Solution to saving US carmakers isn't tariffs - it's empowering workers

Washington

FORMER centres of car production such as Ohio and Michigan were key to candidate Donald Trump capturing the presidency. Voters there found President Trump's promise to bring back good car manufacturing jobs appealing. And he has tried to keep that promise, unveiling a "Buy American, Hire American" plan, rolling back regulations and threatening tariffs on imports of steel and aluminium.

But rather than bringing back car jobs, the industry has actually cut more of its US workforce during the Trump presidency, with Ford Motor and General Motors recently announcing plant closings and layoffs. That's because Mr Trump's policies ignore the reality of who makes "American" vehicles and why US car companies are struggling.

They aren't lagging behind their foreign competitors in sales because material costs or labour costs are too high. They are selling fewer cars because the flawed production model they adopted to rein in labour power stifles innovation and weakens quality, sending them scurrying to cut costs in an attempt to compete. To turn the car industry around, the only real answer then is to empower workers, which would allow for the adoption of a more flexible and efficient production system, like the ones foreign manufacturers are using to gain market share while the American Big Three lose it.

The irony of this situation is that the Big Three actually pioneered the flexible production system in the 1910s and 1920s.

They developed this system haphazardly through trial and error. For instance, when Ford demonstrated the usefulness of geographic concentration of the entire production process at its Highland Park and River Rouge plants, GM began building and acquiring new components plants closer to their assemblers. By the 1920s, both companies used what they called "hand-to-mouth" delivery (a precursor to today's just-in-time delivery, which supplies parts only as they are needed). The result of this system of production was the most innovative period (1922 to the start of World War II) in the history of the US car industry.

Having all production operations centred in one area fuelled this innovation and made it more logistically feasible to make necessary production changes, as did the lack of a stockpile of parts. But these very features of flexible production that yielded high rates of innovation also gifted workers with incredible structural leverage over the companies. Mobilising workers became easier because they were neighbours and parts of the same communities. And just-in-time delivery meant that if workers undertook direct action, they could target it at key chokepoints in the production process, ensuring that work stoppages produced maximum disruption.

This latent power was first felt by Henry Ford in 1913 when a sickout and rapid turnover caused the magnate to offer the unprecedented compensation package of US$5 day. For the next 15 years or so, the car industry provided amazing wages and benefits relative to other industries employing semi-skilled labour. This compensation was key to making flexible production function, as it prevented potentially costly work stoppages and made workers feel as though they shared in some of the benefits of the system.

When the Great Depression hit, however, the Big Three carmakers maintained profitability by cutting wages and eliminating benefits. By 1936, GM had surpassed pre-Depression profits without sharing the recovered wealth with workers. This broke the fragile trust that had built up. GM workers undertook sit-down strikes in Flint and surrounding areas. By targeting the key chokepoints of the system, they were able to defeat GM.

Thanks to the administration of President Franklin D Roosevelt, they secured a no-strike pledge from the union during the war. After World War II, the Big Three began to dismantle flexible production, replacing it with a decentralised production system. While this decision kept costs down at the time, it proved catastrophic once Japanese and European carmakers arrived in the 1970s. The result was that foreign carmakers produced more fuel efficient, higher quality and less expensive cars.

Today, foreign car companies actually produce more vehicles within the United States than Ford, GM and Fiat Chrysler combined. Crucially, Honda and Toyota also produce a much greater percentage of those vehicles in the US than the once-legendary Big Three.

As a result, Mr Trump's policies have actually walloped the American car manufacturers because tariffs have raised the costs of their imported parts.

The real solution to increasing manufacturing jobs is not sleight of hand in the form of tariffs or deregulation, but the counterintuitive policy of empowering workers in both US and foreign-owned car plants.

While empowering workers will increase costs, it will also allow for workers to feel secure enough that they can help guide the return to flexibility - eschewing the use of the leverage that so scared the Big Three in the 1940s - which will eventually yield greater innovation and competition based on quality of product rather than cheapness of labour costs. The Big Three have been loath to admit this, but it's the only way to compete in today's global market. WP