The editor’s opinion from Marketplace, Northeast Wisconsin’s business magazine. (Obligatory disclaimer: Most hyperlinks go to outside sites, and we’re not responsible for their content. And like fresh watermelon, peaches, pineapple, grapefruit, tomatoes and sweet corn, hyperlinks can go bad after a while.)

June 5, 2008

General Motors in Park

Tuesday's big news was General Motors Corp.'s announcement that it planned to close its Janesville assembly plant by 2010.

That leaves Chrysler Corp.'s Kenosha engine plant as the last plant of a Big Three (GM, Ford, Chrysler) manufacturer in Wisconsin. This is the kind of news that, like finding out about the death of a relative who had been ill, is a surprise that isn't a surprise.

The father of a high school classmate of mine drove 40 miles one way every day from up the street in Madison to Janesville to work at GM. We owned a Janesville-built Chevrolet Caprice, which lasted more than 130,000 miles at a time when hitting 100,000 miles was a big accomplishment. This feels personal to a lot of people, I think, because manufacturing is obviously a big part of Wisconsin's economy, and car manufacturing in particular has a certain status that manufacturing of other things doesn't have.

Even though, according to industry experts, the Janesville plant had many factors going for it, including positive labor–management relations and a history of flexibility, it is part of a company that, according to Catherine Madden of Global Insight, "simply has too many facilities in the system, if you look at where its [declining] market share is today."

Sales of sport utility vehicles, such as the Chevrolet Tahoe and Suburban and GMC Yukon built in Janesville, have dropped 20 percent since 2003, according to But before you assume that GM simply built too many SUVs, consider other sales numbers that brings up:
  • Compact trucks: Down 36 percent.
  • Minivans: Down 24 percent.
  • Large trucks: Down 14 percent.
  • Luxury cars: Up 20 percent.
  • Large cars: Up 26 percent.
  • Compact cars: Up 35 percent.
  • Compact SUVs: Up 61 percent.
It’s unfortunate, but a fact of life, that workers bear the brunt of bad decisions made by management. In the case of the SUVs that won’t be built in Wisconsin after 2010, I think GM erred by not offering diesel engines in them, which would have resulted in better fuel economy, even at 70 cents per gallon more than unleaded. (For that matter, GM doesn't offer a diesel in its full-size passenger vans — only in its windowless vans and van-based chassis cabs.) Part of the reason might be that GM is the only one of the Big Three to manufacture its own diesel engine, instead of getting outsourced diesels — Ford's truck diesel is made by Navistar, and Dodge's is made by Cummins. (It's taken more than a decade for GM to undo the damage created by its first move into diesels, a product so bad that it is credited for having damaged the entire market for diesel cars in North America. Not until GM got its Detroit Diesel division to build a V-8 for pickups and the Suburban did that stigma start to go away.)

Some of GM’s gas V-8 engines have Active Fuel Management, which turns off half the cylinders when not needed, but I suspect too many buyers remember GM’s first crack at that, the V-8-6-4 on 1980s Cadillacs. (And not fondly; called the system “the Titanic of engine options. The cars jerked, bucked, stalled, made rude noises and generally misbehaved until wild-eyed owners took the cars to have the systems disconnected.”)

The Chevy Tahoe and GMC Yukon have a hybrid system option based on shutting off and restarting the engine when needed (i.e. in traffic), which seems to me antithetical to long engine life. (And, in the case of the Tahoe, the Hybrid costs $9,770 more than the standard Tahoe.) GM has dragged its corporate feet on equipping its cars and trucks with six-speed automatic transmissions (the more gears you have, the better a vehicle will perform, in both acceleration and in fuel economy), and pretty much eliminated manual transmissions, which still get better fuel economy (in the hands of the right driver), on vehicles bigger than subcompacts. And a look through Chevy’s or GMC’s Web sites will show you that GM hasn’t gone out of its way to make any of these things available broadly (note how many times the phrases “limited availability” or “not available with” come up), particularly in the four-wheel-drive SUVs that are most favored in this latitude.

(I should add that this demonstrates why I admire Bergstrom Corp. as much as I do. Bergstrom has been a success for decades despite the fact that they have almost no control over what GM builds. They’ve been successful for more than 25 years despite having to try to sell the Chevy Chevette, Cadillac Cimarron and Pontiac Aztek, cars that mysteriously shed their paint, and GM’s first computer-controlled cars, whose Check Engine lights went on as often as their turn signals.)

GM pushed trucks and SUVs because GM made much more money on trucks and SUVs than they did in cars, and particularly small cars. (In fact, GM, Ford and Chrysler have had problems for decades making profitable small cars, or small cars that Americans would buy, despite the fact that they’ve sold them for decades in Europe and other countries.) You might recall that GM created a new division, Saturn, to build small cars, with a brand new plant (the last GM has built, incidentally) in Tennessee. Unfortunately, there was nothing Saturn built that was particularly better than its Japanese competition. Today, Saturn sells cars designed in Europe, an SUV and a crossover that are also sold by other GM divisions, and one cool car, the Sky.

People bought Suburbans and Yukons because they felt a need for them — either to pull boats or campers, or just because they preferred their roominess and their higher driving position to smaller cars. Those smaller cars, incidentally, are the result of increasingly stringent fuel economy standards, which helped kill off large rear-drive cars, and particularly station wagons, in this country; an SUV is nothing more than a station wagon body on top of a truck chassis. SUVs weren't subject to those fuel economy regulations, so those who wanted a vehicle more like the old big cars (for instance, tall people) voted with their feet and purchased SUVs. (In a capitalist society, the consumer should get to choose, not government, and not elitist busybodies who look down their noses at others' vehicle choices.)

Given that American drivers have responded to past improvements in fuel economy by driving more, it’s not clear to me if large SUVs are on their way out, or if sales are going to drop until people adjust financially to the current level of gas prices. The fact that Land Rovers are for sale in the U.S. demonstrates that someone else besides GM, Ford and Chrysler felt that Americans would buy large SUVs for quite a while. Many responses to the Milwaukee Journal Sentinel question asking SUV owners what they would do with their SUVs seems to indicate that the adjustment is well under way already.

A bigger problem is that American automakers have the perception of producing vehicles of lower quality than overseas brands. In many years, the perception was accurate (I can speak from experience with this car and this car — neither of which, I would point out, were built in Janesville, where the two-door version of this much more dependable car was built); I don’t think it is now, but anyone who’s dealt with public relations knows that negative perception is a tough thing to overcome. (Ironically, the Tahoe and Yukon were rated second in J.D. Power and Associates' initial vehicle quality ratings.) In fact, another problem the automakers is face has to do with quality — cars last longer, so people replace them less often.

There are lessons from the Janesville closing for both workers and for government. The days of having the same employer for your entire career (40½ years in my father’s case) are over. The days where someone can make $54,000 (the average GM Janesville assembly line worker's salary, according to the Milwaukee Journal Sentinel) after walking into the plant with your only marketable skill being your work ethic are almost over too. This demonstrates the need to decouple health insurance from jobs, so that changing jobs isn't so disruptive for families, in addition to the benefits of providing choice for the insured. (Just so you're clear, this is NOT an argument for single-payer health care.)

This is also where the importance of economic development shows itself. Not many people knew until the Wisconsin State Journal in Madison pointed this out, but GM now has fewer employees in Janesville than Mercy Health Care does. Few people also know this, but 86 percent of new jobs in the post-9/11 recovery were created by companies of 100 or fewer employees, and 65 percent of new jobs were created by companies of five or fewer employees. GM and its suppliers total 6.3 percent of the jobs in the Janesville area, half of the total at GM's peak in Janesville, so it's obvious that economic development officials in the Janesville area did in fact get the message years ago. As Doug Pearson, the former executive director of Chamco, the nonprofit Oshkosh development corporation, points out, "If you've got 50 small companies, it's a lot less likely you're going to have something that's going to affect all those companies."

To be a success in manufacturing, particularly vehicle manufacturing, requires the right mix of workforce and product. As Robert Bohn, CEO of Oshkosh Corp., recently told the Milwaukee Journal Sentinel, "There's nothing bad about manufacturing in Wisconsin. If you have a good work force . . . if you have the right machines, you can be just as competitive here as anywhere else in the world."

The fact that the GM decision to close the Janesville plant was probably inevitable doesn't make one feel less melancholy about it. As the Wisconsin State Journal's William Wineke put it, "It's just sad that men and women who work hard and are willing to play ball fall prey to a changing economy the same way those who fight every change fall."

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