Detroit sets bold goal: Exporting U.S.-made cars

The Wall Street Journal
Published4/8/2008 12:49 PM

DETROIT -- Last year's landmark labor deals and the weak dollar are breathing new life into U.S. auto plants, leading Detroit's auto makers to plan sizable exports of U.S.-made vehicles to markets around the world.

General Motors Corp. is looking to export U.S.-made vehicles to Europe as well as to China and Latin American markets such as Brazil, company executives confirmed. Chrysler LLC, primarily spurred by exchange rates, has already started shifting production from Europe to the U.S. to take advantage of lower costs and available plant capacity. Ford Motor Co. is considering ramping up exports if it can bring labor costs down, people familiar with the matter said.


For years the U.S. has been one of the most expensive places in the world to make cars. But the new contracts with the United Auto Workers union signed last fall significantly improve the global competitive position of Big Three plants. The weaker dollar, which makes production in the U.S. less expensive, is also helping to turn the economics of domestic production upside down.

"Combined with the weak dollar, we've got a contract that puts ourselves in a great position to ship products to other countries and do it making a profit," said Mike Herron, a UAW official at GM's assembly plant in Spring Hill, Tenn., who is involved in negotiations with the company.

Detroit's improved competitive position has sparked concern among foreign manufacturers, which do not use unionized U.S. workers. Toyota Motor Corp. is now pushing to lower labor costs in the U.S., say people familiar with the matter.

Later this year, GM will begin shipping the Buick Enclave, a seven-passenger crossover sport-utility vehicle made in Lansing, Mich., to China, where the Buick brand is a big seller. GM hopes eventually to export as many as 25,000 Enclaves a year to China, said Dee Allen, a GM spokesman.

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GM is making plans to sell the Chevrolet Malibu, a sedan made in Kansas and Michigan, and possibly other U.S.-made passenger cars in Brazil and other Latin American markets, GM executives have said.

The company also has told UAW officials it is seriously considering building a future small car in Lordstown, Ohio, that would be exported to markets outside North America, people familiar with the matter said. It would be one of five new vehicles being produced there near the turn of the decade, one of these people said. The 42-year-old Lordstown assembly plant had been considered a candidate for closure due to high UAW labor costs.

GM's president and chief operating officer, Frederick Henderson, said in an email that several of GM's recently redesigned models have "gotten great acceptance in the U.S. and we believe it has significant potential in many other markets globally, and we are looking at such opportunities."

The "more competitive U.S. dollar improves export competitiveness and potential profitability," he added.

Chrysler had been using a contract manufacturer to assemble minivans for sale in Europe, but it chose not to extend the deal beyond 2007 and this year started exporting the Dodge Caravan minivan -- branded Chrysler Voyager in Europe -- made in a plant near St. Louis to Europe, a company spokeswoman said.


It is also exporting increasing numbers of compact Dodge and Jeep models made in Belvidere, Ill., to several European countries. So far this year, more than 15,000 have been exported, up about 40 percent from the year-earlier period.

Chrysler still has larger Jeeps made in Europe but is looking at moving that production to its U.S. plants when the Jeep contract with its European manufacturer, Magna Steyr AG, expires in 2009, a person familiar with the matter said.

Ford executives last fall dangled a carrot to union negotiators, saying exporting opportunities for UAW-built vehicles could increase with more competitive manufacturing costs, a person familiar with the matter said. Now Ford is mulling exporting the Ranger small pickup truck and Focus small car to places such as Brazil and Mexico when the economics make sense, another person familiar with the matter said.

The UAW contract signed last fall added assurance that exporting from U.S. plants could be viable, said Michael Robinet, an analyst at Northville, Mich., consulting firm CSM Worldwide. The combined effects from a falling dollar and the new UAW labor contract "make the U.S. a low-cost country" like China and Brazil, he said.

The new UAW contracts create a new generation of U.S. auto workers with wages and benefits more in line with what Toyota pays its U.S. workers, with wages for new hires at $14 an hour instead of the previous $26. It also offloads billions of dollars in retiree health-care liabilities hobbling the Big Three to outside trust funds.

To stay competitive, Toyota has stopped pegging its wages to UAW rates when it builds new plants, company executives said. It won't cut wages of current workers, but new hires will be paid no more than 50 percent above the prevailing manufacturing wage in the area where a plant is located, they said.

Exporting a large number of U.S.-made cars could go a long way in helping the Big Three turn around their unprofitable North American operations. It could also help them tap faster-growing overseas markets, especially at a time when U.S. sales have been hit by economic worries. Exports could help lower costs per vehicle and use up excess manufacturing capacity.

Challenges remain. The companies must figure out how to meet demand in an array of countries without busting their limited budgets. The concept could still fizzle if they can't entice enough current workers to accept buyouts or early retirement deals to open jobs for new hires who would get reduced wages and benefits. Both Chrysler and Ford have gotten fewer takers than they had hoped for their buyout packages.

Increasing exports also requires better access to overseas markets, especially in Asia where some countries lock out Detroit's vehicles while sending millions of cars to the U.S. Russia, a big potential market for vehicles like the Jeep Grand Cherokee, imposes heavy tariffs on imports. GM Chairman and Chief Executive Rick Wagoner will devote more time to regulatory issues under a recent management shift there, and the auto makers have pressed the issue with the presidential candidates.

The U.S. last year exported $50.66 billion worth of cars and light trucks, according to the Commerce Department, or about a third of what it imported. Roughly half of its exports are to neighboring Mexico and Canada. Much of the rest consists of higher-end vehicles unavailable elsewhere.

Detroit's auto makers believe they can now export more mass-market vehicles. Until the new contract was signed, auto labor in the U.S. was 50 percent more expensive than in France and Japan. Only Germany had higher labor costs than the U.S.

Spurred by the dollar, foreign auto makers are also devoting more attention to the U.S. BMW AG is pumping $750 million into its South Carolina plant to significantly expand U.S. output, much of which is earmarked for Europe. Volkswagen AG is looking to build a new plant in North America, and many observers expect it to be in the U.S. Italy's Fiat SpA last week confirmed it is beginning discussions to find a partner that can assemble Alfa Romeo cars built in the U.S.

The trend isn't limited to the big players. Tesla Motors, a Northern California start-up developing an electric car, recently decided to scrap plans to build its $20,000-plus batteries in Thailand. Instead, it will assemble the components in the U.S. because of currency values. Tesla has also pushed ahead its plan to sell cars in Europe by one year in hopes of banking big profits by selling cars to buyers paying in euros.

Costs weren't the only barrier to exports for Detroit. GM found the appeal for many of its U.S.-made vehicles overseas was lacking. GM, Chrysler and Ford often made different versions of the same vehicles for the U.S. and Europe, which precluded them from producing both in the same plant. The U.S. version of the Ford Focus is made from different underpinnings than the Focus sold in Europe. As a result, it made little economic sense to export U.S.-made vehicles even as auto sales soared in Asia, Eastern Europe and Latin America.

The auto makers began rethinking their options as the dollar plunged over the past few years. They also began developing global platforms that will give them a single set of underpinnings for vehicles they can sell around the world.

The head of the GM unit covering Latin America, Africa and the Middle East, Maureen Kempston-Darkes, said in an interview she is eager to "tap what the U.S. has" to fuel the breakneck growth in the 86 countries she oversees.

Ms. Kempston-Darkes's region is a critical arm of GM, contributing 10 percent of global revenue. Last year its sales totaled $18.3 billion, up from $5 billion in 2003. By 2010, GM aims to bank $25 billion in revenue from the region, which currently is by far its most profitable.

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