By Greg Schneider
Washington Post Staff Writer
Saturday, May 21, 2005
As profits fall and sales slump at General Motors Corp. and Ford Motor Co., thousands of autoworkers gathered in Montgomery, Ala., yesterday to celebrate the opening of a $1.1 billion factory to build Hyundais.
The Alabama factory, the first in the United States for the South Korean company, is the latest in a parade of foreign-owned facilities springing up throughout the South. Each one -- Nissan Motor Co. opened a factory in 2003 in Mississippi, a Toyota Motor Corp. truck plant cranks up next year in Texas -- is another sledgehammer swing at the crumbling fortunes of Ford and GM.
A new U.S. auto industry is emerging in which no single company is as dominant as GM once was and the lines between foreign and domestic manufacturers are increasingly blurred. While Detroit suffers, the rest of the industry is doing rather well. Jobs and factory production are down in Michigan but rising in the South.
"It's a zero-sum game," said Walter McManus of the Office for the Study of Automotive Transportation at the University of Michigan at Ann Arbor. Detroit's factories already build more vehicles than they can sell, so 300,000 new Hyundai Sonatas flowing out of Alabama every year will just make GM and Ford have to cut their own production further, he said.
Asian-owned companies continue to take a greater share of the U.S. market with vehicles that consumers perceive as having better quality and better value than the American competition. Even as Ford and GM scramble to catch up with improved products, the foreign companies use greater efficiency and higher profit margins to widen their lead. Toyota has so much cash on hand that it has been able to absorb losses on gas-electric hybrid technology to spark the Prius phenomenon.
"There's a touch of unfairness to all this," McManus said. That's because the rules are different for outsiders building new plants than they are for old-timers dealing with an aging infrastructure and workforce, such as GM and Ford.
Hyundai's non-unionized plant, for example, will pay most of its 2,000 employees a starting wage of $14.46 an hour, far below the $20-plus hourly wages for comparable United Auto Workers members in Michigan. The Hyundai workers also will have to contribute $14.54 every two weeks for health coverage, which is free to employees under UAW contracts.
There is no pension available to the Hyundai workforce; instead, employees have a 401(k) plan.
By contrast, GM, Ford and the Chrysler Group of DaimlerChrysler AG carry more than 800,000 retirees and family members on their pension rolls at a total cost of $11 billion per year. The companies estimate that about $1,500 of the cost of building each vehicle goes toward health care -- several times what Hyundai pays.
That's part of the reason Hyundai can offer a laundry list of safety features on the new Sonata, quality that ranks near the top of the auto industry and a price that undercuts competitors at Honda and Toyota -- and still make more profit than GM.
Those factors "create winners and losers, and they create enormous change and adjustment" for the industry, said Dana Johnson, chief economist for Detroit's Comerica Bank. "It's very positive for the Southeast in particular, and very challenging for the Midwest and Michigan in particular."
Alabama has especially benefited from the procession of automakers to that region. Its defunct railroad, steel and textile industries have been replaced, with Mercedes-Benz building a plant in the town of Vance in 1997 and Honda locating a van factory in Lincoln in 2001.
Both of those factories are under expansion, and along with Hyundai have attracted dozens more companies that supply parts and services. "This is our salvation at this point, our new critical mass of employment," said Keivan Deravi, an Auburn University Montgomery economics professor.
The auto companies and suppliers account for up to 40,000 workers statewide, have invested billions of dollars and have caused the state to revamp its education and worker training programs, Deravi said. Rural Crenshaw County, for example, lost five textile mills in recent years to cheap foreign competition. Those jobs have been more than recouped, and at higher wages, by companies supplying the nearby Hyundai plant, said Doni Ingram, the county's economic development director.
The new jobs are no less welcome just because they're tied to an overseas employer, Ingram said. The community has embraced the Koreans, she said, with residents signing up to "sponsor" newly arrived Korean families, staging a cultural festival during the fall and welcoming the outsiders to churches and schools.
"All my Koreans call me 'mama,' " Ingram said. "They're very friendly, very family-oriented, very outdoor people. So they fit in the southern part of the United States very well."
As Americans take on more of the supervisory roles at the plant, she said, the Sonatas built there no longer seem like foreign cars. They're homegrown. "We should all be driving a Hyundai in Crenshaw County," she said.
Detroit automakers complain that they don't get the same acceptance and chance to compete in Korea, which is a tightly controlled market. But they also suffer from changing demographics within the United States, which increasingly work against plants located in the old industrial belt.
Factories like to be near their customer bases to cut down on distribution costs, and the South is a more attractive market than the Midwest, according to a 2003 study by the Center for Automotive Research in Ann Arbor. With population rising faster in the South and auto sales declining in the Midwest, "the demand to add more regional assembly plants -- and the jobs that go with them -- is likely to remain high in the south to the detriment of the traditional automobile states in the north," the study concluded.
It won't be easy for old-line automakers to take advantage of that trend. The cost of shutting down old factories and rebuilding in new places is prohibitive -- as demonstrated last week when GM closed its 70-year-old van plant in Baltimore. Under the UAW contract, GM could not lay off its 1,100 workers. It had to offer them a lump-sum buyout so they could retire or keep them on the payroll for two more years, whether they work or not.
Experts say Detroit's Big Three, counting the Chrysler Group, are going to have to rework their union contracts and eke out the right to cut jobs and benefits to remain competitive. For example, the three companies recently published a brochure touting their enormous contributions to the U.S. economy, noting that they still employ about 86 percent of all U.S. autoworkers. But the same brochure noted that those workers build 74 percent of the vehicles produced in this country each year -- suggesting, inadvertently, that foreign-owned companies produce more with fewer people.
"There's a lot of work for those guys to do," said Johnson, the Comerica economist. "The car companies are in a fiercely competitive environment, and they've got to become more efficient and assemble cars with less labor costs. It just has to happen."
Staff writer Warren Brown contributed to this report from Alabama.