For Ken Trammell, the chief financial officer of Lake Forest-based Tenneco Inc., Monday’s announcement that Ford Motor Co. would slash up to 30,000 jobs and close 14 plants hardly came as a surprise.
Tenneco has already adjusted to the harsh new reality roiling the global auto industry.
Since 2000, the producer of mufflers and shocks has cut 7,000 jobs of its own while closing eight manufacturing plants around the globe.
“And we imagine we’ll be able to reduce capacity even more,” Trammell said.
Translation: The pressure is on to keep cutting costs.
For much of the past 100 years, the U.S. auto industry has held a special place in the industrial Midwest. It provided high-paying union and white-collar jobs and helped sustain middle-class lifestyles that were the envy of the world.
But even before Ford and General Motors Corp. entered their current spasms of restructuring–which together will cut up to 60,000 jobs–global competition was reshaping the industry.
“It’s extremely painful,” said Amil Petrin, associate professor of economics at the University of Chicago Graduate School of Business.
Auto manufacturing is hardly dead in this country. Even as Ford and GM shrink to survive against fast-growing foreign carmakers, companies like Toyota, Nissan and BMW are building plants and adding jobs.
But global competition has put pressure on the entire industry to drop wages and otherwise slash expenses–especially in the unionized Midwest. As in many other areas of the global economy, cost-cutting has become a mantra in the auto industry.
Ford has no choice. While on Monday it reported earnings of $2 billion for 2005 (down 42 percent from 2004), it earned all that money in Europe, Asia and elsewhere. It lost $1.6 billion in its crucial North American operations.
The most immediate impact of Ford’s restructuring on the Midwest economy will be the closure of plants in Hazelwood, Mo., near St. Louis, and Wixom, Mich., near Detroit.
Ford’s Torrence Avenue assembly plant in Chicago will be spared because a recent investment of $400 million has made it one of the company’s most modern and efficient facilities.
But Thomas Klier, a senior economist with the Federal Reserve Bank of Chicago, notes that the dramatic decline in the fortunes of Ford and GM has devastated auto-parts suppliers around the region, which employ three to four times as many workers as the automakers themselves.
Since 2001, the Fed calculates the industry has lost more than 90,000 jobs in Michigan, Indiana and Ohio alone. Of those, 60,600 were lost from auto-parts companies.
Pundits once joked that Chicago caught a cold when Detroit sneezed because the area’s economy was more closely intertwined with the fortunes of domestic automakers.
But “the severity of the illness has declined,” said Sophia Koropeckyj, an economist at Moody’s Economy.com, because so many auto-related jobs have already been eliminated.
Auto-related manufacturing now accounts for 2.3 percent of the Chicago area’s employment base, down from 5.5 percent during the industry’s heyday in 1975, according to Moody’s Economy.com.
Trammell at Tenneco is quick to point out that despite the problems at GM and Ford, the industry continues to grow and provide opportunity for aggressive companies. The opportunities in a global economy, however, are simply different than they once were.
GM and Ford are both growing quickly in China, for instance, where a wildly expanding middle class is creating big demand for autos. By building plants in China, Tenneco has been able to grow along with them, Trammell said.
In the U.S., however, Tenneco has been chasing Japanese customers. While Ford and GM remain its biggest customers, Toyota, Honda and Nissan now make up almost one-third of the company’s domestic sales, Trammell said. Tenneco will launch two small factories this year to supply Toyota plants in San Antonio and southern Indiana.
As successful as Tenneco has been in restructuring itself, however, it is still not creating the same kinds of high-paying union jobs that once put a car and perhaps a boat in every autoworker’s driveway.
Even at a successful Ford plant the idea is to increase efficiency, not the payroll. Despite Ford’s problems, the Torrence Avenue plant is widely regarded as a model automotive operation.
Two years ago it was retrofitted with modern equipment that allows it to build as many as eight different models, not just one. That allows the company to quickly meet demand for what’s selling, not what Ford hopes will be selling.
Between the plant, an associated stamping facility and a commercial park occupied by parts suppliers dedicated to the plant, Ford is responsible for more than 5,600 jobs. But that number is unlikely to grow over time if demand increases for Ford’s cars.
The flexible manufacturing system “gives us the capability to do more with less,” said a Ford spokesman. Faced with fierce global competition, companies like Ford are reluctant to make new hires in good times or bad.
Economists would tell you that gains in productivity should eventually lead to more or better employment because companies use the profits they gain from making more with less to pay better wages or expand their businesses and provide new opportunities.
The most worrisome aspect of what’s happening at GM and Ford, however, is that the cost-cutting isn’t being matched by increases in volume. That’s because both companies have tripped up when it comes to what American companies traditionally do best: innovation.
While Toyota, Honda and many European companies continue to come up with cars people crave, Detroit’s two biggest automakers have only sporadically lit fires under their customers with hot new products. DaimlerChrysler’s Chrysler division, by contrast, has several times rescued itself from the brink of financial disaster by coming up with popular, if risky, cars like the Chrysler 300.
While Ford and GM have said loudly and often that their biggest competitive problem is the towering pension and health-care costs they owe to long-retired workers, a lack of product development and marketing prowess has also hobbled both companies in recent years.
“That’s always been the UAW’s complaint,” said the University of Chicago’s Petrin. “Our advantage has always been that we were clever and know how to advance the industry. That hasn’t been happening.”
Agreed Klier at the Chicago Fed: “You can’t just cut your way back to profitability. You have to succeed in the marketplace.”
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mdoneal@tribune.com
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