Why the Most Profitable Cars Made in the U.S.A. Are Japanese and German

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A flexible work force is especially critical for maintaining line speed if the model mix changes frequently. After a switch, a worker who formerly needed two minutes to help install a wiring harness might need only 90 seconds, meaning he or she could do another job — if allowed. But at some Big Three plants, assigning a new task to a worker requires consulting the local union leader, who might approve the extra job but insist on a quid pro quo — say, extra break time. Such complications can make it more costly to adjust the vehicle mix — leading to unsold vehicles and requiring more profit-eating 0% financing.

Since the early 1980s, the UAW has mounted campaigns to organize the transplants' hourly workers, but they have consistently voted against joining, in part because of strong community support for the manufacturers and a sense of mutual loyalty. "Nissan takes care of its employees, and if the union tries to organize us, I'll probably oppose it," says Murphy Wilson, 27, a newly hired technician in Canton. The UAW has tried four times to win over Nissan's Smyrna work force but was voted down 2 to 1 in its last try in 2001. "We have not given up on the transnationals," says UAW president Ron Gettelfinger, who claims that "fear, intimidation and threats hold workers back" from inviting unions into transplant factories. In 2001 some organizers publicly accused Nissan managers of strong-arming employees in Smyrna.

In the next round of national labor negotiations this summer, the Big Three are expected to demand benefit cuts and broader job classifications. Griping has already begun. "They want us to do more and more and offer us less and less," says Bill Parker, president of UAW Local 1700 in Detroit and head of a Chrysler work force. In theory, Detroit could emulate the transplants and set up nonunionized shops in the South, but the UAW would probably bring assembly operations to a halt.

Closer Ties with Suppliers
Japanese carmakers have forged stronger relationships with suppliers than have the Big Three, inspired in part by Japan's keiretsu system, in which suppliers bond with manufacturers for the long haul. By no means is the system perfect; Nissan nearly went bankrupt in the late 1990s because of cronyism and other inefficiencies in its keiretsu. But suppliers, in both the U.S. and Japan, have been more willing to invest in equipment to manufacture new technologies — such as hybrid electric-gasoline engines — out of confidence that Japanese automakers won't abandon them, or the technology, before they can recoup costs. The Big Three now want to outsource more R. and D. to suppliers, but Detroit has made low cost a priority, tending to negotiate short-term deals and drop contracts with partsmakers if a better offer emerges — resulting, sometimes, in mutual acrimony.

Lower Legacy Costs
At GM, 2.5 workers help support each retiree. Worldwide, GM's underfunded pension and health-care obligations stand at around $77 billion, which shaves an estimated $1,700 in potential profit off every sale (Ford's and Chrysler's liabilities are less severe). GM says the problem is manageable — assuming the stock market rallies and GM hits its cost-savings and revenue targets. Transplants' legacy costs aren't as high, in part because they haven't had to downsize in North America and because their governments pick up more of the costs of health care and pensions at home.

Detroit is progressing in its competition with the transplants. In terms of initial quality, its vehicles now match those produced by European transplants. GM scores close to the industry average, and Chrysler's new models show improvement over the vehicles they replaced, according to the latest survey by J.D. Power and Associates. GM, the Big Three's lowest-cost producer in terms of materials, is ahead of Chrysler and Ford in standardizing platforms across models, which reduces development costs. The influence of its North American chairman and product guru, former Chrysler and Ford executive Robert Lutz, 71, is emerging: Cadillacs are rolling out with bold designs and high performance, Chevy is launching the SSR pickup convertible, and Pontiac is reviving its 1960s muscle car, the GTO. In areas of engineering weakness, GM is swallowing its pride and outsourcing: Saturn's 2004 VUE SUV will use Honda engines.

Ford, which marks its centennial in June, is in deeper trouble. It lost nearly $6 billion in the past two years, and since 2000 its North American market share has fallen 2.8 percentage points (GM's is down 1.5 points). CEO William Clay Ford Jr., the founder's great-grandson, is focused on cutting new-vehicle development time from the current three years (a full year longer than industry leader Toyota) and increasing parts-and-platform sharing. Ford's new Futura sedan, due in 2005 to replace the outgoing Taurus, will use a Mazda platform that Ford plans to leverage across 10 cars and crossover vehicles in its global lineup, including its Ford, Lincoln and Mercury brands. (Ford owns a controlling stake in Mazda.) But the core of Ford's global "product-led revival"--65 new models in the next five years — doesn't kick in until mid-decade.