How Foreign Plants Are Booming

By Sean Gregory

While line workers at the nine GM plants scheduled to shut down ponder their uncertain future, the mood at Honda's two assembly plants in Ohio is full of hope. The Japanese company is in expansion mode in the U.S., with the Ohio plants and a third in Alabama ramping up production. Honda is spending $123 million to replace the paint shop at the Marysville, Ohio, plant and another $89 million to expand its nearby parts-distribution center. The East Liberty plant recently launched the stylish new Honda Civic, which last week was named Motor Trend's Car of the Year for 2006. "When I think about Honda's success in Ohio," says John Adams, executive vice president of Honda of America Manufacturing Inc., "I think about the power and the passion of our people."

Honda is just one of the foreign car manufacturers that are expanding in the U.S.--challenging GM, Ford and Chrysler in their own backyard. According to the Center for Automotive Research (CAR), the number of manufacturing jobs created by foreign-based automakers in the U.S. has risen 72% since 1993, to about 60,000. (The Big Three currently account for around 240,000 manufacturing jobs in the U.S., down from 340,000 in 1993.) The Asian companies have grown the fastest. Toyota, which plans to overtake GM soon as the world's largest automaker, has 11 U.S. plants and expects to open a truck factory in San Antonio, Texas, in 2006. European brands, including BMW and Mercedes-Benz, are also growing. CAR estimates that foreign automakers operating in the U.S. add 1.8 million jobs to the American economy, including white-collar, dealership and supplier positions--from partsmakers to the bartenders at post-whistle watering holes.

Why do overseas firms seem to thrive, building profitable cars with U.S. workers, while Detroit languishes? For example, in the first quarter of 2005, Nissan made $1,603 on every vehicle sold in North America, while GM lost $2,311, according to Harbour Consulting. For starters, the transplants, generally with reputations for higher quality than American brands, don't offer the deep discounts that U.S. makers employ. And foreign manufacturers don't carry the legacy costs that drag U.S. companies down. Workers at foreign companies' nonunion shops make roughly the same in wages and benefits as unionized employees in Detroit. But Asian and European firms, with younger workforces in the U.S., aren't saddled with crippling pension and health-care obligations. GM spends $1,525 per vehicle in the U.S. on health care, compared with $300 per vehicle at Toyota.

Thanks to newer technology, the foreign manufacturers are more efficient too. The Big Three are closing the productivity gap; GM takes 23 hours of labor to produce one vehicle, down from 32 hours in 1998. But that's still longer than Toyota's 19.4 hours per vehicle and Nissan's 18.3. The real question, of course, is what kind of cars Americans want. Honda's timing at East Liberty was near perfect: its fuel-efficient Civic rolled off the line just as consumers were looking for ways to save on gas costs. "We're in a battle for survival right now," says CAR chairman David Cole. "Without decisive action, the domestics will not stay in the game."

With reporting by Verna Gates, Frank Sikora/Birmingham, Joseph R. Szczesny/Detroit