Transcript: Monday, August 21, 11 a.m. ET
Foreign Automakers in the U.S.
Monday, August 21, 2006; 11:00 AM
Sholnn Freeman joined The Washington Post as a business reporter in 2005. Previously, he was a reporter at the Detroit bureau of The Wall Street Journal. He has covered the auto industry since 1999.
Freeman was online to discuss growing concerns about the strong presence of foreign-based automakers in the U.S. and the political passivity surrounding the potential General Motors and Nissan-Renault partnership.
His August 19 article examines the Americanization of foreign automakers and pressure on Detroit to globalize. Read it here:
The transcript follows.
Washington, D.C.: Why should there be concern of foreign automakers if these automakers are building plants here and creating jobs? Over 100K jobs have already been created and about 9000 more projected by 2010. It's not like trade with China where there's a huge trade imbalance.
Sholnn Freeman: Detroit automakers say there should be concern because 1) many of the U.S. cars built by foreign automakers still use far more overseas parts. 2) Although a number of foreign models are made here, a big number of cars and trucks are imported.
In our article, GM's Bob Lutz talked about this idea of economic patriotism. He said the governments of France, Japan, China, and elsewhere have policies in place to help their domestic auto industries. The U.S. automakers want similar attention from the U.S. government.
Washington, D.C.: With Boeing and Airbus boasting thousands of workers in the U.S. and abroad, both should be considered international firms. It seems that carmakers are going in the same direction. Probably there should be a shift in the tax structure and research and development incentives soon for these firms that employ so many workers here, even though they are considered "foreign." Shouldn't the most important aspect of an investor, local or foreign, be the types and numbers of jobs, not the home country?
Sholnn Freeman: I think that's exactly the sentiment of the U.S. senators I talked with. They see Chrysler joining up with Mercedes-Benz and GM expanding its operations around the world, particularly in China. Ford owns Volvo, Jaguar, Aston-Martin and Land Rover. Everyone understands that the business is international. But the question for policy makers here is what, if anything, should be done to make the U.S. an attractive place to build vehicles and parts.
Washington, D.C.: What was the union's role in this increased acceptance of foreign firms? Do these firms disallow unionization? Or, is this a market shift that solely that has benefited the Asian carmakers?
Sholnn Freeman: These firms have been very cool to unionization. It's one of the reasons they set up shop in southern states. the United Auto Workers union has tried to organize, but failed. Some companies, such as Nissan, have actively worked against the union. But many workers at these plants are not interested in linking up with the union.
Bethesda, Md. : Sholnn, what is your take on the investment community's feelings about the domestic industry's outlook for the next decade? Are they ready to just sign on with anything that looks promising, or do they want to continue giving domestic managers a chance to make things work here?
Sholnn Freeman: Overall, I think American managers have had lots of time to make things work. Along with the steady erosion of market share has been a corresponding loss of market capitalization. GM and Ford have been under intense pressure from Wall Street and the rating agencies. Big-shot investors, i.e. Kerkorian, will increasingly call for bold moves if these guys don't get it together.
Washington, D.C.: What does it mean for these workers that their firms are "cool to unions?" I am assuming a job is better than no job, but it is also important that they make a living wage. Are these workers compensated well? Certainly, foreign automakers are building plants in places that need the jobs, I assume this trend is due to the states' abilities to attract foreign automakers.
Sholnn Freeman: These workers are compensated in line with what union workers make. These paychecks look even bigger in their own communities where job prospects and wages are weak. Part of the resistance to unionization is fear of that the job might be lost altogether. Typically, the union workers have greater job security protections and superior benefit packages.
Washington, D.C.: Is the impending Nissan-Renault-GM merger because of Kerkorian's desire to divest himself of much of his holdings while the stock performance improves?
Sholnn Freeman: Kerkorian's representatives say he is holding GM for the long run. He's been around the industry for a long time. He is playing the part he played in the past with Chrysler. He is agitating for action. In the course of that, I think he expects to make money. I don't think its right to see him solely as a disgruntled investor out to make more money.
Fairfax, Va.: OK, GM and Ford claim over and over that their vehicles are just as good if not better than the competition.
Put your money where your mouth is. Match the 10/100000 warranty that Kia gives. That should send a message to the car buying public.
Sholnn Freeman: This point about who makes the best cars comes up again and again. Detroit feels that it has made big strides in quality. But I think most consumers are in your corner. This is a huge problem for GM, Ford and Chrysler.
Washington, D.C. : Mr. Freeman,
I read the profile on Carlos Ghosn with interest. I'm sure he is a legitimate business leader and his experience is remarkable, but does he understand the forces at play in the American workplace (and the auto industry specifically) sufficiently to make his methods work? Or would he be too watered down by the strength of entrenched forces?
Sholnn Freeman: Carlos Ghosn has worked in the U.S. and throughout the world. He heads Nissan which has a full line of vehicles in the market. So I think he understands well he dynamics in the market. The question, though, is to what extent does he underestimate the forces associated with the UAW and the internal business culture of Detroit? Who knows. It still isn't at all clear if he'll even get a shot at tackling them. Detroit has its defenses up.
Washington, D.C. : Are American automakers angling for a string of airline-style bailouts over the next few decades? Would this help anyone save some bondholders?
Sholnn Freeman: American automakers are saying very clearly and over and over again that they don't want a bailout. But if they get into deeper trouble in coming years, you can bet that they'll be back in Washington. The argument would be saving American jobs -- a very sensitive issue to lawmakers in this city. You won't hear much about bondholders.
Baltimore, Md.: It's hard to understand why the domestic automakers can't play the same game as their foreign competitors: do much of the exterior design work in the US; farm out parts manufacturing to foreign countries, then assemble the final product here in low-wage southern states. Are the unions simply holding domestic automakers hostage and preventing them from adopting the global gameplan?
Sholnn Freeman: Well, it would be very difficult to pick up and move gigantic auto plants to southern states. The U.S. automakers say they are constrained competitively by legacy costs associated with paying health care costs and pension costs for former workers. The plants built by foreign automakers are so new that many don't even have retirees yet. This is where the U.S. automakers want the federal government to step in to offer help. The UAW argues that it is doing everything in its power to help the companies, such as scaling back health care benefits to cut costs. Inside the plants, UAW workers are trying to do everything they can to make production more efficient. They don't want to see their plants closed.
Washington DC: President says we are addicted to oil. We need to become energy independent. If we are it's partly the big three's fault.
US automakers are disingenuous on new advances. E.g. US automakers have been manufacturing flex cars FFVs that run on ethanol and also operate on natural gas to meet EPA standards but do not make sure that there are E85 pumps at dealerships or other stations to run them.
They also were late to the party on hybrid technology. Same on diesel.
Why isn't national security part of their agenda?
Sholnn Freeman: All of the automakers -- U.S. and foreign -- are looking to Washington to chart a "consistent" energy policy for the U.S. But they all fight or remain neutral when lawmakers press for increases in fuel economy. They say the problem is U.S. consumer demand for big, spacious vehicles that can go fast and haul stuff.
Washington, D.C.: Ghosn is no car God. Just look at Nissan's results the past few quarters, nowhere near in line with Honda and Toyota.
On quality, Toyota has recalled more cars in the last year than any of the Big 3 automakers. In fact, Several GM brands score higher in the JD Powers quality surveys than Honda and Toyota.
What ails GM and Ford the most are legacy costs. Every dollar they have in legacy costs is one less dollar they have to spend on product development, quality control, modernization of plants and dealership overhaul.
Sholnn Freeman: Good points.
Sholnn Freeman: Thanks everyone for participating. The auto industry is in a period of deep change, all the industry pundits say. So stay tuned.
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