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February 09, 2006 - Image 16

Resource type:
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Publication:
The Michigan Daily, 2006-02-09

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0

0 S

0

WHYDET
IS RUNNING ON

R

I

AND WHATTO DO A

A

SYMPOSIUM

H

KURIAN POTHEN U AUTOMOTIVE INDUSTRY CONSULTANT
JEFFREY LIKER 0 PROFESSOR, INDUSTRIAL AND OPERATIONS ENGINEERING

LL

I - &L~- Air- --

or many years, the i uste Automo
automotive indus- a "perfect sto
try has been the By Kurian Pothen

tive Industry in
)rm"?

center of Detroit's
economy. The city
is home to three of
the world's largest
- Daimler-Chrysler,

T

he negative effects of the declining North
American Automotive Industry are a
fixture in the daily news and the media
in general. Headlines about Detroit no
longer pertain to just the Super Bowl,
Pistons or Red Wings - they are about
the newest victims to bankruptcy in the

automakers

Ford and General Motors - which
have provided livelihood for the
blue- and white-collar workers of
the Detroit metropolitan area. But
in recent years, the American auto-
makers have been losing ground to
foreign companies. Local experts
Kurian Pothen and Jeffrey Liker dis-
cuss the future of Detroit's share in
the industry.

automotive industry.
Is it that bad? Could GM and Ford really file bank-
ruptcy? Are we seeing the end the era defined by the
Big Three? The answers to all the questions above
could be "yes" unless the automotive industry's man-
agement, workers and even the government take giant,
decisive steps.
Many factors contribute to the declining automotive
industry. The Big Three all have thousands of retirees
who need pension and medical insurance coverage.
The Big Three have an older work force collecting
higher wages. The Big Three have manufacturing
facilities that are not totally flexible to produce differ-
ent vehicles. The Big Three have a union workforce
that is generally unwilling to accept different wage
structures and is skeptical about management's inten-
tions. GM and Ford have more manufacturing capac-
ity in North America than is required.
There is a global demand for raw materials such as
plastic resins and metals from a growing Asian mar-
ket, which will keep their prices going up. A global
economy and an open market allow others to bring

more goods and services to the United States. The
growth of the Internet allows us to receive services at
an extremely low cost to other countries. The lifespan
of vehicles has improved considerably, resulting in a
decreased demand for newer vehicles compared to the
growing number of new drivers.
What can be done? Honestly, no three-step program
will ever bring about an overnight change. However,
the factors contributing to our current problem
are evident, as are the steps needed to save this |0
industry and sustain its healthy growth.
The federal government has to step in and
assist the Big Three in their pension and health-
care problems. Recent data shows that our
economy is growing in other sectors. It
is imperative for the government to pay
attention to the automotive industry
and alleviate some of the pains. I don't
consider this protectionism; it is sound
preventive economic action taken by
our government to assist an industry
going through a troubling time, par-
tially due to external factors.
The management of this industry has
to take strong steps to steer their compa-
nies in the right direction. The global
demand for gasoline was predicted by
the birth of the growing middle class in
Asia. Why didn't management empha-
size fuel efficiency, alternate fuels and
hybrid technology? The inability to
adapt to inevitable changes placed us far
behind others in this evolving world.
Developing desirable vehicles is as much
a science as an art. The automotive industry
shares many parallels to the revolving fashion
industry. Shapes, colors and content all need
to be modified to stay with the current trends
and attract new buyers. Chrysler and Cadil-
lac showed the ability to sustain the market share.
At the same time, Honda, a "traditional" company,
demonstrated an attention to fashion with the devel-
opment and design of its trendy Honda Civic. What an
exciting opportunity for car stylists to indulge in the
design of handbags, perfume bottles, pens, watches,
furniture and more.
Finally, management has to be honest with its inten-
tions and ready to admit failure. Workers and man-
agement are in this together. Ignoring a crisis does not
help anyone. Workers and unions have to collaborate
with management to solve problems. Parts and cars
are going to come here from low-cost countries. The
labor costs need to be lowered in both development
and assembly. This cannot happen only through effi-
ciency improvements; there has to be an adjustment
in wages and benefits for both management and labor.
I know this is a controversial subject - but ignoring
this fact will not eliminate our current predicament.
We all know that there is an overcapacity in sup-
plier industry. Short term, this overcapacity is solved
through consolidation. However, loyalty needs to be
restored between suppliers and car makers. The cur-
rent trend is to find the next "low cost" supplier who
is willing to "borrow" his way through another day.
The result is a record-high bankruptcy rate in the sup-
plier industry. Bankruptcy is not a cure; it isonly an
''amputation:' There has to be a better way to honestly

1-75 bears little traffic on a rainy evening. Detroit's prosperity has a close tie to the success of its
own auto industry.

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