Detroit Suffers Through Auto Industry Realignment

Big losses and intense competition from Japanese automakers prompted major restructuring at Ford and General Motors in 2006. Plant closings were announced and union workers were offered buyout packages as sales of profitable SUVs plummeted.

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RENEE MONTAGNE, host:

And it wasn't just a difficult holiday season for the U.S. auto industry, the entire year has been painful. Ford and General Motors announced plans to close more than two dozen plants, and more than 70,000 of their workers decided to leave as the two companies tried to turn around their businesses.

NPR's Frank Langfitt reports.

FRANK LANGFITT: It's been a while since U.S. automakers had a year as bad as this one.

Mr. KEVIN REILLY (AMR Research): Oh gosh, probably in the early ‘90s. You know during the last major downturn, around the first Gulf wars.

Professor GARY CHAISON (Clark University): I don't recall ever having seeing a year like this. Certainly in the late 1970s there was talk of Chrysler possibly going under.

LANGFITT: That was Kevin Reilly, an automotive analyst with AMR Research, and Gary Chaison, an industrial relations professor at Clark University in Massachusetts. They say the auto industry recent troubles were triggered by two things: an over-reliance on sport utility vehicles and the soaring price of oil.

Ford and GM built a strategy around SUVs and their high profit margins. When oil was relatively cheap, it worked. But as fuel prices rose this year, demand for SUVs collapsed. Reilly describes what's happened over time to the Ford Explorer.

Mr. REILLY: When that car was in its most marketable position, it was selling more than 200,000 units per year. Now that vehicle, they'll be lucky to move between 50 and 75,000 of them.

LANGFITT: Big profits from vehicles like the Explorer helped offset expensive benefits for workers and retirees. For instance, healthcare adds $1,500 to the cost of a GM vehicle. For a U.S.-built Toyota, the comparable amount is only about $200. With demand for their product sliding, Ford and GM could no longer afford so many workers with such rich benefits.

So they offered them cash to leave - more than 70,000 accepted. Gary Chaison, the industrial relations professor, says workers recognized that the U.S. auto industry is fundamentally changing.

Prof. CHAISON: For many years, the autoworkers were considered the aristocrats of labor. The workers had the highest pay, were in the largest most stable industry. And now that's gone. It makes many workers in manufacturing feel very hesitant. They've seen steel go. Now we're seeing domestic auto industry go as well, and be replaced by auto jobs at Japanese firms, for instance, that still pay well but nothing near what autoworkers for the Big Three used to make.

LANGFITT: Mark Randuski(ph) saw the writing on the wall. He worked at a GM plant in suburban Atlanta with his wife, Amanda. The plant could close as early as next year, so Mark took a lump sum payout of $70,000. Amanda recalls the couple's conversation about their future with GM. You can hear their 7-month-old, Brayden(ph), in the background

Ms. AMANDA RANDUSKI (GM Worker): Exactly. What our words were was we both don't need to be on the sinking ship. That was exactly our words.

LANGFITT: The Randuskis now live in Texas. Amanda got a surprise transfer to a General Motors' SUV plant there. Mark is getting ready to look for a new job and Amanda works the afternoon shift, but they continue to worry. The factory is giving Amanda two weeks off next month because of slack demand for SUVs. And she doesn't expect to stay with GM for the long haul.

Was there a point at all that you thought maybe I should just get out now?

Ms. RANDUSKI: I think eventually I will have to. But I'm just going to stick with it for as long as I can.

LANGFITT: For all the bad news, there are signs of progress in Detroit. In October, General Motors posted its smallest loss in nearly two years. And the company's done well in fast-growing markets like China, where the Buick has been a hit. As for gas prices, analyst Kevin Reilly says Detroit is beginning to adapt by building smaller, more fuel-efficient SUVs.

Mr. REALI: They're responding with some great vehicles in the pipeline. I mean GM's new crossover vehicles - the Outlook, the Acadia and the Buick Enclave - are brilliant responses to the change in the market demand.

LANGFITT: The pain, though, isn't over. The Big Three are headed for tough contract negotiations with the United Auto Workers next year. The companies will push workers to give up more benefits as Detroit tries to shrink its way to profitability.

Frank Langfitt, NPR News.

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MONTAGNE: This is MORNING EDITION from NPR News. I'm Renee Montagne.

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