Progressive Parts Management Left GM Vulnerable in UAW Strike
The strikes crippling General Motors Corp. highlight how its adoption of efficient manufacturing techniques pioneered by the Japanese is leaving the auto maker more vulnerable to union pressures.
Like nearly every major auto maker in the world, GM uses a just-in-time inventory system that relies on suppliers to deliver parts to assembly plants as they are needed on the line.
Although the system reduces costs and improves quality, it also leaves manufacturers like GM that have poor labor relations vulnerable to so-called bottleneck strikes that can shut down operations companywide within days.
That is exactly what happened to GM starting June 5. Strikes by 9,200 United Auto Workers at two key parts plants in Flint, Mich., have forced GM to close 26 of 29 North American assembly plants and to lay off 161,600 workers.
“The UAW has found a tool that can be extremely disruptive,” said Richard Florida, an economic development professor at Carnegie Mellon University in Pittsburgh and an expert on the global auto industry.
Negotiations to resolve the disputes are continuing. Donald Hackworth, vice president of GM’s car group, said Tuesday that talks have become “more serious in nature, but to date no end [to the strikes] is in sight.”
The walkouts are prompting GM to reassess its manufacturing processes, including parts sourcing. The auto maker wants to farm more work to nonunion suppliers or find alternative sources for parts now made solely at GM plants.
The just-in-time process was developed by Toyota Motor Corp. in the 1950s. After losing market share to more efficient Japanese importers, U.S. auto makers began adopting the system in the 1980s.
The process saves auto makers tens of millions of dollars a year by reducing capital, overhead and labor costs related to maintaining large parts inventories. It is also considered a key to improved quality since substandard parts can be spotted more quickly.
As practiced in Japan, the just-in-time process is a highly orchestrated waltz that relies on precise, predictable steps to keep production flowing smoothly. Usually one supplier is given a long-term contract to be the sole source of a part. The suppliers typically locate plants near assembly operations and deliver components shortly before installation.
But under the system, labor disruptions are not tolerated. Unions in Japan work closely with management and rarely strike. Workers have a strong stake in their companies’ performance and are guaranteed lifetime employment.
In the United States, labor relations are much more adversarial. As just-in-time delivery has spread, unions are finding today that a strike at a key parts plant can be as effective--and much less expensive--than the nationwide walkouts of 30 years ago.
Such strategic strikes can inflict economic devastation on the company while minimizing the union’s financial exposure. In the current strikes, GM has already lost an estimated $1.2 billion in second-quarter profit. The UAW is issuing only $150 a week in strike pay to members on the picket lines; laid-off workers collect state unemployment benefits.
“The strike is effectively funded by the public sector,” said Dale Brickner, retired labor professor at Michigan State University.
The UAW has more leverage with GM because it is more vertically integrated than its Big Three rivals. GM makes about 65% of its own parts, while Ford Motor Co. makes less than 50% and Chrysler Corp. about 30%.
GM’s problems are further complicated by its historically poor relationship with the UAW. The union has called 12 local strikes against GM since 1996, twice shutting down the auto maker’s production operations nationwide.
Much of the labor strife stems from GM’s six-year restructuring effort. Yet it continues to be the nation’s highest-cost, lowest-profit producer per vehicle. GM hopes to reduce its work force and out-source more parts to become more efficient, an issue that is central to the current work stoppages in Flint.
“GM has got to transform itself to meet global standards,” said Martin Kenney, professor of human development at UC Davis and coauthor of two books on the Japanese production system. “But it’s like changing your pants while you’re already jogging.”
The UAW is threatening other bottleneck strikes. Workers at two brake plants in Dayton, Ohio, have authorized leaders to call strikes. Walkouts at the two plants in 1996 cost GM $900 million.
As the Flint strikes continue, GM is exploring whether it can secure parts from outside suppliers to reopen some assembly plants. But supplier experts said it was unlikely that GM could do so any time soon.
GM shares declined $1.06 to close at $69.81 on the New York Stock Exchange.
