In the midst of the bailouts on Wall Street, a lot of people may have missed the news about bailouts in the auto industry. In September, lawmakers quietly approved the first installment of a $25 billion low-interest loan package for the automotive industry. Automakers say that it's really not a bailout in the Wall Street sense - these are loans that will be paid back - and in reality, the auto loan plan has been in the works a lot longer than the Wall Street rescues that grabbed front-page headlines.
The basic goal of the Detroit package is to buy some time for American automakers and give them a hand in retooling their product lines to reflect the sudden new realities brought on by high fuel prices and economic doldrums. Americans, who had a two-decade love affair with sport-utility vehicles and pickup trucks, quickly developed a new taste for smaller, more efficient vehicles - and automakers were caught off-guard. The low-interest loans from the government come with very few strings attached - mostly stipulations that the automakers use the money to move toward more advanced, efficient technologies.
The Bad News
Automotive sector news has, for the most part, been rather gloomy of late:
• Declining sales. The Detroit Three - General Motors (GM), Ford, and Chrysler - and several other auto companies are watching their sales plummet. Stock analysts are predicting GM and Ford will make 1.3 million fewer vehicles this year compared to 2007, and privately owned Chrysler faces similarly scary numbers. In July, GM's unit sales were down 26.1 percent, led by a decline in the sale of light trucks. Ford's sales were down 14.9 percent. Honda and Toyota, which used to seem immune to bad news, saw their American sales drop dramatically in July as well, by 1.6 percent and 11.9 percent, respectively.
• Lowered expectations. BMW's U.S. sales have been steadily increasing for a decade and a half, but the German automaker is coming down to earth in 2008. The company is reducing the number of units shipped to American car lots while the market is down.
• Shrinking work force. Nissan North America has been tempting its Tennessee workers with buyout offers of up to $125,000. Early indications are that a lot of auto workers are agreeing to the offer.
• Downshifting. In Oakville, Ontario, Ford has plans to eliminate the third body-and-paint shift, which would cut about 500 jobs. The company hopes to do this through retirement if at all possible.
• Slowing down. In the Ontario city of Woodstock, Toyota has said it will ramp up its new RAV4 plant a bit more slowly than planned. The $1 billion assembly plant will still open this year with about 1,200 workers, but it won't yet add the second shift that was to come on duty next spring. That it still likely to happen sometime, but Toyota can't yet say when. Meanwhile, the automaker has temporarily idled its pickup and SUV production in the United States, and isn't likely to make as many of the vehicles when the assembly lines start up again.
The Good News
The automotive clouds do have silver linings, and not just the low-cost cash infusion on the way from Washington. The fact is, there's a lot of opportunity to be found amid the tumultuous developments of recent months:
• Chattanooga cheers. This summer, Volkswagen picked Chattanooga, Tennessee, as the site of a $1 billion assembly operation that will turn out midsize sedans destined for North American consumers. The automaker, which hasn't had a U.S. assembly presence in 20 years, also looked at sites in Alabama and Michigan before choosing Chattanooga.
• Chrysler investments. Having broken free from its German former siblings, Chrysler has announced plans to pump $1.8 billion into its manufacturing operations. That could include an expansion in Detroit, as well as state-of-the-art manufacturing systems elsewhere. Chrysler also is seeking deals around the world - it's in partnership talks with automakers in Russia, China, and India, and possibly with Italy's Fiat.
• Canadian engines. In September, Honda opened its new engine plant in Alliston, Ontario. It'll make as many as 200,000 four-cylinder engines a year for use in the Civic brand. It's an environmentally conscious plant, operating with a zero-landfill goal and making engines out of 100 percent recycled aluminum.
• Electric opportunities. Chevrolet recently unveiled the production version of the Volt, a plug-in hybrid capable of traveling up to 40 miles without using any gas at all. Especially earth- and wallet-friendly for people with shorter commutes, the Volt will include a flex-fuel generator that will recharge the battery on longer drives. There was also word out of Kentucky this summer that Simpson County will get an $84 million Integrity Automotive facility that will manufacture low-speed electric vehicles. The development could mean as many as 4,000 high-paying jobs.
• Sports cars with a jolt. The Tesla Roadster is electric, but without the utilitarian feel of a lot of hybrids. California-headquartered Tesla Motors based it on the sporty Lotus Elise, and it can accelerate from zero to 60 miles per hour in less than four seconds. An all-electric Tesla luxury sedan also is on the way. Meanwhile, Lotus and Chrysler are talking about working together on another electric vehicle based on the Lotus Elise, tentatively called the Dodge EV.
• GM in Asia. GM is investing nearly $500 million in Thailand, where it plans to build a new diesel engine facility and upgrade an assembly plant. The investments will allow GM to build more small pickups destined for Asian markets, where its sales picture is a lot brighter than it is at home right now.
• More Michigan axles. The United Auto Workers union has been telling its members that Chrysler will team up with German axle maker ZF Friedrichshafen AG to operate a new Michigan axle plant. The plant already is under construction in Marysville and is due to open in 2010.
• Tiny wheels. The little Smart car is finding its way into more American hands. Now, Hyundai is making plans to bring its own very small car to America. The i10 hatchback is built in India, gets up to 56 miles per gallon, and already is available in about 60 countries.
The Road Ahead
Industry observers say the big picture that gets obscured in the discussion about today's slowdown is that tomorrow will be filled with lots of opportunities. Spotty headlines are no reason to give up on automotive, or be any less interested in attracting an auto plant to town. It won't be long before the auto industry will be hard-pressed to find enough good help and will be casting kind glances toward communities that can offer qualified workers.
"One of the key issues is that with the retirement of baby boomers, there will likely be thousands of new jobs in the industry, even though the industry is getting smaller," says David Cole, chairperson of the Center for Automotive Research (CAR) in Michigan. "There will be thousands of new people who are not in the industry now."
That may seem rather counterintuitive, especially when considering the numbers from a study Cole's organization recently released, Beyond the Big Leave: The Future of U.S. Automotive Human Resources. American automotive manufacturing employment is clearly on the decline - having peaked at 1.13 million in 1999, it had fallen 27 percent to 820,000 by 2007. The trend has hit the traditional automaking capital, Michigan, particularly hard. Employment there dropped 45 percent, from 316,300 in 1999 to 173,600 in 2007. And it's expected to get even worse. The study forecasts that the Detroit Three will shed another 20,000 jobs in the next eight years.
Still, the future holds a lot of great job opportunities, according to CAR's study: "Baby Boomer production and salaried employees are leaving (and will leave) in such numbers that the companies such as the Detroit Three must still hire many thousands of new employees in the years ahead. This massive replacement of auto labor represents an opportunity for many in Michigan and other Midwest states."
But it also represents a challenge. The report further predicts that declining jobs will be replaced by different jobs involving different tasks and requiring different qualifications and experience. Cole also says there will no longer be good auto manufacturing jobs for high-school dropouts, that it will take at least a two-year community college degree to land the jobs of the future.
Communities that recognize this and plan for that future will be the winners of the current shakeout. "There needs to be significant training for states to be able to compete," says Andy Mace, principal with Cushman & Wakefield Business Consulting.
According to Cole, the size and quality of the work force is the key to success in attracting automotive businesses. "If I were a community looking at economic development, I'd make sure I understand the demographics of the work force and the education of the work force," he says.
Still, whatever the challenges, Mace believes it will certainly be worth all the trouble to do what it takes to land new auto manufacturing jobs. "They are the jewel of manufacturing, because they bring a lot of investment from the supplier base," he says, adding that communities that spend a lot winning the site selection battles rarely have buyer's remorse: "You can heavily invest in an auto plant and capture a lot of return for your investment."
Assembly, says Cole, "has been steadily drifting to the South, and one of the key elements of this is the issue of right-to-work states." It's a reality that executives rarely admit publicly, but international automakers prefer to set up shop in places where unionization is less likely. Cole notes that the recent American Axle strike that disrupted GM production happened at roughly the same time Volkswagen was making its final decision on a site in the South.
Cole says that when it comes to new assembly operations, the rumor mill is relatively quiet at the moment. But he can think of at least one source of potential good news at some point down the road. Many vehicles continue to cross the ocean from assembly plants in Japan, "and with the strengthening of the Japanese yen, that's a reason that they might consider moving more production here," he says. "But we've heard no specific rumors."
Then, says Mace, there's the question of when Chinese and Indian automakers will act upon their itch to tap into the American market: "They may start to look to the U.S. to build their market share."