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.