4LT GS Roadster
General Motors' Orion Township plant in Michigan will be a
lab to test cost-saving tactics.
GM says the system of sequencing parts into tidy kits for line workers is a game-changer that will boost productivity. And the workers doing the sorting are not GM employees. They're UAW workers employed by an outside supplier and paid about $20 an hour, including benefits, far less than GM's Orion workers.
Both the parts sorting and outsourcing are examples of how GM has rewritten its manufacturing playbook for Orion, a suburban Detroit plant where workers will begin assembling the only U.S.-built subcompact car next month.
Historically, small U.S.-built cars lose money. Small price tags on small cars leave little breathing room for automakers to build them profitably in the United States, where labor costs can run several times that of, say, Mexico.
But GM and the UAW say they've got the formula for making the Sonic profitably in the United States. An Automotive News analysis shows GM will cut roughly $450 in assembly plant labor cost per car -- a savings of nearly 40 percent of the roughly $1,160 in costs it would incur if GM ran it like any other plant. Sonic prices start at $14,495, including shipping.
That will make Orion a laboratory to test cost-saving tactics that could be adopted at other GM plants to drive down manufacturing costs, a key objective of CEO Dan Akerson. In particular, Orion's two-tier wage system looms large this month as GM, Ford Motor Co. and Chrysler Group start negotiations with the UAW on a new four-year contract.
"I think GM is taking a longer view and sees possibilities to set a precedent from this system at Lake Orion," said Sean McAlinden, chief economist at the Center for Automotive Research. And UAW President Bob King "knows that Orion has to pay. This is a huge experiment for the union, too."
Beyond Tier 2
The Sonic replaces the Aveo, which is built in Korea and was engineered by GM's Korean unit, formerly known as GM Daewoo Auto & Technology Co. The current Aveo also is made in Mexico for Latin American markets.
GM vows it will make money on the Sonic assembled in Michigan. But how?
Cheaper labor will be a big factor. But GM is reaching far beyond the savings it will wring by paying 40 percent of its Orion workers a so-called Tier 2 entry-level wage of about $33 per hour in wages and benefits. That's well below the $57 hourly figure for full-pay workers.
The Tier 2 arrangement is the core of a deal struck in 2009 between GM and the UAW that created as many as 1,800 GM and third-party UAW jobs by putting Sonic production at Orion rather than in Mexico.
Key figures on both sides of the landmark deal included Cal Rapson, then a UAW vice president and head of its GM department, and Diana Tremblay, then GM's vice president of labor relations. They were the lead negotiators during the talks leading up to GM's 2009 bankruptcy.
Rapson in particular, an unabashed Michigan supporter, pushed hard for Orion over idled GM plants in Spring Hill, Tenn., and Janesville, Wis., and hashed over with Tremblay the details of Orion's labor arrangements, according to a person involved in the negotiations.
Still, the UAW insists in a statement that Orion "is specifically not intended to be a model for other plants." It says the arrangement is a "unique operation for both GM and the UAW with the very special objective of bringing a small-car platform assembly into the U.S."
GM believes it can coax profits out of Orion through other methods that are used sparingly or not at all in its other plants:
-- Slashing the number of skilled workers at Orion will save millions, though line workers will have to learn and perform some new duties.
-- As many as 500 workers from a half-dozen suppliers eventually will work at Orion. All are UAW-represented, and many will perform tasks that higher-paid GM employees typically do.
-- Having non-GM workers perform parts sequencing and subassembly work in-house, rather than at the usual off-site facility, eliminates transportation costs and ensures line workers get the right parts at the right time, boosting productivity.
"That's breaking new ground for us by reducing the overall net cost of the vehicle," said Terry Woychowski, GM vice president of global quality and vehicle launches. "It's a game-changer."
Success on all those fronts could cut Orion's labor costs by roughly $72 million annually, based on wage rates provided by CAR and GM's employment forecasts. That saves about $450 per car, driving Orion's per-unit labor costs down 40 percent, to about $710 per car, compared with what the costs would be without those changes.
Not bad. But consider this: Ford's labor cost at its assembly plant in Cuautitlan, Mexico, where it builds the subcompact Fiesta, may be as low as $150 per vehicle, CAR estimates.
www.autonews.com
