Auto production shifts to and from Mexico

It was interesting to hear yesterday that Chrysler and Nissan are working together on some new vehicles. It was not surprising to hear that Chrysler will manufacture a pickup truck for Nissan in Mexico, and that the Nissan product for Chrysler will be made in Asia. But it may have been a rebuke to doomsayers to hear that current production in Saltillo, MX, will be moved to a plant outside St. Louis.

In addition, Chrysler and new partner Getrag will build an innovative fuel-efficient dual wet clutch (whatever that is) at a plant going up near Tipton, IN, that will employ 1,400 people. In Kokomo last month, workers at Chrysler’s casting plant learned that they will make transmission cases for the new transmission, and engine blocks for a new six-cylinder engine Chrysler will be introducing. Chrysler spokesman Ed Saenz said the company won't hire more workers to deal with the extra work, which says a lot for productivity gains there. The Kokomo Casting Plant employs 760 people, who are probably sleeping a little better after hearing the news. The new work for Kokomo casting and the Tipton plant are part of a $3 billion investment in powertrain upgrades by Chrysler in North America.

Chrysler would never make these moves based on labor costs alone. It has to be that executives are seeing the effects of excellent plants and total system cost that makes manufacturing in the U.S. a good deal.

Yet good manufacturing results may not be the only reason for the move to Missouri. Gov. Matt Blunt said in a statement that "…it shows that the pro-jobs, pro-growth changes we have implemented are helping employers and entrepreneurs succeed in Missouri." Let’s hope the state didn’t just buy the jobs.

And it’s an ill wind that blows nobody good. A factor in production decisions is the soft dollar. Ontario is getting anxious about jobs moving to the U.S. Catherine Madden, an analyst who tracks auto manufacturing for Global Insight, says, "…advantages have gone away with the U.S. dollar weakening so much." She said GM, Ford Motor Co. and Chrysler LLC may threaten to move assembly work from Canada to the United States in upcoming contract talks with the Canadian Auto Workers union.

Not all the automotive employment news is rosy, however. Striking workers at American Axle have raised the ire of Richard Dauch, once regarded as a friend of labor. Dauch made $10 million in 2007, but he wants the same two-tier wage concessions as companies like Dana have gotten that would pay new workers about $14 an hour. He’s been a holdout in current union negotiations, despite the fact that he’s idling his customers’ plants by starving them of parts.

Dauch has punished unions before by shifting production out of the country. An earlier conflict between Dauch and the UAW, says an article this week in Crain’s Detroit Business, hurt the Buffalo Gear, Axle & Linkage plant in Buffalo, N.Y. Workers there were slated to build axles for the next-generation 2009 Chevrolet Camaro muscle car. But after the union local declined to agree to contract concessions, Buffalo employees were told in September 2006 that Camaro axles would be built elsewhere. A little more than a year later, American Axle idled its Buffalo plant.

According to Crain’s, the UAW suspects the work will go to Mexico. That would mean the axles would travel 2,000 miles to the Camaro plant in Oshawa, Ontario. The trip from Buffalo would have been 120 miles, and the parts would cross two international borders instead of one.

In lean terms, that adds up to the wastes of time, flexibility, and resources. With longer distance and lead time, production plans need to be frozen sooner (not really a factor if other parts have the same lead time, however). Fuel for trucks and trains is costing more and more which has to add to the final cost of the parts to GM, burning it creates CO2 and particulate emissions and depletes finite stocks of oil. But as most readers know, hourly wages - no longer a dominating cost of production - distracts executives from considering total system cost of a product.