US manufacturing is competing by trimming workers and wages
Christian Science Monitor
By Mark Trumbull | Staff writer of The Christian Science Monitor
February 15, 2008

A new round of cutbacks by Detroit's automakers carries a larger message – that America's manufacturing workers are under new pressure in jobs where labor unions had once been able to command middle-class wages for assembly-line jobs.

The point was punctuated this week as General Motors announced the largest ever annual loss by a maker of automobiles. In a bid to restore profitability, GM said it would offer incentives to convince older, highly paid assembly workers to retire early. Ford and Chrysler are pursuing similar worker buyouts.

The moves signal what some analysts say is an accelerating effort to trim wages and workforces. Essentially, the old Big Three are becoming a much smaller three. The pressures facing Detroit fit a larger pattern. Many US manufacturers are facing rising pressure from foreign rivals. The good news is that US factories are becoming more competitive. The bad news is that the needed streamlining is coming at the expense of American workers.

"Those jobs are going and they're not coming back," says Gary Chaison, a labor expert at Clark University in Worcester, Mass. In part, he says, manufacturers see moves such as the job buyouts as "a path for them to become low-cost producers by eliminating the high costs of American labor."

Not every industry faces the same degree of foreign competition from challengers based overseas. The US remains a big manufacturing nation, accounting for about 10 percent of US employment and 12 percent of annual economic output. And the high productivity of American workers still allows them to reap higher pay than their peers overseas.

Furthermore, the falling value of the dollar in relation to foreign currencies makes American workers more competitive globally.

But as worker productivity surges forward around the world, the balance of power has shifted. America's heavy industry isn't producing the number of jobs that it used to.

The US lost 3 million manufacturing jobs between 2000 and 2006, according to the Economic Policy Institute in Washington, citing figures from government reports.

Meanwhile, the average hourly earnings of manufacturing workers have grown more slowly than pay in service-sector jobs, even though productivity has risen much faster for manufacturing workers.

"All of US manufacturing is competing on a global basis," says Michelle Krebs, senior editor of Edmunds's, which tracks the car industry.

A weaker dollar should help

One bright spot for US manufacturers: Since 2002, a weakening exchange rate for the US dollar has been helping to make US exports more attractive to foreign buyers.

Exports have been growing steadily, and have been a key factor behind a narrowing trade deficit, seen in new numbers released Thursday. This gap by which America's imports exceed its exports fell to $712 billion for the 2007 calendar year, down from $759 billion the year before.

"We believe we are in the early stages of a manufacturing renaissance," David Rosenberg, an economist at the investment firm Merrill Lynch, wrote in a recent report to clients.

Foreign investment in US manufacturing facilities jumped in both 2005 and 2006, he notes.

The auto industry has long been at the forefront of foreign investment. Global carmakers, pushing for access to US consumers, have set up much of their production in the US. That has prodded the Detroit Three, in turn, to seek much of their profits from overseas operations.

The Big Three are all aiming at a common strategy: Cut labor costs to become profitable again in the US, while also looking overseas for growth opportunities.

The worker buyouts, analysts say, could do a lot to help them get back toward profitability again.

At the heart of GM's $38.7 billion loss for 2007 were North American challenges.

But company executives say the new labor contract with the United Auto Workers (UAW) creates the possibility of big improvements ahead.

It transforms retiree healthcare benefits – resulting in cost cuts starting around 2010.

And the worker buyouts, GM chief executive Rick Wagoner told CNBC this week, can help in two ways. First, "we get the opportunity under the new labor contract to … substitute from jobs which have traditionally been paid at the full assembler rate to a lower tier."

Now, in fact, starting pay for a Big Three job will be about $14 an hour, barely half the previous level.

Second, Mr. Wagoner said the new contract allows GM to better adjust its staffing to demand levels. It can buy out some older workers and not replace them at all.

The new UAW contracts also put new limits on how long the automakers must keep workers on their payroll after their jobs have been eliminated. Workers will no longer sit indefinitely in a so-called "jobs bank."

New labor flexibility for GM

These changes, for GM and its peers, open a new era of flexibility in managing their labor force.

That could mean even more job cuts for an industry that has already been downsizing. The pace of auto sales has been slowing in recent months, and could cool further if the economy enters a recession.

Almost immediately after the new contract was ratified, Chrysler announced plans to shed 10,000 jobs, following on a cut of 13,000 that was already under way.

Many Chrysler workers felt betrayed by the move, since they had just made pay and benefit concessions, in the hopes that their job security would be enhanced.

Now, in this industry at least, the tough times could even lead to downward pressure on wages in nonunion factories owned by Toyota, Honda, and other foreign firms that operate in the US.

"I think you'll see a ... cut in those wages, too," says Chris Kutalik, editor of Labor Notes, a union movement newsletter based in Detroit.

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