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Shifting Gears

With Detroit's 'Big Three' carmakers struggling, what are the prospects for the U.S. auto industry and its workers?

By Danny Hakim

Once upon a time, America and its autos reigned supreme. In the decades after World War II, the car industry boomed, and steady, high-paying, unionized jobs at General Motors, Ford, and Chrysler, known as Detroit's "Big Three," helped millions of American workers, in the Midwest and beyond, move into the middle class. Indeed, in better times for the auto industry it was often said, "As GM goes, so goes the nation."

But all that is changing. GM announced last year that it will cut 30,000 jobs, and that five assembly plants will be closed. The company also reported an $8.6 billion loss for 2005. And in January, Ford announced that it would close as many as 14 factories and cut up to 30,000 jobs over the next six years.

Including cuts that took place at DaimlerChrysler (Chrysler merged with Daimler-Benz, the German carmaker, in 1998), the Big Three, once symbols of America's industrial might, have eliminated, or planned to eliminate, approximately 140,000 jobs since 2000. Those jobs represent close to one third of their payrolls in North America.

"This may not be the end, but it is certainly the beginning of the end of the automobile industry as we knew it," says Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass.

Other manufacturing jobs at the Big Three's suppliers are bound to disappear as Detroit's carmakers fight to survive intense global competition. Higher gas prices have added to their woes, causing the popularity of Ford's and GM's low-mileage sport-utility vehicles to sag.

Life Before Toyota

What do all these changes mean for auto workers? When Jerry Roy was hired by General Motors in 1977, at about age 21, his salary more than doubled from his job at a local supermarket. He traded in his five-year-old Buick for a new Chevy and since then, he has done well enough to buy a pleasant house on a lake near Flint, Mich.

Roy represents the fourth generation of his family to rely on GM for its prosperity. For more than 70 years, the company's wages have bought the Roys homes, cars, and once-unimaginable comforts, while GM's medical and pension benefits have kept them secure in their retirements.

"General Motors, when I got in there, it was like I'd died and went to heaven," says Roy, who works on an assembly line at a plant operated by Delphi, the now-bankrupt parts unit that was spun off from GM in 1999.

Now, Roy faces the prospect of either losing his job or accepting a pay cut. And for those coming after him, he says, "it's just sad that it's ending, that it looks like this ... all these places that used to be factories are now just parking lots."

Those were the factories that sustained four generations of Roys. Jerry Roy's great-grandfather, John Westley Roy, came to Michigan from Missouri in 1931, and worked at GM's AC Delco division for a decade. Roy's grandfather, Edward, worked at the Delco plant during World War II, when it was converted into a machine-gun plant. Roy's father, Gerald, started at GM in 1951; Gerald's sister, uncle, and wife, Delores, also worked for GM.

In the 1950s, GM was the world's largest corporation: It had 46 percent of the American auto market, versus about 26 percent in 2005. At its peak, the company employed more than 600,000 Americans. For Gerald Roy, now 71, the 1950s were a golden era, when everything seemed possible.

Social Contract

"There were three shifts—they worked around the clock," he says of the plant where he worked. "You'd go in there and you couldn't even hardly walk."

Buoyed by such prosperity, the auto industry pioneered the American model for the social contract between workers and their employers—from the $5 a day Henry Ford offered workers in 1914 to the health-care and pension benefits that became a mainstay of the expanding middle class.

Powered by the auto industry, the economy boomed after World War II. In negotiating labor contracts, industry executives wanted, above all, to keep the United Auto Workers (UAW) union happy and the assembly lines moving: With no Toyotas to worry about, there was little short-term downside to the industry's expensive concessions.

"The workforces were young, the pension costs were low," says Gerald Meyers, a professor at the University of Michigan and the former chief executive of American Motors. Each union contract, he says, "added a little more and a little more and a little more."

'Foreign' Cars

And now the bills for those expensive contract provisions are coming due. GM's biggest cost problem today is the enormous sums it spends on health-care benefits for employees and hundreds of thousands of retirees. (GM is the nation's largest private provider of health care.) Wages are less of an issue because the industry has cut so many jobs, and because it so much more efficient than it used to be.

"Over a 10-year period, we have gone from a ballpark of 40-plus hours a vehicle in assembly to 20-plus hours a vehicle," says Rick Wagoner, GM's chief executive.

At the same time, far from Michigan, a very different American auto industry is emerging. Today, almost 50 percent of the "foreign" cars sold in America are actually made in the U.S., with BMW, Honda, Nissan, Toyota, and others operating large factories in Alabama, California, Indiana, Kentucky, Mississippi, Ohio, and Tennessee.

In Alabama alone, some 800,000 passenger vehicles were manufactured last year—all for non-Detroit companies. Cars are now to Alabama's economy what cotton once was.

Japanese, German, and South Korean companies currently employ 60,000 people in the U.S. "The domestic auto industry is as healthy as it's ever been," Eric Noble, president of CarLab, an industry consulting firm in Santa Ana, Calif., told BusinessWeek. "The names on the plants are just changing."

New Reality

The foreign automakers are creating a younger, less expensive workforce, sidestepping the higher pay and benefits packages that Detroit workers were getting. The new auto plants aren't unionized. At Nissan's plant in Canton, Miss., workers start at several dollars less per hour than their UAW counterparts in Detroit.

But lower costs aren't the only reason these foreign carmakers are thriving: All it takes is a look at a parking lot filled with Toyotas and Hondas to see the popularity of foreign cars among Americans.

All of this signals a new reality for autoworkers. At the newer foreign-owned plants in the South, workers may be better off than they were in lower-paying jobs before the carmakers arrived. But for longtime workers at the Big Three, adjusting to a world in which $30-an-hour wages and generous benefits are no longer a guarantee can be difficult.

"The days when blue-collar work could be passed on down the family line, those days are over," says Chaison of Clark University. "Where you did have automobile plants, it was always looked at as an elite job. It was hard work, but good, steady work, with wonderful benefits and good solid pay, and you were in the upper middle class."

In a move that will save GM $1 billion a year, UAW members voted in November to accept a health-care plan that will require its members to share some of the costs.

Larry Mathews, who works at the same Delphi plant as Jerry Roy, says that if the pay cuts go through, he will no longer be able to afford his son's college tuition.

Mathews also comes from a "GM family": His father retired from GM at a time when the bond between the company and its workers was stronger. Now, Mathews makes clear that he has no desire for his own son to continue the family tradition. "Given what we've lost here in the past decade, I really didn't want to see him come to work at GM or Delphi," he says. "The security just isn't there."