Rebirth of the Auto Industry

The American auto industry is about to be reborn, and I expect it to look very different as we move forward.

There will be an auto industry in the U.S., a strong industry, led by Ford, Toyota and Honda, as well as Volkswagen, BMW and Mercedes.

Foreign auto makers will be the major producers in North America, not Detroit. Asian auto makers are out-producing Detroit now because of the bankruptcy-related shutdowns at General Motors and Chrysler.

But foreign-brand production momentum is likely to continue even after Detroit auto makers crank up their assembly lines.

Two new foreign-owned assembly plants are under construction — a Volkswagen plant in Chattanooga, TN, and a Kia factory in West Point, GA. Toyota also has a new plant in Blue Springs, MS, currently on hold until the market picks up.

More foreign-owned plants will be built as their U.S. share grows. I predict another three or four new assembly plants will come on stream within a decade, the result of recovering U.S. vehicle sales and foreign-brand market share gains. Remember, Fiat wants to build cars in North America, too.

Sales rankings will change dramatically. By next year, Toyota could be the U.S. sales leader, although Ford might fool us and capture the No. 1 spot.

GM and Honda initially will fight it out for the No. 3 position, but GM will shrink over time to about 10% of the market, because I think only two of its brands, Chevy and Cadillac, ultimately will survive.

With more foreign-owned factories opening in southern states as Detroit Three plants close, the U.S. auto industry will become mostly non-union.

But what the United Auto Workers union is losing in organizing muscle, it is making up with political influence with the Democratic Party and by owning big pieces of GM and Chrysler.

The UAW has gained so much sway because President Obama's political machine figures it needs the union to win five key Midwestern states in the next election.

It is the UAW's political clout that explains why GM will build a small car in the U.S. instead of China or Mexico where it wanted.

Even so, while the Obama Admin. likes the UAW, polls show practically no one else in the U.S. does. Many blame the union for Detroit's collapse.

Foreign transplant labor costs will still undercut Detroit, despite all the UAW contract revisions.

That's because union members aren't taking big pay cuts directly. Instead, the new contract allows buyouts of older UAW members to create jobs for new, younger workers at about half the old rate of $28 per hour. Until most of those older workers are replaced, Detroit remains at a disadvantage.

The political power of the transplants is growing, too. Senators and representatives from states such as Alabama and Tennessee are working hard to protect their interests in Congress. And don't expect Democratic support for Detroit to continue past the next presidential election.

Toyota is a powerhouse, of course, but it might weaken over time. The new leadership in Japan talks about getting back to basics, which means simpler, cheaper cars.

That's a big mistake. Toyota grew powerful in the U.S. doing the opposite, improving its product with technologically superior engines and upscale interiors.

It will take years, maybe eight, to get back to 16.5-17 million sales in the U.S. We could hit 15 million light-vehicle sales by 2013 or 2014. It depends on how fast the U.S. economy recovers and whether the new fuel-economy push hurts or helps vehicle sales.

But in Michigan, the bad times could continue unabated, because the state is wedded to the UAW, and foreign auto makers do not want unionized plants.

Jerry Flint is a columnist for, and former senior editor of, Forbes magazine.