Yellowstone Meets Death Valley--But GM and the UAW still need each other

Yellowstone was the name General Motors Corp. chose last year to describe its plan to build small cars profitably in new factories based on modular assembly.

Yellowstone was the first, and still most famous, national park, spreading throughout three Western states.

But you won't hear it mentioned anymore at GM. Nor any derivation of the word "module." They're as dead as the unearthly silence of Death Valley, a national park in California known for its abundance of rattlesnakes and vultures.

Mark Hogan, GM Vice President-Small Car Group, views modular assembly as the salvation of small-car manufacturing in the U.S. That enthusiasm, however, is not shared by United Auto Workers union President Stephen P. Yokich. A bombastic type even on his best days, Mr. Yokich says GM should fire Mr. Hogan for going public recently in several venues hawking the Yellowsto ne concept.

Mr. Hogan was to continue his dialog at the University of Michigan's annual Management Briefing next month in Traverse City, MI, but canceled after Mr. Yokich told him in effect to shut his trap and take a hike.

Keeping mum may be good advice, given the touchy nature of UAW contract negotiations that began in June - and the fact that GM still is recovering from a 54-day strike last summer that cost $2 billion in lost profits.

Neither side really won, but no one called for Mr. Yokich's head on the block. Such is the nature of union politics that he can freely lash out at executives such as Mr. Hogan and actually hear the cheers. Is it partially for show? Of course; there's nothing like getting the rank and file fired up on the eve of bargaining talks. But is it fair? Hardly. Mr. Hogan can't reciprocate, gets muzzled, and Yellowstone, at least in name, fades like Old Faithful on its down-cycle.

Yellowstone is patterned after the "Blue Macaw" project Mr. Hogan spearheaded in 1997 when he was president of GM do Brasil SA. The idea was to build low-price small cars profitably by farming out major modules to about 25 major suppliers located close by. That would limit GM's investment to about $300 million, compared with $1 billion or more for a traditional assembly operation. It also would spread the risk among GM's supplier "partners."

Blue Macaw got off to a slow start because of Brazil's economic malaise and disputes over government concessions. It reportedly is back on track, with start-up expected late this year.

Except for sharing the basic modular manufacturing concept, though, the American and Brazilian projects have little in common.

The Brazilian plant is located in the boondocks far from Sao Paulo, that nation's equivalent of Detroit, and creates new jobs where they are badly needed. In North America, GM wants to replace aging plants in such UAW strongholds as Lansing, MI, and Lordstown, OH, with new assembly plants, each surrounded by 15 major module suppliers.

Based on GM's calculations, its costs would drop by 20%, erasing the $1,000 Mr. Hogan has said GM loses on each small car built - and actually producing some black ink. Naturally, if it works in Lansing and Lordstown, some of the same processes could spread throughout GM and quite likely other automakers. That's still more cause for Mr. Yokich to dig in his heels.

Indeed, there are more rubs to the scheme than you'd find in your local massage parlor. Examples:

n GM by most measures is the least efficient U.S. automaker and needs to trim 40,000 jobs to match its competitors. The new modular plants would employ 2,100 GM workers, down from 3,600 for a typical GM facility making the same number of cars per year - up to 250,000 with overtime. GM says it wouldn't lay off anyone, making the reductions through attrition. But attrition may not satisfy Mr. Yokich or the UAW, whose ranks have been cut in half since 1979 and has hit a stone wall in trying to organize foreign transplant operations.

n The scheme intrinsically calls for major manning concessions, a perennial sore point between GM and the UAW. GM wants fewer job classifications, greater manning flexibility and more responsibility passed down to the workers. Give-ups usually are excluded from the union's agenda.

n The role of suppliers also is filled with issues. It's a given that their employees would be represented by the UAW. But on what terms? And what about suppliers that for years have been moving away from the UAW's grasp by setting up nonunion operations in more friendly territory?

There's plenty of irony in all of this. While the UAW continues to hammer GM, a large slice of the No.1 auto-maker's shrinking market share has been gobbled up by the rapidly expanding, mostly nonunion foreign transplants. In 1995, GM's piece of the U.S. car and truck pie stood at 32.8%, dropping to 29.4% in strike-hampered 1998.

Honda Motor Co. Ltd., meanwhile, boosted its share from 5.4% four years ago to 6.5% in1998. Toyota Motor Corp. (with one UAW plant) jumped from 7.4% in 1995 to 8.8% last year. All three companies are tracking at approximately the same rates so far this year. Ford

Motor Co. and Chrysler Corp. (now DaimlerChrysler Corp.) market shares have hovered in the 23%-25% and 16%-17% range, respectively, since 1995.

So who'll be the real loser if GM and the UAW fail to find a mutual solution?

GM could move small-car production outside the U.S. to a low-wage country - Mexico comes to mind - or to Canada, where the U.S. dollar enjoys a 35% advantage over the Canadian dollar. But that would provoke a take-no-prisoners war with the union.

My advice: Knock off the grandstanding on both sides, mindful that each percentage point of lost market share adds up to 150,000 vehicles and a few thousand jobs.