The Finish Line for NUMMI

Posted by Marc Hodak on March 16, 2010 under History | Be the First to Comment

California politicians and the UAW are loudly berating Toyota for its decision to close their NUMMI plant in Fremont, California. Most of the media is piling on, with the liberal commentariat pronouncing “treachery” and “ingratitude” for all that California customer’s and workers have given to Toyota over the years, as if there were something other than a commercial exchange between them. The simple reality is that Toyota is making a business decision. It’s Fremont plant is not making money anymore, especially after GM pulled out of its part of it. The commentariat insists it’s never that simple, and is spinning all manner of anti-business narratives out of this decision.

Ok, let’s go with “it’s not that simple.” Only, my narrative won’t assume that Toyota is just there paying workers and suppliers and tax authorities, as if the plant’s existence were a given. My narrative will begin at the beginning, before Toyota moved into Fremont.

It’s the early 1960s. General Motors is one of the largest and most profitable companies on Earth, with plants mainly in the northeast, centered around Detroit. Tired of dealing with an increasingly militant UAW back east, and looking to locate a plant in its fastest growing market, GM opens shop in Fremont. For a while, everything is great. Fresh-faced Californians are churning out those big cars we fondly remember cruising up and down the strip. Then, the labor-management cancer that afflicted the east coast plants spreads to Fremont with a vengeance. Their young workers begin to age under some of the most restrictive, archaic work rules ever devised by non-government bureaucrats, and eventually become embittered old veterans at war with management. Facing increasing competition from, among others, importers like Toyota, the Fremont union eventually becomes the most militant in the country, and the Fremont plant becomes the least productive on GM’s whole, sorry system. Eventually, GM’s management has enough, and closes down the plant in 1982.

In the meantime, Toyota is selling cars to Americans, especially Californians, just as fast as they can unload them from the ships. The one thing GM’s management and union could agree upon—you had to stop the flood of Japanese imports. The federal government set up import barriers as gingerly as it could without fouling trade treaties. The politicians succeeded in setting up “voluntary” import quotas. Toyota decided to build a plant in the U.S., in part to get around those quotas. The automakers were apoplectic. Once again, GM and its union came together, this time to threaten their congressmen with all manner of pain if they allowed the Japanese to set up plants in the U.S.

Now, the U.S. politicians could not reasonably tell a foreign manufacturer, “No, you can’t invest in this country.” Not outright anyway. Not without triggering a trade war with Japan and widespread accusations of free-market hypocrisy from countries around the world whose markets we were prying open with crowbars in both hands. So, our politicians had to do it more subtly. They went to Toyota and said, “Fine, you can build a plant in the U.S., but we have a few minor conditions, if you don’t mind.” Here they were:

1) You can’t build just anywhere. In fact, you can’t really build anywhere. You have to re-open the Fremont, California plant. That is the only place we’ll let you manufacture. You’re welcome, Senator Cranston (D-CA).

2) You can’t hire whomever you want. In fact, you can’t really hire anyone you want. You must rehire the people that were previously laid off—the very same militant workers that caused GM’s negotiators to throw up their hands and say, “We quit.”

3) You must allow these workers to join the union. No, not your “house union” that let’s you do whatever you please—the UAW. You have to accept the UAW as their bargaining entity.  No, we won’t let the workers hold a separate vote on this matter.

4) You must do this as a joint venture with GM, your largest American competitor. No, GM won’t have anything to do with the actual plant management, but you must make all of it available to them—all your technology and methods. In fact, you have to train GM’s managers in your system.

The U.S. was basically treating Toyota’s desire to invest in the U.S. as if it were another Pearl Harbor. Toyota’s management huddled. One can only imagine what their deliberations sounded like, with references to extortion or “capitalists, my ass.” After some negotiations, including barring the UAW from prescribing work rules inconsistent with the Toyota production system, they basically accepted these terms. The world then waited to see how well Toyota could maintain their recently acquired mantle as the world’s highest quality maker of automobiles under these strange conditions.

Within a year, they gave us the answer: The Corollas coming out of Fremont had the second highest J.D. Powers ratings for initial car quality of any automobile manufactured anywhere in the world. And the NUMMI workers were the most satisfied autoworkers in this country. This was as close to a controlled laboratory experiment on comparative manufacturing methods as one could have devised. How GM’s management survived the shame of these results is beyond me.

[Brief disclosure and aside: I went through Toyota Production System (aka, lean manufacturing) training at the Fremont plant early in my career as an auto supplier. One day, I saw bunch of men in white shirts and ties across the plant floor, which was pretty unusual for a Toyota plant, and asked my hosts who they were. My host responded that those were GM managers. Under their agreement, NUMMI had to train GM managers on the Toyota system, and those men were there for their two-week course. “Two weeks!” I said. My program was three months. “What can you learn in two weeks?” Not much, my host replied with a shrug, but that was all GM was willing to spare out of their busy managers’ schedules.  This episode foreshadowed last year for me.]

Toyota has given an entire generation of California autoworkers their careers back. They have generated far more in taxes to California than they have in profits for themselves. By locating near their customers, they have given them a lower cost choice of vehicles, a choice those drivers have eagerly embraced. Toyota will pay their workers an extra quarter billion dollars to close the plant down.

Yet now, UAW leader Ron Gettlefinger says that the workers there “deserve better than to be abandoned by this company, which has profited so richly from their labor, their productivity and their commitment to quality.” And New York Times columnist Bob Herbert says, “Toyota is paying the state back with the foulest form of ingratitude.” I guess the finish line for your narrative depends on your starting point.

Update:   Not all the politicians were piling on.  Sen. Dianne Feinstein (D-CA) provided a classy response to NUMMI’s demise.