transplants" could have a capacity of roughly three million vehicles, roughly 20 percent of domestic production.
Measured against standards in the UAW's proposed domestic content legislation, the Japanese auto manufacturers fall far short. The UAW focused on the domestic content of products sold in the United States. The 60 to 75 percent domestic content which Japanese manufacturers now claim apply only to cars assembled in the United States and do not include imported vehicles sold in this country. For the most part, transplant production is taking market share from other domestic production rather than from imports.
The domestic content figures provided by many of the transplants are also misleading because they include transportation, distribution costs and even dealer profits--domestic costs that would be necessary even if the vehicle were wholly produced abroad. The actual domestic manufactured content of the transplants ranges from just 20 percent (assembly and key stamping operations only) to approximately 55 percent at Honda, according to Dan Luria, senior researcher at the Industrial Technology Institute in Michigan.
To the extent that transplants capture market share from automobiles produced with greater domestic content, the number of jobs in the U.S. auto industry is significantly reduced. But the transplant impact on the U.S. economy and society is far greater than the number of jobs lost.
The shape of the industry
From William F. Buckley to the Bush administration to liberal economists like Lester Thurow, there is a broad consensus that foreign investment is good for the U.S. economy. But economist Candice Howes of the Rutgers Program on Regional and Industrial Economics argues that each investment must be analyzed to determine its effect. In the case of the auto transplants, she says, the Japanese are "transferring only a part of their system--the limbs are coming but the body is left behind." The transplants focus on the assembly and stamping operations and parts which are relatively easy to manufacture. The complex and engineering-intensive sections of manufacturing tend to stay abroad.
This division of labor dramatically affects job possibilities. If the more highly skilled jobs are maintained overseas, there are limited possibilities for U.S. employees to advance within the company. Engineering-intensive manufacturing offers low- level workers the possibility of obtaining better and higher paying jobs.
Many transplant managers are also concerned about where the important business decisions are made. A study headed by Vladimir Pucik of the University of Michigan Business School found that top U.S. officials of Japanese-owned operations feel that too many decisions in areas such as research and development and establishing new plants are made in Japan. The US. managers of Japanese-owned companies find their influence limited primarily to marketing.
The introduction of technology
In the early 1980s, General Motors developed a strategy of rapid automation in order to boost productivity and reduce the workforce. Many believed that the Japanese system of management offered an alternative, relying on the efficient use of labor instead of automation. The NUMMI plant, which is jointly owned by GM and Toyota, was cited as an example. As it turns out, the new Japanese plants are deriving the benefits of the intensification of automation as well as of labor.
Honda claims that its new East Liberty, Ohio plant will have nine totally automated final assembly functions. At Honda, the entire die change is so automated that on the world's biggest stamping press a die change can be accomplished by just one person in 5 minutes. Only a few years ago, die changing a line took a half dozen people several hours or even shifts. Transplants have overcome many of the difficulties associated with introducing new technology which displaces workers. By standardizing and documenting work operations with the team concept (see "Management by Stress," page 9) it is easier to apply automation techniques smoothly. Worker participation in solving problems greatly shortens the automation "debugging" period. According to studies at the Massachusetts Institute of Technology, transplants tend to have twice as many robots per unit output as U.S.-owned plants.
But the use of robots and other technology does not necessarily create large numbers of highly skilled jobs in the United States. Most of the technology in the transplants is designed and developed in Japan. The units are designed for modular replacement to minimize the need for skilled repair work on the site. Typically, entire transplant operations are set up and tested in Japan and then moved to the United States for installation.
Remaking management-labor relations
From a management point of view, the transplants seem enormously successful. The Honda plants set the industry standards for quality and productivity. The NUMMI plant is not far behind. GM has a special office to study NUMMI and a program which rotates management officials through NUMMI for training. The other U.S. partners use their joint ventures in the same way.
To some extent, the low costs of the transplants come simply because the plants are physically new and require less maintenance. Their new workers are also younger, healthier and stronger. These mitigating factors notwithstanding, the transplants have all but wiped out U.S. management interest in exploring alternative production systems, such as those in Sweden, which might increase productivity without restricting workers' rights. Instead, management holds up the transplant productivity figures and demands union concessions and adoption of transplant-type work organization in order to become "competitive."
Such "competitive" labor agreements include the team concept and "just-in-time production" (in which subcontractors must deliver relatively small batches of parts as they are needed by the assembly plant), and allow management to freely contract out or speed up work--in short, to adopt all the features which have made the transplants so successful from management's point of view. Under the rubric of new forms of teamwork, management gains increased flexibility at the expense of working conditions and work rules that workers have long regarded as their factory bill of rights. Management has been significantly aided in its crusade to roll back workers' shop floor rights by top UAW leaders' endorsement of the systems at NUMMI and Mazda.
The transplants have been antagonistic to unions, particularly traditional "American-style" unions. They have located in areas not traditionally sympathetic to unions in order to prevent the unionization of their workforces. One bank researcher who prepares location studies for smaller Japanese companies says that "non-union area" tops the list of new-site requirements. The Canadian Auto Workers (CAW) obtained internal Hyundai documents showing that the opportunity to keep the plant union- free was an important consideration for the Korean auto maker in selecting its Quebec site.
When the UAW has tried to organize the transplants, the Japanese companies have resisted the union's efforts. Nissan aggressively waged a successful campaign to keep the UAW out of its Smyrna, Tennessee plant. In the 1989 representation election, 70 percent of the workers at the Smyrna plant voted against the UAW. Honda has generally taken a softer line on unionization, avoiding public attacks on the UAW and allowing that workers are free to choose to be represented by a union. But Honda has also made it clear to its workforce that it does not look favorably on pro- union attitudes. This approach has been successful in rebuffing the UAW; in 1985 the union withdrew a request for an election at Honda's Marysville, Ohio plant, fearing it could not win.
In contrast, those plants which are joint ventures with the U.S. Big Three--NUMMI, Diamond Star and CAMI,--are all unionized. The same is true of Mazda. (While Mazda is not technically a joint venture, Ford has a 25 percent interest in the company and most of what Mazda's Michigan plant produces is sold under the Ford nameplate.)
In each of the joint ventures, the UAW (or CAW) agreed to accept Japanese methods of work organization in exchange for management cooperation or neutrality in unionizing the workplace.
Although both the UAW and CAW have agreed to these initial conditions, the unions maintain very different postures regarding Japanese production methods. The UAW has become a booster and has assisted in spreading the management system to other U.S. plants. President Owen Bieber declares that NUMMI's "worker-centered atmosphere" should "point to a bright future for the domestic auto industry." UAW regional director Bruce Lee attacks critics of NUMMI as "old-guard unionists" or "1960s-era leftists."
In fact, in organizing the transplants, the UAW's focus seems not to be entirely on the workers; the union appears more concerned with convincing management that it can be a good partner in production.
On the other hand, the Canadian Auto Workers recently warned workers that the promises and the reality of Japanese work methods are not the same thing. "We reject the use of Japanese production methods which rigidly establish work standards and standard operations thereby limiting worker autonomy and discretion on the job," the CAW declared. The CAW has developed an extensive educational program to help its members understand and deal with the difficulties of these new production methods.
It seems clear that the Japanese management of the joint ventures accepted unions because their American partners insisted on them, partly to avoid a confrontation with the UAW or the CAW. More importantly, however, U.S. management has its own agenda for the joint venture experiments: to see if so- called Japanese management techniques can be applied not just to a U.S. workforce but to a unionized workforce.
So-called Japanese management techniques can work only with no union or with a compliant union; the question for the U.S. companies is whether the UAW is sufficiently docile. Though the results have generally been favorable to the companies, the final verdict is not in. At NUMMI, a large and significant bloc within the union is critical of management. At Mazda, the victory of the system's critics in 1989 union elections and subsequent union-won changes regulating the use of temporary workers and limiting absentee penalties resulted in a management shake-up. Mazda executive Penny Morey states that "the jury is not yet in" on whether U.S. unions can be dependable partners.
The union status of assembly plants is only the tip of the iceberg. The industry's increased reliance on subcontracting of parts production ("outsourcing") and just-in-time production has forced the parts production plants to move wherever the new assembly plants locate. Even where a new assembly plant is unionized, virtually none of its supplier plants are.
The transplants have very low cost figures. What is often ignored is the high social cost paid to achieve the low plant costs. In a variety of ways, the transplants pass on costs to society which were once internalized by corporations.
First, the transplants shift the burden of taking care of "used up" workers to their families and the taxpayers. The new sites can hire younger, stronger workers and set work standards accordingly. But when workers grow older or get injured, they are not able to maintain the same pace. These workers are then forced out because the management system employed in the transplants does not make lighter jobs available for those with seniority. This process improves plant productivity and profit figures--but at the expense of the discarded workers.
Second, the transplants exacerbate the problems of over-capacity in the auto industry. The transplants "are not creating productive capacity to meet unfilled social needs such as public transportation or superior or lower cost private transportation," researcher Dan Luria points out. Because of the excess capacity in the auto industry, building a new plant at one site means shutting down a plant elsewhere. These plant closings devastate communities such as Detroit or Flint which have depended on car factories for their economic well-being.
Third, the transplants, as well as the new-site U.S.owned factories, demand massive subsidies from communities before they commit to a particular location. In every case, plants choose to locate in new areas only after gathering the proceeds of bidding wars between communities and states which provide training money, roads, sewers, tax breaks and, in some cases, Japanese instruction in schools. Given the limit in available public funds, such uses of taxpayer dollars mean cuts in other public services.
Effect on blacks
Most of the transplants have been located away from metropolitan areas, furthering a larger trend of companies leaving the urban areas where blacks live in large numbers, such as Detroit, Cleveland, Flint and Pontiac, for predominantly white, semi-rural areas.
Moreover, the Japanese-owned plants hire a smaller percentage of blacks out of the available workforce than U.S.-owned plants, according to a recent study by University of Michigan sociologists Robert Cole and Donald Deskins. Cole and Deskins calculated the racial makeup of the available workforce (weighting more heavily people who live nearer the plant) and compared that to the racial makeup of the actual plant workforce. Honda located in an area with a 10.5 percent black population, but its workforce in 1987 was only 2.8 percent black. (Honda has since improved its hiring policies and now claims that 8.4 percent of its employees are black.) For Mazda the figures were 29 and 14 percent respectively; for Nissan, 16.6 and 14 percent. Japanese auto parts suppliers have located in areas which, on average, are 12 percent black, but only 8 percent of their workers are black.
New U.S.-owned auto assembly plants have also tended to avoid heavily black metropolitan areas, but their hiring records are much better. On the average they located in areas which were 16.6 percent black but 25.4 percent of their workers were black, reflecting the disproportionably high minority participation in blue-collar work in the United States.
The hiring gaps appear too great to be accidental. In 1988, the Equal Employment Opportunity Commission reached a $6 million settlement with Honda over a charge that the company discriminated against black and women workers.
The reason that the new-site U.S. plants do so much better than transplants in hiring blacks, Cole and Deskins suggest, may not be because of responsible U.S. corporate policy but rather because union contracts often allow workers to follow their work to new plants. Indeed, the one transplant which has a significantly higher minority percentage than its surrounding area, NUMMI, was forced to recruit its workers from the former GM plant workforce.
Who is responsible?
It is as wrong as it is easy to blame the Japanese for the problems facing U.S. industrial workers. The Japanese are not responsible for centuries of race and gender inequities in the United States. Nor are the Japanese responsible for our economic system or legislation which allows corporations to relocate to escape unions, shift costs to society or choose to build in over-capacity industries.
Indeed, the policies of the Japanese-managed corporations are not significantly different from those of U.S.owned companies. U.S.-owned corporations are as involved in globalizing production as the Japanese. U.S. companies have initiated the joint ventures and experimented with so-called Japanese management techniques because they want to adopt them as quickly as possible. U.S. corporations as much as the Japanese are seeking to replace skilled unionized workers with automation or non-union workers. U.S. corporations are spending millions to bypass unions or render them ineffective through team-concept schemes. Like the Japanese companies, U.S. firms are attempting to move to non-union areas, demanding local community taxbreaks and outsourcing extensively to non-union firms. General Motors, for example, located its acclaimed Saturn project in a right-to-work state and almost all of its announced non-GM suppliers are non-union.
The transplants have quickly become the standard-bearers for U.S. management. The fundamental public policy issue is not the racial or national ownership of the transplants, but the corporate policies of disregard for workers and communities which they are spearheading.
Mike Parker is an industrial electrician specializing in automation. He writes regularly for Labor Notes and is the author of Inside the Circle: A Union Guide to QWL and, with Jane Slaughter, Choosing Sides: Unions and the Team Concept.