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The Good News About America's Auto Industry


Nandra Barnes knows about dead-end jobs. For seven years, the single mother of three labored as a welder at an air-conditioning factory in Grenada, Miss., a gritty job that, at $11.50 an hour, left her living paycheck to paycheck. Job security? Forget it. With every dip in orders, the factory would lay off more workers. "It seemed like there were always cutbacks," she recalls. Barnes was fearful of the day she would get the tap on the shoulder.

So when Nissan Motor Co. (NSANY) opened a sprawling $1.4 billion assembly plant in nearby Canton, Barnes jumped at the opportunity and was lucky enough to snare one of the 4,200 jobs at the plant. Today, Barnes makes bumpers for Quest minivans and the four other models Nissan produces at the factory, where she earns more than $20 an hour -- a princely sum not just for rural Mississippi but for almost any U.S. blue-collar worker these days without a union card or a college degree. Barnes, 39, even has enough money left over after paying the bills to give her three kids things that she never had -- including, she hopes, a college education. "With this job I finally feel secure that I can take care of my family," she says. "I plan on retiring from here."

This uplifting auto industry tale is the one you're not hearing these days: the good news story. It has been drowned out in the past year by the relentlessly downbeat headlines coming out of Detroit. Bankrupt parts makers. Massive job cuts by General Motors Corp. (GM) and Ford Motor Co. (F). Enough red ink to make the Rouge River truly rouge. It's easy to get the impression that domestic car manufacturing is headed toward the same inevitable extinction as American textile, apparel, and consumer-electronics production.

But the reality is more nuanced. Look past the trouble in Detroit, and the auto industry is anywhere but in decline. In a growing number of Southern hamlets such as Canton, Toyota (TM), Honda (HMC), Mercedes (DCX), and other foreign car manufacturers are providing nonunionized jobs -- 33,000 since 2000 -- that pay almost as much as United Auto Workers earn farther north. Consumers are enjoying more choice than ever, while the market as a whole is humming. Car sales in the U.S. inched up last year, to 17 million vehicles, the third-highest ever.

GEARING UP

And get this: Even as Ford and GM cut production last year, North American plants built 15.8 million cars and trucks, the same as in 2004. That happened thanks to foreign carmakers producing 4.9 million vehicles, an increase of 500,000 from 2004. Overall production is expected to rise to 16.8 million by 2009, when an estimated 5.8 million vehicles will roll off foreign-owned assembly lines. Looking back, car and truck production in the U.S. has nearly doubled since Detroit's heyday in the early 1960s. "The domestic auto industry is as healthy as it has ever been," says Eric Noble, president of Car Lab, an industry consulting firm in Santa Ana, Calif. "The names on the plants are just changing."

That isn't to say there won't be pain, especially in Michigan. Hiring by foreign auto makers will only partly offset jobs lost as domestic carmakers downsize and their sprawling network of suppliers continues to go through a painful shakeout. Despite new foreign investment, the auto industry employs 200,000 fewer factory workers -- about 950,000 now -- than it did in 2000. Plus, much of the profit made selling cars to Americans heads back to Japan, Korea, or Germany, creating wealth overseas. And even though foreign car companies are investing in the U.S. at a higher rate, imports are still rising, from 2.8 million in 2000 to 3.4 million in 2005, says auto forecaster CSM Worldwide.

But it would be misleading to weave all of these developments into a tragedy. The reality is that many of the layoffs at the Big Three were inevitable. Even if Ford and GM weren't in so much trouble, they and their parts suppliers would be cutting back. Japanese auto makers have set the pace on productivity, forcing GM, Ford, and Chrysler (DCX) to get in step. In 1999 those companies all needed at least 24 hours to assemble a car. Now it's closer to 20 hours, while Japanese plants do it in about 18, says Harbour Consulting Inc. in Troy, Mich. "This is an industry that has been in need of a restructuring at all levels," says David E. Cole, executive director of the Center for Automotive Research in Ann Arbor, Mich.

Some industry watchers say American workers aren't competitive, but foreign carmakers are hiring them faster than ever (and picking up political goodwill, to boot). In addition to Toyota's new pickup plant in San Antonio, which opens this year, the surging auto giant will open an SUV plant in Ontario in 2008. Hyundai Motor Corp. will gear up its Montgomery (Ala.) plant, with production expected to rise to 240,000 vehicles this year from 93,000 last year. And Hyundai affiliate Kia Motors Corp. plans to build a 300,000-capacity plant at a site nearby. "Car production is changing hands, and it's going up," says CSM Vice-President Michael Robinet.

Expansion has a nice ripple effect, too. Around every factory is an industrial park full of suppliers. Toyota Motor Co. and Honda Motor Co. pack their U.S.-made cars with 65% to 75% domestic parts, compared with 80% to 85% at Ford and GM. Officials in Mississippi estimate that the Nissan factory where Nandra Barnes works has spawned the creation of 25,000 supplier and support jobs that generate a combined $500 million in economic activity. In nearby Madison, three new red-brick shopping centers have sprouted up with a Wal-Mart (WMT), a Home Depot (HD), and a Lowe's (LOW). "You can drive down the interstate and see it in increased traffic," says Tim Coursey, executive director of the Madison County Economic Development Authority. "We have been busting wide open at the seams."

DESIGN IS HEADING HERE, TOO

In a region where the average manufacturing wage still runs around $12 an hour, Nissan's jobs are coveted. Even though the plant isn't unionized, Nissan starts workers at $14.19 an hour, including what Nissan calls a "guaranteed bonus" of $1.25 an hour. They top out after five years at $23, just a few bucks less than United Auto Workers earn in Detroit.

Benefits are close to union scale, too. UAW members have the gold standard of health-care plans, paying nothing but drug and office visit co-payments. Toyota's plan is similar, while Nissan workers pay 10% to 13% of health insurance premiums and have higher co-pays. The only area where they lag behind is retirement: While UAW members have traditional pensions that kick in after 30 years of service, Nissan provides a 401(k) plan that matches 68 cents for every dollar a worker contributes, up to a relatively skimpy 5% of salary.

One myth about foreign carmakers is that they don't do creative, intellectual work in the U.S. Just in the past year, Toyota, Nissan, and Hyundai all have expanded their U.S. design and research-and-development facilities. Hyundai just opened one in Ann Arbor and staffed it with 150 tech-savvy people, with plans to expand that headcount to 1,000 by 2010.

And Detroit carmakers? They're downsizing at home. GM has been cutting its white-collar payroll by 10% a year since 2000. Its engineering staff has been reduced from 19,000 then to 12,000 now. Fortunately, top researchers and designers have other places to go. Just ask Joel Piaskowski, chief designer at the Hyundai Motors Design & Technical Center in Irvine, Calif. Sitting at Hyundai's booth at the Detroit auto show, Piaskowski says he left his job at GM after designing the new Buick Lucerne sedan to join Hyundai -- with a nice promotion. He left Detroit, he adds, to be part of a company that is thriving. Piaskowski's new job gives him the freedom to design more types of vehicles. "Other companies are burdened by cost and overhead. We can do things they can't do," he says. While the upheaval in the car industry has shaken up the majority of Piaskowski's former co-workers at GM, it has left him in a better position than ever.

By David Welch and Dean Foust, with Coleman Cowan in Atlanta


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