Auto industry faces a global production battle

U.S. automakers will have to send work overseas, a study says.
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DETROIT -- The U.S. auto industry is facing the same dilemma that other troubled industries like clothing makers have faced for decades: They can't raise prices despite rising costs, shows a just-released comprehensive study.
Like those other beleaguered industries, automakers have to respond by continuing to send more work and jobs overseas, experts said.
Clothing and appliance makers have been dealing with overseas competitors for years and responded in the 1980s and 1990s by moving work to low-wage countries like China, Taiwan or Mexico. Today, U.S. automakers are facing the most intense competition ever from foreign automakers like Hyundai or Toyota, limiting the ability of a GM or Ford to raise prices.
While the cost of everything from health care to food has gone up in the last decade, the auto industry has been able to raise its prices by only 0.1 percent since 1994. By comparison, the price of personal-care products has risen 10 percent since 1994, food prices rose 25 percent and college tuition prices rose 61 percent. Health care, a multibillion-dollar cost at Detroit's three automakers, rose by 43 percent.
Meanwhile, automakers are putting thousands of dollars in new technology such as DVD systems or safety equipment such as air bags into their newest cars and trucks, but can't charge much more for their products than they did a decade ago, shows the study done by the international consulting firm AlixPartners and presented last week to 75 top auto executives.
The study, which also tracked profits, production and other trends at 22 automakers and nearly 150 auto suppliers all over the world, again shows that the U.S. auto industry, based in Detroit, is undergoing massive shake-ups and cost-cutting in the face of global competition from China, Japan and Korea. Automakers like General Motors Corp. and Ford Motor Co. are following similar, decades-old, cost-cutting paths of appliance makers like Whirlpool or clothing designers like Polo, said business experts.
To be sure, this is good news for U.S. car and truck buyers, who are able to buy new vehicles with better safety features, better technology and more gadgets than ever and not pay much more for it.
Cutting back
However, for automakers, suppliers and their millions of retirees and employees, this pricing pressure means dramatic changes that result in lower wages, lesser benefits and fewer North American jobs. GM, as one example, has shrunk from 213,000 employees in North America in 2000 to 190,000 as of Dec. 31, 2003. Its Asia Pacific work force has grown from 11,000 to 14,000 in the same period.
"The U.S. automakers have to do more with less. The industry has become globalized so they can't just be competitive with U.S. automakers; they have to be as efficient as automakers in other countries. It means the auto industry has to transition, so the number of workers in the United States shrinks, including blue-collar workers in the plants to call centers and accounts payable," said John Hoffecker, head of AlixPartner's auto practice in Southfield, Mich., which oversaw the study. "The automakers have to reduce costs every year by taking out people or leaning on suppliers for lower prices or buying more parts overseas, the way toymakers or bikemakers did in the past."
He said this dramatic change in the auto industry -- where more parts are made overseas in lower-cost countries like China or India -- is the same thing other industries went through. However, he emphasized the United States has always been good about adapting to this kind of change and creating new jobs for workers.
"Whenever an industry goes through this kind of transition, there are challenges and changes and shake-ups. The good news is our country has always handled this in the past. It's the natural evolution of industry in this country," said Hoffecker. "Our country has done well at shifting from farming to manufacturing and now to a service-based economy."
Experts said the auto industry likely won't move overseas as fast as apparel. This is because building new cars and trucks is "more complicated and requires more skills and more machinery than making underwear," said Fred Crawford, a New York-based apparel and retail expert with AlixPartners.
"But that said, the move overseas will happen, it just may take longer. Early on, workers in China could only make knock-off shirts of bad quality. But after a decade, they got to a point where they could copy anything done here. I think the same thing will happen with autos," said Crawford.