Labor Report on the Americas March-April 1999


by Larry Weiss, Resource Center of the Americas

In Brazil four of the "global five" auto makers are piloting a major new step in the evolution of auto manufacturing, generally referred to as modular assembly. Modular will soon have repercussions for auto workers in the United States and Canada. General Motor's Mexico strategy, and the spin-off of its Delphi parts division, may be key elements in the unfolding modular story.

Automotive Industries magazine calls it "modular mania." Ward's Automotive beckons, "welcome to the automotive new world order."

The use of sub-assemblies (modules) in the assembly of finished products, including autos, is not new. But the degree to which modularization is suddenly being pursued marks the most drastic change in the auto industry since Model Ts rolled off Henry Ford's early assembly lines.

The key changes are in the scope of the modules, who assembles them, and possibly even who puts the modules together to create the finished vehicle. Some of the most extreme concepts of modular assembly envision an entire vehicle being composed of nothing more than four or five sub-assemblies and the connectors that hold them together.

Virtually all prophets of modular agree that the modules - whether there are four or twenty - will be assembled by employees of parts companies. Only the final act of putting the modules together to create a finished vehicle will be done by employees of the auto manufacturers. Modular assembly auto factories are being designed either with suppliers' factories clustered directly around them, or in the most extreme version with bays operated by the supplier companies - and populated by the suppliers' workers - right in the assembly building, adjacent to the final assembly line. Some suggest the suppliers' workers should even do the final assembly of their module to the other modules.

The logic of modular is in-house out-sourcing. The objective for the auto companies is, of course, cost cutting - mainly cutting labor costs. By transferring substantial parts of the assembly process from workers covered under UAW and CAW collective bargaining agreements to workers in the nearly 90% unorganized parts industry, car manufacturers can save a bundle. They will also save by transferring plant, equipment, engineering, and even warrantee costs to the supplier companies.

Up and running in Brazil

Modular is not merely a concept. It is already in place at two plants up and running in Brazil. Two more will soon join them. Volkswagen's heavy truck and bus plant in Resende has gone the furthest along the modular path. Supplier firms are located on-site in the VW factory and their employees account for three- quarters of the plant's workforce.

The buses built at Resende are made up of four modules - cabin, chassis, engine/transmission, and suspension/axles/wheels. Each module is built by a supplier company in a "mini-factory" adjacent to the main assembly line. The suppliers are completely responsible for producing their module - even to the point of having to provide their own fixtures and tools. Labor relations is an issue between each supplier and its employees.

Daimler-Chrysler also has a modular factory in Curitiba, Brazil where it builds Dakota pick-ups. Like in the VW facility, supplier companies' workers actually build most of the finished vehicle.

Both of these facilities are low-volume operations and neither has yet achieved high quality ratings. Some industry pundits point to this fact to assert that modular will not work for high volume auto production. But both GM and Ford are committing hundreds of millions of dollars in Brazil to prove them wrong.

GM is currently building a $600 million modular assembly plant, code-named Blue Macaw, in Gravatai. Set to open later this year, it will produce 120,000 - 150,000 small cars annually. More than twenty factories belonging to supplier companies will surround the GM plant. The suppliers will make almost everything for the vehicle except body stampings and the engine/transmission, and will deliver them to the GM facility's assembly line on a just-in-time basis.

And Ford has announced a $1 billion modular plant in Guaiba. It will produce small vans in 2001 and will add Fiestas the following year.

Opening Soon Near You

Modular production in Brazil is for the South American market, and will have little direct effect on North American auto workers. But Brazil seems to be merely a testing ground for a far more widespread move to modular. Already GM - whose labor cutting efforts have provoked a series of recent tangles with the UAW - has begun moving strongly toward modular in North America.

Last year, GM announced plans for a major new small car program called the Yellowstone Project. The new car, which will replace the Chevy Cavalier, will be built in at least four locations. Initial production in 2001 is slated for the CAMI plant in Ingersoll, Ontario and Ramos Arizpe, Mexico.

The company will invest $1 billion over the next two years to overhaul these two facilities and to build two new U.S. plants for Yellowstone. The new plants, each to employ fewer than 2,000 workers, will be built in Lansing, Michigan and Lordstown, Ohio. They will replace existing facilities in the same cities, each of which currently employ about 5,000 workers. These will be GM's first new factories since the Saturn plant in Spring Hill, Tennessee opened in 1990. GM is also said to be planning a third new assembly plant that may also be part of Yellowstone.

When plans for the Lansing and Lordstown plants were first announced last August, GM indicated it would build them elsewhere - the company specifically mentioned Mexico - if the union fought the workforce reductions. The company then began discussions with the UAW locals in Lansing and Lordstown about how modular would be brought in. But earlier this year the UAW suspended the local talks and made clear that the issue would be handled as part of the negotiations for the UAW-GM National Agreement which will begin this summer.

According to Steve Babson, Labor Program Specialist at Wayne State University in Detroit, GM will build Yellowstone at Ingersoll and Ramos Arizpe first as a clear showing of their cost cutting intentions. Canadian Auto Workers members cost GM about 40% less than UAW members due to the weakness of the Canadian dollar and the fact that Canada has a national health system, thus removing health care costs from collective bargaining. And assembly workers at Ramos Arizpe earn about $1.50 per hour.

Babson, who co-coordinates a tri-national network of academic and union researchers on the North American auto industry, says each Yellowstone plant will be surrounded by suppliers' factories that will make modules for the GM assembly line. GM employees will be left with only a small amount of the final assembly work.

GM's Saturn division has also announced that its Spring Hill, Tennessee factory will go modular starting in 2001as it increases production from less than 300,000 vehicles per year to more than 500,000 early in the next decade. GM's Willmington, Delaware facility is being added to the Saturn division, but it is unclear if there are plans to remodel it for modular production.

Mexico, Delphi

It is probably more than mere coincidence that as it pushes toward modular assembly, GM is in the final stages of spinning off its huge Delphi parts division. Delphi, which will become a completely independent company later this year, the largest in the world, employs some 64,000 unionized workers in the United States and Canada. It also employs 58,000 hourly workers earning about a dollar per hour in dozens of maquila factories in Mexico.

Delphi workers who are UAW members will initially continue to be covered by the UAW-GM National Agreement. The UAW intends to keep it that way. But Delphi can be expected to try to bring U.S. wages more in line with the rest of the U.S. parts industry - substantially lower than Big 3 wages - since the company will be competing directly with other parts companies for any business it gets. Already some 6,000 Delphi workers in Ohio who are members of IUE, rather than the UAW, have been forced to live under a three-tier contract in which new hires come in at $8 per hour, less than half the wage of senior employees.

An independent Delphi will exist in an entirely different context than it did as a GM division. Unlike basic auto, the parts industry in the United States is little more than 10% union. (In Canada it is 30-40% organized.) And with nearly half of its production already in Mexico, Delphi is well-experienced in building and operating efficiently in the maquila context of extremely low wages and modern, high- productivity factories.

The cost-cutting pressures associated with independence and the industry's move to modular could mean that Delphi will shift more work to Mexico. The strategy could be to build parts in Mexico and ship them to Delphi plants in the U.S. and Canada where they would be assembled into modules.

The Future

Both the UAW and the CAW have made it clear that modular will be a bargaining issue as the Big 3 talks get under way this summer. Both unions will insist that if Big 3 work will be moved off-site under the modular program, that the work will still be done by their members at Big 3 wages and benefits. It remains to be seen how the companies will respond, but it is a good bet that the biggest problems will come from GM. The company is both the farthest down the modular road and the most focused on cutting labor costs.

The move to modular may prove to be a two-edged sword. Clustering supplier plants around assembly factories could be a boon to the effort to organize the parts industry. Over the past 25 years many parts factories have been built in small towns both for cheaper labor and to avoid the union atmosphere prevalent in larger industrial centers. By reversing that trend, modular might help to build a greater sense of commonality between basic auto workers and parts workers.

In Bargaining '99, the UAW addresses both the modular issue and the need for cross-border solidarity: "Corporations will continue to try to create competition between workers in North America for a limited number of jobs in order to drive down compensation and union-won workplace protections. It is critical that we continue to work closely with unions and worker organizations in Mexico and Canada to build a common response to the corporations' attempts to use NAFTA to pit us against each other. We will join with workers employed by the same companies, in the same industries, and with the same interests in promoting industrial democracy, social justice and economic equity."