BATAVIA, OHIO -- The hand-stenciled sign just inside the sprawling Ford Motor Co. transmission plant triumphantly proclaims: "Batavia Is Better Than Mazda." This is not an idle boast for the 1,855 union and management employes at this southern Ohio plant.

Last month, Ford announced it would stop buying automatic transaxles from Mazda in Japan and consolidate all manufacturing of the sophisticated transmissions here. The reason: better quality and higher productivity.

Just three years ago, the betting was that Ford would shut down the Batavia operation and move all its transaxle production to Mazda in Japan. Mazda currently manufactures 30 percent of the automatic transaxles used by Ford. The remaining Ford transaxles -- which integrate the transmission, differential and final-drive unit in four-cylinder, front-wheel-drive cars -- are made here.

"We were going to close our doors because we could not make a quality product competitively," said Al Ver, Batavia plant manager. "The Japanese were beating our pants off," added Garry Mason, bargaining committee chairman for United Auto Workers Local 863, which represents the hourly workers at the plant.

Today, the Batavia plant represents a major turnaround in labor-management cooperation, a turnaround some experts say may signal a new competitiveness in the nation's manufacturing sector.

Rising productivity through automation and other efficiencies combined with favorable currency exchange rates and rising wages in Europe and Japan have all but wiped out the cost advantage of manufacturing overseas for many companies. In Japan, for example, average wage rates are nearly on a par with those in the United States while the average wage in West Germany is considerably higher.

There is another lesson from Batavia, however. Although the plant will increase its production by nearly 30 percent in the next two years, the increase is not expected to result in a single new job.

"The drama of Batavia is an identical product," said Peter Pestillo, Ford vice president for employe and external affairs. The transaxle production offered one of the few chances to pit American workers and managers against their Japanese counterparts with an identical product.

That drama began in 1981 when Ford built the Batavia plant to make transmissions for its new front-wheel-drive cars.

"Batavia was supposed to be the savior for the Cincinnati area. Word was that there were going to be somewhere in the neighborhood of 3,000 jobs out here for our people," said the UAW's Mason. "That never materialized," he said, because the economy went into a tailspin about that time and competition from Japan increased.

As a result, Mason said, "we had to start talking about what was needed to compete with the Japanese." If you don't get competitive, he said, "the doors close and you're working for Ray Kroc {the late founder of McDonald's}. Our people are intelligent enough to know what the real world is. They have to face up to it."

But even with these pressures, Mason said change was not easy. "The company thought this was going to be their Shangri-La in regard to new techniques and new ways of doing business, and we had some feelings about how we were going to do business," he said.

The threat of losing the plant began to focus attention on both the need to compete and the need for labor and management to change their ways if they were to survive.

The plan was simple. It borrowed from the techniques the Japanese had used to beat U.S. manufacturers: a teamwork approach to labor-management issues, a system of statistical process controls and a customer-oriented mentality throughout the plant. Quality-control expert Edward Demming had taught the same principles to the Japanese after World War II.

Pestillo said it took courage for many managers at Ford to accept the notion of teamwork and communication with the workforce. "The Japanese presume you'll do your job; we {U.S. managers} presume you won't," Pestillo said.

Developing communications and teamwork with the blue-collar workforce at Batavia was the biggest initial hurdle, according to Vers. He said all other efforts would have failed if they had not first developed a "trust relationship" between management and labor.

That wasn't easy. Mason, a veteran of more traditional labor-management practices at Ford, said union members were skeptical when the company started talking about statistical process controls (SPC), which is a method of using statistics to monitor manufacturing quality. By constantly monitoring machined parts as they are being made, the worker can more easily keep the manufacturing equipment operating within acceptable tolerances. The result is markedly fewer bad parts.

"Our people quite frankly looked at it as another one of those programs that's not going anywhere," Mason said. "To sell it, we had to sell it as partners in the SPC process and show them they could have control over not only their dimensions {in the manufacturing process} but a say so in how to run the machines." Under SPC, the individual worker on the line has the power to shut down the manufacturing process to assure quality.

The skepticism was not confined to union members. Tom Farris, a former foreman who now heads the work team effort, admits that, "Ten years ago, if someone had shut my line down to correct a part, I probably would have fired him." Farris said, however, that both sides were pressured into the new system "because we had to get better."

Farris said it became clear to management that "to have power in this plant you have to give up a little power.

The turnaround at Batavia began shortly after Ford and the UAW negotiated a new contract in 1982 that embraced SPC and an employe involvement teamwork concept similar to Japanese quality circles. Adoption of the techniques came at a time when Ford was in serious financial trouble and both labor and management were more receptive to change.

At the time, Mason said, his members called the 1982 contract a "giveaway agreement." But he said it was an "adjustment for the times."

"It's a very difficult concept to sell even when you believe in it as a team and say 'This is a tool we want to endorse and use in the plant.' It's a difficult concept to sell to many people that have been doing business another way for a long period of time," said Ver, who added that that applied to hourly workers and managers.

Mason said that when Ford first started the team concept in 1985, the idea was made easier to accept because "the supervisor went away. They {team members} were going to be their own boss." He said within six months the work team was manufacturing parts more cheaply than Japanese workers at Mazda. As the team concept has spread, so have the plant's quality and productivity.

Ver said that in terms of warranty repairs and customer satisfaction, as measured by outside consulting groups, the Batavia transaxles are better than those manufactured by Mazda. Both Ver and Mason point out, however, that unless the plant continues to make gains in quality and improve productivity, it will not get the contract for the next generation of transaxles. By the early 1990s, Ford is expected to develop a new line of transaxles.

"There's a feeling right now that we have to be considered a prime candidate for whatever new product comes down the road," Mason said.

Although there are still some UAW members who are skeptical about the new labor-management relationship, Mason said most Batavia workers have enthusiastically accepted it. He pointed out that the local union officers, who presided over the plant changes, were just reelected as a slate by a comfortable margin.

Lou Lukemire, an inspector on the transmission line and a 25-year Ford employe, is a onetime skeptic who has been won over by the changes here, particularly by the statistical control process. "I didn't think it would work," he said when he was first told of the new system.

Today, Lukemire is a convert. "It's very satisfactory to know that you are recognized for what you do," he said as he described how he maintains the complex charts that show how every machine is performing. "It makes you feel good because they know you by your first name."

Lukemire is convinced that "if it wasn't for SPC, I wouldn't have a job."

Thirty-six employe involvement groups operate in three departments of the Batavia plant. Training programs keep workers current with new equipment and technology.

Unlike many other manufacturing plants, there are only two basic work classifications at Batavia: skilled worker and manufacturing technician. Within the category of manufacturing technician there are four categories with hourly pay based on the number of machines a worker can operate.

An official at the UAW's headquarters in Detroit warned against losing sight of the fact that the labor-management cooperation resulted in better quality and high productivity. Without those results, he said, the changes would not be worth much.

Pestillo, the Ford vice president, agrees. "If you look at this as a behavioral exercise, you're silly," he said. "You've got to have the results."