Big 3 Face Hard Road Even With Union Help

In the good old days, the United Auto Workers would come to the negotiating table with the aim of bringing the industry to its knees.

Now, things are so desperate that the union is trying to help the Big Three get back on their feet.

In negotiations with General Motors Corp., Ford Motor Co. and DaimlerChrysler, the UAW said it would settle for almost no pay increase for the next four years, as well as give the automakers the OK to cut costs by closing factories -- as long as remaining workers keep their health-care benefits.

“It was a case of the union saying, ‘We want to help. We’re in this together,’ ” says Doug Kevorkian, an independent automotive consultant in Detroit.

The accords will give GM, Chrysler and Ford -- which has lost money the last two years -- a chance to solve some of their problems, which basically boil down to making too many vehicles that customers don’t want without steep discounts.

But even with the union’s assistance, a turnaround won’t be easy.

To stay competitive, U.S. automakers must invest in new products and technologies. Yet hefty pension and health-care bills hang over the industry like a storm cloud over a convertible.

Meanwhile, overseas rivals continue to pound away at the American market. The Big Three now account for only 60% of the cars sold in the U.S. -- and fewer than half of the cars sold in California, as my colleague John O’Dell reported in Saturday’s Times.

At the head of this surging pack of foreign carmakers, Toyota Motor Corp. is enjoying a record year in the United States. It now sells more cars than do the great old Chevrolet and Ford nameplates; in fact, the Japanese company has overtaken Chrysler to become the No. 3 seller of vehicles here, with an 11.2% share of the U.S. market.

And Toyota is not exactly putting on the brakes. Its ambition is to snare at least 15% of the U.S. market. To that end, it is constructing a truck plant in San Antonio -- its sixth factory in the U.S.

What is Toyota’s secret? And more to the point, what lessons does Toyota hold for its U.S. competitors? Simple: Keep costs low to make profits high.

Toyota boasts some of the lowest production costs in the automotive industry because it has worked continually to perfect its manufacturing system. The upshot: It can build a vehicle in a U.S. plant for $500 less than any of its domestic competitors, analysts say.

The drive for excellence began after World War II, when Toyota was a far smaller and poorer company than today’s global behemoth that brings in $130 billion in sales.

Toyota’s chief production engineer, Taiichi Ohno, knew that his company could not afford the types of machines that Detroit used to make cars. Nor did it need them. At that point, Toyota’s output was only a fraction of that of the U.S. automakers.

So Ohno focused on the employees, whom the government had promised jobs for life.

Specifically, he devised a system in which workers on the assembly line -- not suits in the executive suite -- made crucial decisions affecting the production process. He also eliminated the rework and repair area at the end of the assembly line, thereby making crystal clear one of the most important rules in a well-run factory: Get it right the first time.

Ohno’s early version of modern quality control became known as “lean production.” The company has been adopting the system around the world ever since he introduced it.

Just recently, manufacturing consultant Ronald Harbour of Troy, Mich., gave an outstanding factory award to Toyota’s engine plant in Buffalo, W.Va., which opened in 1998.

“West Virginia is not a high-technology center,” says Harbour, “but Toyota came in there and trained new workers in its system.”

Now Toyota is moving on, setting up a global system of production plants through which it hopes to increase worldwide vehicle output by 40% in the next six years while reducing per-vehicle costs by 50%. It also is pioneering hybrid vehicles that run on gasoline and electricity, and get more than 55 miles per gallon of gas.

With billions of people in China, India and other countries beginning to enjoy the fruits of economic development, “I am convinced that an age of full-scale global motorization is almost upon us,” Toyota’s President Fujio Cho told company shareholders this year.

If the goals seem ambitious, stock investors are behaving like true believers. On the New York Stock Exchange, the total value of Toyota’s shares, at about $116 billion, is far greater than the combined value of GM, Ford and DaimlerChrysler.

Is there any hope for Detroit in this brave new world?

Actually, there could be. The U.S. companies in recent years have improved their own production processes so that some of their factories -- Ford plants in Atlanta and Chicago and a GM in Lansing, Mich., for example -- have per-vehicle costs only a couple of hundred dollars higher than Toyota’s, Harbour said.

What’s more, Detroit’s pension and health burdens -- so-called legacy expenses -- will begin to lessen in the next four to six years as older retirees die. GM, Ford and Chrysler shoulder an additional $1,000 per vehicle in costs because of past labor contracts that guaranteed a high rate of health insurance for retirees. New contracts won’t contain such provisions.

Still, in the end, the Big Three must do even more to wring out costs and, at the same time, come up with factory-floor innovations and eye-catching car and truck designs.

The U.S. companies “have placed big bets on new vehicles scheduled for introduction by mid-decade,” notes Christopher Benko, director of the AutoFacts service of consulting firm PriceWaterhouseCoopers. “The next three to five years will be critical.”

Indeed, once that period passes, keep your eye on the UAW. The best thing Detroit could hope for is that the union will feel safe enough to play hardball again.

James Flanigan can be reached at jim.flanigan@la times.com.