PODCAST: Honda’s New Plant Pounds Another Nail in Detroit’s Coffin

March 20, 2007

Be careful what you ask for. Just ask former Ford Chairman Harold “Red” Poling. Twenty years ago, as the Japanese began making their first big inroads into the U.S. market, Poling – and his fellow Big Three CEOs – decided to fight back. But instead of a competitive product blitz, Detroit took the political offensive. There were some short-term gains, but the long-term costs are enormous, as I came to realize this morning with the groundbreaking for Honda’s newest assembly plant.

In the years immediately after the last oil crisis, in 1979, Japan’s fuel-stingy products were suddenly in vogue, the overall import market share surging towards 20 percent. But with the exception of Volkswagen’s ill-fated plant, in Westmoreland, PA, all those Civics and Corollas and Sentras were being shipped in from abroad. And Poling took a calculated bet: “Build them where you sell them,” he demanded, in a series of well-publicized speeches. At the same time, Ford, General Motors and Chrysler began lobbying for sharp restrictions on the number of Japanese imports. Both moves backfired big time.

The so-called “voluntary” import restraint agreement created shortages for top-tier makers, like Toyota, Nissan and Honda, but that only enhanced Japan’s image, buyers readily forking out premiums thousands of dollars above sticker price. Meanwhile, the initially-reluctant Japanese began to see the advantages of setting up shop in North America. Honda came first, 25 years ago, with a motorcycle plant, in Marysville, Ohio, then a car plant. Toyota followed, as did virtually all the other Japanese, down to minor players like Mazda and Suzuki.

Poling and his cross-town counterparts wrongly assumed the Japanese would lose their cost and quality advantages working with U.S. labor. They couldn’t have been more wrong. Even now, with union concessions and increasingly flexible plants, the Big Three struggle to catch up to the best of the Japanese “transplants.” Worse, at least for Detroit, their numbers keep growing. Honda is investing $550 million on its new line in Greensburg, Indiana, which will begin pumping out Civics in 2008. That’s about when a new Toyota plant in Mississippi will kick into gear.

A lot has changed since Poling began his campaign. Asian and European imports now account for half the total American market, and that share keeps growing. The Japanese, meanwhile, produce half the products they sell in the States on U.S. and Canadian assembly lines. That’s good news for the economy, especially the tens of thousands of American workers who build those Toyotas and Hondas. It’s bad news for Detroit, however, and not just for the Big Three. As those makers continue slashing sales forecasts and trimming production capacity, the local economy is faltering and the job market is collapsing.

So heed Poling’s lesson and be careful what you ask for. You just might get it – but the results could be a lot different from what you expected.

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