The outcome of bargaining talks under way between the United Automobile Workers and carmakers will be crucial, not only for the future of the American auto industry, but also - given Detroit's importance to subcontractors, suppliers, and other industries such as steel - the United States manufacturing economy.
The auto talks come against a backdrop of sizzling sales, innovative new products, and a public eager to buy - and with the dollars to buy. The challenge - for both industry and labor - is to compromise on a long-range contractual relationship that ensures continuing productivity. That means the two sides must come to terms on a package that provides job security for workers and greater automation and modernization of automaking facilities. The new labor pacts will replace existing agreements expiring in September.
The industry, for its part, has resumed its success story. It was on the economic skids only a few years ago. Now its message is loud and clear: If Detroit can come roaring back from a period of slump, so too can other basic consumer-oriented US manufacturing industries. Granted, the car industry is starting to talk diversification. But unlike, for example, steel - where major producers have diversified into nonsteel products - Detroit has kept its focus on car production. And the key to the current sales boom has been major innovations in style, design, and quality of manufacturing. For proof, consider just the Chrysler minivans, or the Pontiac Fiero, the Ford Tempo, or the four-wheel-drive vehicles from American Motors.
During early July alone, US sales were running at a seasonally adjusted rate of 9.1 million cars, up from 8.3 million for June. That rate is probably something of a fluke - because of good weather, concerns about rising interest rates forcing people to buy earlier than anticipated, and so forth. And the yearly rate will probably still be in the 8 to 8.5 million-car range. But the consumer dash to auto showrooms these days must cheer Detroit.
Still, the industry's challenges warrant attention:
* Carmakers need to boost productivity to offset productivity gains by overseas competitors, particularly Japan. In Japan, productivity is rising about 10 percent a year, compared with gains of about 3.5 percent a year for the US industry.
* US car workers cannot, and should not, live on lower Asian wage scales. Yet , Japanese cars have a price differential of about $1,500, because of lower wage packages and government support. US workers and management should consider limiting wage increases to actual gains in productivity. As a trade-off, management must be willing to ensure job security. Car executives should consider giving back some of their huge pay and benefit boosts of recent months. Workers at Ford and GM alone gave up more than $3 billion in contract concession during the recession. Recent executive bonuses - running in the hundreds of thousands of dollars - look excessive.