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Subaru of Indiana, America's Scrappiest Carmaker


Zero layoffs, zero pay cuts, zero waste. Subaru manages to pull off the seemingly impossible

Set amid tawny popcorn and soybean fields, weathered barns, and rusty silos, the Subaru of Indiana Automotive plant cuts a swath. A 3.4-million-square-foot monolith abutted by railroad tracks, SIA has a mountain of compost and the occasional coyote skittering through the surrounding 832 acres of woodland. Step inside, though, and you'll discover why this might be the most exemplary car factory in America.

In its 22-year history—a period that has spanned three recessions, a global financial crisis, massive U.S. auto bankruptcies, and the departure of Isuzu, a founding partner, from the operation—SIA has rolled out more than 3 million vehicles and has never resorted to layoffs. Instead, it's given workers a wage increase every year of its operation. Staffers also enjoy premium-free health care, abundant overtime ($15,000 each, on average, in 2010), paid volunteer time, financial counseling, and the ability to earn a Purdue University degree on-site—all in a state that has lost 46,000 auto jobs and suffered multiple plant foreclosures in the past decade. And the truly astonishing thing is how it achieved all this: through a relentless focus on eliminating waste. "This is not about recycling, or a nice marketing to-do," says Dean Schroeder, a management professor at Valparaiso University who has studied the plant. "This is a strict dollars-and-cents, moneymaking-and-savings calculation that also drives better safety and quality."

Toyota made kaizen—the Japanese principle of constant "change for the better," with a special focus on efficiency, aka "pushing lean"—famous. SIA, you could say, has instilled green kaizen, or pushing green. Starting in 2002, SIA set a five-year target for becoming the nation's first zero-landfill car factory. That meant recycling or composting 98 percent of the plant's waste—with an on-site broker taking bids for paper, plastic, glass, and metals—and incinerating the remaining 2 percent that isn't recoverable at a nearby waste-to-fuel operation to sell power back to the grid. Within two years, the results spoke for themselves.

"Everyone quickly saw the green dividend of not wasting anything," says Tom Easterday, the plant's executive vice-president, passing a stack of yellowed Styrofoam cases that have survived four round trips around the globe. "You reduce packaging, negotiate a better deal from suppliers, and everyone then shares in the savings."

Today, the plant abounds with boxes and containers scribbled over with marks that show how many times they have traveled from Japan to Indiana and back (and back again). On a tour of the plant, Easterday sped a golf cart past a welder whose metal shavings are swept off the asphalt floors and auctioned into a roaring bull market for copper. Last year, Easterday says, SIA saved approximately $5.3 million by obsessively reducing, recycling, composting, and incinerating; Valparaiso's Schroeder calculates that Subaru saves multiples of that figure by using zero-landfill discipline to reduce worker injuries and fatigue. He cites the example of SIA's switch away from taking cars apart to check the quality of welds—a process that wasted metal and risked jackhammer injuries—to ultrasonic technology that did so better, faster, and far cheaper. SIA workers get bonuses (grand prize: a new Subaru Legacy) for pointing out excess packaging and processes that can be cut from the assembly line and then rebated by suppliers. All the savings are effectively plowed back into plant operations—and overtime.

To score a cherished "associate" position at the factory—there's a 10-1 ratio of applicants to openings—would-be employees are expected to put in long hours learning and practicing SIA's low-impact manufacturing. That means scrutinizing every byproduct, from welding slag to plastic wrap, for savings. And obsessively slicing seconds off assembly procedures. And a willingness to work whole months of six-day shifts, and likely years on the graveyard shift, while resisting the siren call of unionization. (The United Auto Workers has failed three times to organize the plant's workers.)

There's always a catch, and at SIA it's this: All that ultra-efficiency—when applied to employees—can lead to unforgiving schedules. SIA workers, who start at just over $14 an hour and peak at about $25 an hour, put in 47-hour workweeks that include two Saturdays a month at time and a half—good for $50,000 to $60,000 a year in per-employee salary. (That means roughly 100 employee salaries were protected by the aforementioned $5.3 million zero-landfill rebate.) The upside? When the Japan earthquake interrupted the supply of parts in March, slowing down the plant's breakneck output, SIA was able to keep paying its workers in full to volunteer in town. The downside: "Everyone's burned out here," says Kay Tavana, a 48-year-old who installs airbags and headlights. Not that she isn't grateful for the work and the SIA perks. Working while on chemotherapy for a blood disease, Tavana avails herself of SIA's free gym to rev up for her shift from 4:30 p.m. to 3:30 a.m.

The cost savings and social programs at SIA wouldn't amount to much if Subaru's cars weren't in demand. From 2008 to 2010, unit sales jumped 41 percent, while last year the company's 22 percent rise in vehicle sales was double the broader car market's increase. "You get worker commitment to productivity by offering job security," says Kristin Dziczek, who studies labor issues at the Center for Automotive Research in Ann Arbor, Mich. "But the best job security is still a product people will buy."

With SIA operating at maximum capacity and with an expansion plan under way, Vice-President Easterday says this "experiment" in the middle of Indiana corn country could someday export its American-made Japanese cars to the rest of the world. His SIA case study left Schroeder convinced that "Dumpster diving can be great for business."

For more on innovation and engineering in America, visit businessweek.com/go/11/innovation.

Bloomberg Businessweek Senior Writer Farzad covers Wall Street and international finance.

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