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California to get dose of auto anguish

September 8, 2009

California to get dose of auto anguish

Closure could erase 40,000 jobs in state and eliminate Toyota’s only UAW plant


Toyota’s decision to close its 25-year-old California factory where UAW workers build Corolla cars and Tacoma pickups has delivered a seismic, Detroit-like jolt to the once-invincible Silicon Valley economy.

The Japanese automaker’s first plant closing in North America will add to California’s swelling unemployment rolls, and perhaps, help the Golden State better empathize with the industry that it has persistently challenged with regulatory requirements.

The closure also will eliminate Toyota’s only UAW-represented workforce.

California has now lost 580,000 manufacturing jobs — a quarter of its total — since 2001. NUMMI’s closure next March could erase about 40,000 more.

"People are starting to pay attention," said Gino DiCaro, spokesman for the California Manufacturers and Technology Association.

Toyota’s decision followed GM’s withdrawal from the partnership, which eliminated about 20% of NUMMI’s production.

That left Toyota with more factories than it needed.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, said the decision "will stimulate some heavy thinking about the role of manufacturing both in California and the nation."

Venture teaches GM about efficiency

Mark Hogan embodies what hundreds of General Motors Co. executives learned from the company’s 25-year joint venture with Toyota: New United Motor Manufacturing Inc., known throughout the industry as NUMMI.

Hogan is now chief executive officer of Vehicle Production Group, a Troy-based start-up looking to make handicap-accessible vehicles inspired by the classic London taxicab. But he helped launch NUMMI in the mid-1980s and became the lead GM executive for the joint venture.

"I went out as a finance guy. I came back much more conversant in manufacturing and what made Toyota successful," Hogan said. "We all were involved in hands-on decisions and spent part of every day on the floor. I even worked in the stamping shop. I came out a much better executive."

GM’s early NUMMI grads often encountered frustration as they tried to apply what they learned from Toyota back in the mothership, but most of them persisted. When Jack Smith, one of the joint venture’s founders, became GM’s chief executive in November 1992, the NUMMI prophets had a shepherd who supported them.

"A great deal of the learning from NUMMI ended up at Saturn," said David Cole, chairman of the Center for Automotive Research in Ann Arbor. "Ironically, the core of Saturn has gone away."

Enduring lessons

On the manufacturing side, GM did sustain much of what it learned from Toyota in its Global Manufacturing System, a standardized set of practices that literally choreograph workers’ jobs to maximize efficiency, minimize physical movement and focus on using inventory only as needed.

NUMMI enhanced GM’s understanding of quality and provided small cars that people wanted. For NUMMI’s first six years, GM took more than half the factory’s output. Since 1996, however, GM has drawn no more than 21% of the plant’s vehicles and that number dipped as low as 12% as recently as 2007.

"It was never a windfall from a profitability standpoint, but vehicles in those segments typically don’t have high" profit margins, Hogan said.

Shipping parts to California from suppliers in the Midwest became more expensive as gas prices rose. Initially, Toyota imported engines from Japan, but in recent years, Toyota built NUMMI’s engines at plants in West Virginia and Alabama.

Wages at NUMMI (about $27 an hour) are higher than what Toyota pays at most of its other U.S. factories, but as production fell 16% last year and even more sharply this year, employment remained at 4,600 for a plant that will likely produce fewer than 200,000 vehicles this year.

"An assembly plant making 250,000 cars a year could be run efficiently with 2,000 or 2,500 people," said Cole. "They don’t call it a jobs bank, but essentially Toyota has a jobs bank."

Fallout of decision

Toyota’s decision to close NUMMI next March is important for several reasons. The company is acknowledging that it expanded too fast.

This is the first time Toyota will have shuttered a facility in North America. It also is a setback for the UAW’s attempt to organize at other Asian automakers. The union was grandfathered into NUMMI because it was a GM plant before the joint venture was formed.

It also triggered a wake-up call to California that manufacturing isn’t something that just happens "back East." Burdens such as a 6% tax on capital equipment don’t attract businesses that rely heavily on automation.

Tough air-quality standards that require reductions in carbon-dioxide emissions impose costs manufacturers don’t pay in other states.

"For the companies looking to grow somewhere, California is basically off the list," said Gino DiCaro, spokesman for the California Manufacturers and Technology Association. "In the 1980s, aerospace backfilled our losses. Then in the ’90s, high-tech companies and real estate provided a buffer. Now there is no backup source of job creation."

NUMMI management and leaders of UAW Local 2244 at the plant declined to be interviewed for this report.

While union officials are working with California legislators on tax incentives designed to get Toyota to reconsider, the odds of survival aren’t good.

Toyota has said it must shrink its global carmaking capacity by at least 700,000 vehicles annually. NUMMI would account for 420,000 of that.

"They have no choice but to close it," said Cole. "But it’s the kind of situation that they don’t like to deal with."


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