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Auto hiring binge to meet demand has downside

Published February 27, 2012 6:46 pm

Industry • Carmakers fear moving too quickly in race to keep up with sales.
This is an archived article that was published on sltrib.com in 2012, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Detroit • Auto sales are growing so fast that Detroit can barely keep up, which is good and bad for one of the most important sectors of the U.S. economy.

Three years after the U.S. auto industry nearly collapsed, sales of cars and trucks are surging. They could exceed 14 million this year, above last year's 12.8 million.

In response, carmakers are adding shifts and hiring thousands of workers around the country. Together with parts companies they added more than 38,000 jobs last year, reaching a total of 717,000. And automakers have announced plans to add another 13,000 this year, mostly on night shifts.

But there's a worrisome downside. The newfound success is straining the national factory network of the Detroit automakers, as well as the companies that make the thousands of parts that go into each vehicle. This could lead to shortages that drive up prices.

And it also has auto executives in a quandary. They got into trouble in the first place largely because their costs were too high. Now, they fear adding too many workers too quickly.

Ford, for instance, is "squeezing every last component, transmission, engine out of the existing brick and mortar," said Jim Tetreault, vice president of North America manufacturing.

Still, the surge in hiring boosts the argument of those who supported the federal bailout of General Motors and Chrysler in 2008. The stimulus has been a key issue in the days leading up the Michigan Republican Party primary Tuesday. GOP front-runner Mitt Romney opposed the bailout, which was supported by then-President George W. Bush and later by President Barack Obama.

And the hiring is good news for communities around the country that saw hundreds of thousands of manufacturing jobs disappear. Starting in 2005, GM, Ford and Chrysler closed 28 factories and eliminated 88,000 jobs. Parts companies cut another 234,000.

Now, if sales hit 15 million by 2015, as some experts predict, the three Detroit automakers could hire another 20,000 people, predicts Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor, Mich.

"You can only squeeze so much out of the same amount of people," said Itay Michaeli, an auto analyst at Citi Investment Research.

But the hiring binge couldn't have happened at a better time for Michigan. Many of the new auto jobs were created around the Great Lakes, where the Detroit Three have most of their factories. New jobs with auto companies don't pay as well as the old ones. Under union contracts, companies can pay new hires around $16 per hour, a little more than half the pay of longtime workers.

But in a state where unemployment was above 14 percent just three years ago, any jobs are welcome. And Michigan is not the only region to benefit. Ford is adding positions in Louisville, Ky., Chicago and near Kansas City, Mo. Chrysler is adding jobs in Belvidere, Ill., and General Motors is hiring at plants in Tennessee, Kentucky, Texas and New York.

Foreign carmakers are also shifting production to the U.S. because of higher sales and the weak dollar, which cuts the profits they get from selling vehicles exported to America. Nissan is adding workers in Tennessee. Toyota just hired staff at a new plant in Blue Springs, Miss. Honda is hiring in Alabama and Ohio. Hyundai and Kia plants in Alabama and Georgia are running flat-out but can't meet demand for some models such as the Hyundai Sonata and Elantra.

The sales rebound comes with risks that are familiar to Detroit. Crank up production too much, and carmakers have to sell vehicles at deep discounts. Boost production too little, and companies could run short of vehicles such as pickups. And even if they find the right balance now, automakers are leery of raising long-term costs by adding plants and workers.

GM will try to handle growth by stretching factories, said North American President Mark Reuss. But he thinks the company will have to hire more workers if sales this year reach 13.5 million or beyond.

It adds up to what could be a challenging but profitable year for the industry, said Schmald Moncrieff, who runs a Michigan parts factory.

"A lot of things are going to start breaking loose all at once."