Detroit — The American auto industry must substantially improve quality and sharply reduce production costs if it is to survive in an increasingly competitive environment. That is the message bargainers for the Ford Motor Company and General Motors Corporation are taking to the United Automobile Workers union (UAW) as new contract talks hit their stride.
The two giant automakers are in the midst of negotiating new three-year contracts covering a combined total of almost 500,000 hourly workers represented by the union.
The buzzwords of these negotiations are productivity, quality, and job security. The trick for union and management bargainers is to find a way to link those issues in an acceptable contract.
``[Production] costs and quality are the tickets to the playing field of the future,'' says David Cole, head of the Center for the Study of Automotive Transportation at the University of Michigan. ``A manufacturer that doesn't have world-class quality or costs is not even going to be invited by the customer to play the game.''
A glimpse into the cost-containment problems faced by both of the big automakers came to light recently.
In an internal memo leaked to the Detroit Free Press, W.Blair Thompson, GM vice-president and group executive for automotive component groups, reported GM's partsmaking operations will have lost ``in excess of $1 billion'' between April and November. That would account for a significant share of the expected decline in GM's 1987 earnings.
Meanwhile, Ford's chief negotiator, Stan Surma, says that despite six years of cost-cutting efforts that have dramatically improved the automaker's financial performance, it still costs $800 more to build the subcompact Escort than Honda spends to build its comparable Accord model at its plant in Marysville, Ohio.
``A little over $1,000 is attributable to labor costs and productivity differences,'' Mr. Surma says, ``and also some advantages that the transplants have as far as material costs'' from using imported components. Surma adds that the production cost gap is ``offset by freight'' (the cost of shipping those foreign-made components to the United States).
The typical Honda worker in the US earns about $1 an hour less than his Ford counterpart, and Honda's medical and pension costs are also lower. But a more significant factor for Honda is the absence of union work rules that limit flexibility - and productivity - at UAW-organized plants.
While Ford has yet to disclose how it proposes to deal with cost containment and productivity, General Motors took an aggressive stand with its first formal contract offer.
Though the proposal was quickly rejected by UAW bargainers, many observers believe it may still influence a final settlement.
``In the broadest sense, job security is what these negotiations are all about,'' says GM vice-president Alfred S. Warren, the company's chief bargainer. ``None of us can have truly secure jobs unless the company we rely on for our jobs is competitive in the marketplace.''
The heart of the GM offer would have come into play during the second and third years of the proposed contract. Each plant would have a specific productivity goal set for it by either local or divisional company and union negotiators. If the plant met that target, GM would guarantee not to close it or transfer away work. Otherwise, the plant would face the possibility of being closed or drastically scaled back, and its work force cut.
Wages would also be affected by the GM package. Under the proposal, base rates would be fixed at current levels ($12.82 an hour for a typical car assembler), while the cost-of-living allowance would be permanently frozen at the present 86 cents an hour.
Workers would get a lump-sum bonus during the first year, with second- and third-year bonuses also tied to productivity and quality goals. The GM proposal would have effectively created a two-tier wage system providing lower productivity bonuses for GM's component-plant workers - nearly a third of the 370,000-member UAW work force.
GM would like to measure a plant's performance not only in terms of productivity improvements, but also by how well it is able to upgrade quality.
That is something its rival, Ford, is also hoping to deal with in a new contract. The No. 2 automaker has taken the unprecedented step of setting up a special joint company/union quality-control subcommittee.
``Let's face it,'' says Surma, ``these are unusual times. The company and the union both recognize the need for improving quality to meet the demands of our customer.''
This is one topic on which company and union agree. UAW vice-president Stephen Yokich, the union's chief bargainer at Ford, says quality improvements will be measurable on the shop floor through increased sales. ``As long as they're selling a quality product,'' Mr. Yokich says, ``that's job security.''
Neither side is discussing how it might deal with the quality issue. Yokich, however, hints that he would like to require Ford to increase capital spending in areas where competitors have gained an advantage with more modern equipment.
Another possible way to control quality contractually, says Dr. Cole at the University of Michigan, would be to ``provide a mechanism where, if poor quality is being produced, the union can file a grievance.''