The Troubled Auto Industry - Trying to predict the road ahead
The American highway is a symbol of national progress. It’s the way west; it’s the way east. It represents mobility, freedom and speed. It also fuels an industry that is one of the pillars of our national economy, driving wealth for some and spelling poverty for others. Times are tough. Just take a look at Motor City, where, in the 1950s, the U.S. automotive industry was in full swing and Motown was just the glittering candle on the cake.
According to the U.S. Census Bureau, Detroit is now the poorest city in America, with one-third of its residents living below the official federal poverty line. With its economy in a steady decline since 2000, when tens of thousands of autoworkers lost their manufacturing jobs after massive cuts by General Motors Corp., the city’s population has also declined. Jaw-dropping figures released in August show that Detroit’s population has fallen below its 1920 level. The decline began in the decades following the ’50s. First there were riots, then plant closings in such places as Flint, Mich., then more riots. There were the boom times for Japanese auto giants that meant more layoffs in the United States, followed by the flight of jobs to cheaper labor markets overseas. In recent years, the crisis has become so alarming that the city council in Pontiac, Mich., claims the city’s economy is “near collapse.”
True, Detroit and its suburbs remain a manufacturing mecca and home to the Big Three auto companies: General Motors in Detroit, Ford Motor Co. in Dearborn and DaimlerChrysler AG in Auburn Hills, one of the company’s two headquarters. Moreover, the greater Detroit metropolitan area is home to countless offices and plants that support the automotive business, such as parts, supplies, electronics and design. Hence, it is still very much a land of opportunity. With a population that is more than 75 percent Black, this should translate into big bucks for minority business owners, suppliers and professionals. But with some of the top suppliers on the brink of bankruptcy, African-Americans and other people of color are seeing fewer supplier opportunities, fewer jobs and more questions.
The automotive industry has long been one of the few to boast a history of progressive antidiscrimination practices in employment and procurement. It is a tradition that dates back to the days of Henry Ford, who made it a point to employ African-Americans in all of his company’s hourly rated job classifications. He also made it a point not to segregate his African-American and white workers and, with the exception of white-collar jobs, paid the same wages to both groups. He was ahead of the game and in 1919, decades before the Civil Rights Act of 1964, stated, “We have learned to appreciate men as men, and to forget the discrimination of color, race, country, religion, fraternal orders, and everything else outside of human qualities and energy.”
Flash forward eight dozen years. In 2003, Ford spent $3 billion with 300 minority businesses. The company also required its top suppliers to develop diversity purchasing programs that would bring in an additional $1.2 billion in purchasing power. Good for Ford, but are other automakers following its lead?
The proof, as they say, is in the pudding.
Toyota Motor Corp. introduced its 21st Century Diversity Strategy in 2001, touting it as a 10-year, $7.8 billion salute to diversity. The Chrysler Group has a trophy case full of awards for its strides in diversity, including the Corporation of the Year award from the Michigan Minority Business Development Council, which it won four years running. It established its Diversity Supplier Development program in 1983 and has awarded more than $24 billion in contracts to minority suppliers. Last year alone, the group purchased $3 billion worth of goods and services from minority suppliers, comprising 11 percent of the company’s total purchasing power. Two of the company’s programs, the Minority Enterprise Initiative and the Matchmaker program, have received praise for connecting Tier 2 companies to industry leaders and for facilitating minority suppliers’ access to capital.
DaimlerChrysler, meanwhile, struggles with its commitment to minority dealerships. In 2003 the National Association of Minority Automobile Dealers threatened to boycott the Chrysler Group for its less-than-proactive efforts to recruit and retain minority dealers. The Detroit Free Press reported that of the 4,186 dealerships, only 133 are minority owned, and only 50 of those are owned by African-Americans. Even so, the company continues to spearhead diversity efforts, with special emphasis on tomorrow’s industry leaders. In an address to National Association of Black Automotive Suppliers (NABAS) Scholarship Dinner in April, Chrysler’s chief operating officer, Tom LaSorda, said, “African-Americans make up 25 percent of our work force and contribute in numerous ways to making [us] a better, more competitive company . . . we view diversity as a positive force for developing and growing [our] business.”
Gains to Be Made
Still, some argue, there are many gains yet to be made and markets to be penetrated. In Fortune magazine’s August issue, which ranked the 61 most influential African-Americans, Latinos and Asian-Americans in American business, only one auto industry executive made the cut: Jim Padilla, president of Ford Motor Co. And while Detroit has suffered tremendous job losses, states in the south have gained jobs just as tremendously. Prior to 1997, not a single passenger vehicle was produced east of the Mississippi River. In the past five years, however, the industry has grown so quickly in the area that by this year Alabama and Mississippi are expected to be churning out new vehicles at a rate of 1.5 million a year.
That did not stop Jesse Jackson, the all-star civil rights activist, from criticizing automotive companies in 2003, specifically foreign conglomerates, for “importing talent” at the expense of local minority employees and suppliers. Promising to monitor “every single auto plant in the south,” he has drawn up a watch list that includes Honda Motor Co. Ltd., Mercedes-Benz U.S. International, Nissan Motor Co. Ltd., Toyota and Hyundai Motor America, all of which have opened new plants in the region and have since set goals in work force and supplier diversity.
But the bottom line on the automotive industry is inescapable. It is, quite simply, not profitable, at least not in the United States in today’s economic climate.
Delphi Corp., the country’s leading manufacturer of mobile electronics, transportation components and systems technology, reported a $36 million loss in 2004 and warned that it stands to lose $200 million this year. Rodney O’Neal, the company’s president and chief operating officer, says Delphi is profitable in every other corner of the world. North America clearly is losing ground to Asian and European competitors. GM remains the company’s biggest client, but since 1999 it has closed, sold or consolidated 70 unprofitable plants with a global work force reduction of about 9,700 employees in the last year and a half. An additional 8,500 jobs are expected to be cut this year.
Roy Levy Williams, executive director of the Detroit bureau of Jesse Jackson’s Rainbow/PUSH Coalition, acknowledges that the horizon is bleak, but stresses that the focus must be on the next five years. Faced with so much competition abroad, including South Africa, where the automotive industry is booming, and layoffs at home, “the industry needs to ask where will the jobs go? How much equity can suppliers expect?” he says.
In September, the coalition’s annual Rainbow/PUSH Automotive Project in Detroit brought the industry together to assess its latest round of challenges. “We want to know how bad these experts think it is and we want to make sure there is minority participation and strategize on how it can be accomplished under these conditions,” Williams said in the run-up to the gathering. The real challenge for the industry is “to stay competitive while forcing the costs down,” he says.
By K. Emily Bond