Detroit's bumpy ride: America's 'Big Three' carmakers are in trouble. But as GM, Ford, and Chrysler close factories and cut jobs, foreign carmakers--building their U.S. plants far from Detroit--are flourishing.

Twenty years ago, Livonia, Michigan, was a prosperous Detroit suburb, with upscale neighborhoods and a glitzy new mall.

The local economy was thriving, thanks to Detroit's Big Three automakers--General Motors, Ford, and Chrysler--which operated humming factories near Livonia and employed thousands of managers who commuted to the auto companies' headquarters downtown.

Meanwhile, 300 miles to the south in Kentucky, drivers on Interstate 75 could zip by the tiny city of Georgetown and barely notice it.

Now, two decades later, the two cities have switched places.

Livonia is stumbling, as Detroit's automakers close factories and eliminate both blue- and white-collar jobs. Georgetown, on the other hand, is booming, thanks to Toyota. Since the 1980s, the Japanese carmaker has invested more than $5 billion in a sprawling manufacturing complex in Georgetown, leading to the construction of new schools, hotels, and dozens of smaller factories run by its suppliers.

The changing fortunes of Livonia and Georgetown offer more than a tale of two auto cities. They provide a look at the impact of broader economic shifts in the nation's auto industry. As Asian and European carmakers build more of their cars in the U.S., the industry as a whole is shifting its focus from north to south. These surging foreign competitors have located their new operations--and thousands of jobs--mostly in business-friendly Southern states.

The shift in the American auto industry carries with it not just thousands of jobs and billions of dollars, but also a sense of prosperity gained of lost. These changes are reflected in Livonia and Georgetown, and states like Michigan and Kentucky: Over the last two decades, the number of automotive-related manufacturing jobs in Michigan has fallen 34 percent, while the number of automotive jobs in Kentucky has jumped 152 percent.

THE BOOM YEARS

For 40 years, starting with the boom in the auto industry following World War II, Detroit's Big Three seemed invincible, powering the American economy forward and helping millions of workers move into the middle class. At its peak, GM alone employed more than 600,000 Americans.

Today, roughly 840,000 Americans work for the Big Three auto companies combined, and about 60,000 work for Japanese, German, and South Korean carmakers. But auto-industry leadership is moving farther and farther from Detroit, geographically and otherwise, as foreign companies like Toyota, Honda, and Nissan continue to expand their American operations. Meanwhile, GM, Ford, and DaimlerChrysler (Chrysler merged with Germany's DaimlerBenz in 1998) are struggling to stay alive, undertaking corporate restructurings that translate into plant closings and massive layoffs.

Collectively, the Big Three have cut, or announced plans to cut, nearly 140,000 jobs since 2000. And even as plants close in Michigan towns like Flint and Dearborn, Toyota has plans to open another plant in Mississippi.

Toyota's Camry has been America's best-selling car for the past five years. The company's new $1.3 billion plant in San Antonio, Texas, recently rolled out a larger version of its Tundra pickup truck to compete with Ford's F Series trucks--the nation's best-selling vehicle--and GM's Silverado pickup. In fact, industry analysts expect that within the year, Toyota will surpass General Motors as the world's No. 1 carmaker.

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MAKING CARS FOR LESS

Why are Toyota and other foreign carmakers soaring in the U.S. while American carmakers decline? For one thing, Toyota is able to make cars for less money than the Big Three. Like other foreign carmakers, the company has built most of its U.S. plants in the South, where automotive jobs are usually nonunion. Salaries and benefits paid to workers are not as high as those in the Midwest, though they are often much higher than other jobs available in the South.

"These international companies want a fresh start," says Gary N. Chaison, a professor of international relations at Clark University in Massachusetts, "not in a town like Detroit, with a long history in the auto industry, but in an empty field where people appreciate them."

Union contracts negotiated with the United Auto Workers also require GM, Ford, and Chrysler to pay enormous sums for health care and pensions: Employees pay little or nothing out of pocket toward health coverage. GM's health-care costs add $1,200 to the cost of each car; Toyota's health-care costs add about $200 a car.

Toyota is also renowned for its highly efficient manufacturing process. The company has built a reputation for reliable cars that have a higher resale value compared with cars from Detroit.

The fundamental problem is that Detroit is simply producing fewer cars that American consumers want to buy. Last year, Toyota's high-mileage engines and hybrid-electric Prius were what buyers were looking for as gas prices skyrocketed.

Meanwhile, Detroit was still focusing on horsepower and brawn, churning out gas-guzzlers like GM's Hummer and other large SUVs and trucks. That helps explain why foreign carmakers now have 49 percent of the U.S. market, and 5 of the top 10 most popular vehicles in America in January were made by Japanese companies.

CHAIN REACTION

Last November, Ford announced that 30,000 workers were opting for buyout deals worth up to $140,000 to leave the company. In all, with similar offers at GM, about 70,000 auto workers, or one third of those in American plants, decided in 2006 to leave. In February, DaimlerChrysler announced plans to close several U.S. plants and cut more than 10,000 jobs.

These developments have set off a chain reaction that is readily apparent in towns like Livonia, where seven elementary schools closed last fall because of declining enrollment. The population, which peaked at almost 120,000 in the 1970s, has fallen below 100,000. And on Plymouth Road, the city's business corridor, nearly all of the strip malls have vacancies. There's no mystery why Plymouth Road is hurting: Michigan has the highest unemployment rate in the country, 6.9 percent, in January; in the Livonia area, it's even higher, 7.3 percent.

Workers from all three Detroit automakers live in Livonia, but it considers itself primarily a Ford town. Jobs at Ford originally helped attract residents in the late 1960s, and the company employs more than 4,000 people at its transmission plant on the west side of town. For now, those jobs appear to be sale. But with Ford trying for its third turnaround in five years, that could change.

By contrast, Georgetown's population has nearly doubled in 20 years, to about 20,000. There are at least a dozen new subdivisions, several new schools, and houses have even been built directly across from the Toyota plant.

Georgetown had no industry to speak of when Kentucky Governor Martha Layne Collins made her first trip to Japan in the mid-1980s, hoping to lure a foreign auto company. She had watched as Kentucky's northern neighbor, Ohio, landed two Honda plants, while to the south, Tennessee had brought in Nissan.

The Kentucky Legislature approved a $147 million incentive package to help land the factory. At the time, there was criticism of the Governor for seeking foreign investment, and fears that a foreign company might not be as loyal to the state as an American company. "Toyota is now accepted as part of the fabric of Kentucky, but it wasn't 20 years ago," says Dennis Cuneo, who recently retired as a Toyota executive.

Some Georgetown residents worry that the prosperity will not last. Employment at the Toyota plant has leveled off at about 7,800 workers, and there is little likelihood Toyota will hire many more, except to replace those who retire.

GM REBOUND?

And Detroit still has its glimmers of hope. Although GM lost $2 billion last year, the company recently reported a quarterly profit of $950 million--its largest in two-and-a-half years. In March, Robert A. Lutz, GM's vice chairman, told Newsweek that he doesn't view Toyota as "an insurmountable obstacle," and the company is working on its own hybrid-electric vehicle--the Chevy Volt.

But some industry analysts say that playing "catch-up" is not good enough when it comes to competing with Toyota and other foreign automakers. Sean McAlinden, an economist at the Center for Automotive Research in Ann Arbor, Michigan, says that Toyota outspends GM in research and product development.

"If that trend continues, we're dead," he says. "The problem is, suppose we made a car [as good as Toyota's]. Then, we only have a car as good as they do. It's not just about catching up, or getting into the game. You've got to get ahead somehow. But how?"

LESSOPN PLAN 3: NATIONAL

DETROIT'S BUMPY RIDE

BACKGROUND

As struggling American carmakers have closed factories and laid off thousands of employees, Detroit and its suburbs like Livonia, Mich., have fallen on hard times. But Asian and European carmakers are building factories in the more business-friendly South, improving the fortunes of places like Georgetown, Ky.

BEFORE READING

* Draw four or five concentric circles on the board and write "Ripple Effect" next to them.

CRITICAL THINKING

* Tell students that economists use the term to describe how events that affect one group of people ripple out to affect others. What do the experiences in Livonia and Georgetown suggest about how the ripple effect works? (For example, factory workers who are laid off spend less, hurting other businesses, and the local economy suffers further.]

* Ask students to assume they were one of the laid-off Livonia workers. Who would they blame for their situation? Would they be willing to move to another part of the U.S. to find work?

DISCUSSION QUESTIONS

* Does government have an obligation to help laid-off auto industry workers like those in Livonia find new jobs?

* For every worker directly employed in the auto industry, seven spin-off jobs are created. What does this suggest about the economic impact of the auto industry in the United States?

WRITING PROMPT

* Have students write a brief dialogue that might take place between a laid-off Livonia auto worker and a Georgetown worker, at a convention of auto workers.

FAST FACTS

* In 1961, American auto makers accounted for 48 percent of world auto production; by 2004, that figure had dropped to 10 percent, according to a Department of Transportation report.

* The automobile industry accounts for about 10 percent of the Gross Domestic Product in most wealthy countries, according to a report in the British newsweekly The Economist.

QUIZ 2 NATIONAL

DETROIT'S BUMPY RIDE > Pages 16-19

1. Briefly describe the effect that the decline of Detroit's Big Three has had on the community of Livonia, Mich. --

2. Toyota agreed to build its auto factory in Georgetown, Ky., after

a Tennessee withdrew its offer for a similar factory site.

b Kentucky's legislature offered Toyota a large financial incentive package.

c Toyota found that many of its potential customers Lived within 500 miles of the site.

d its rival Nissan, turned down the site.

3. Michigan's unemployment rate is

a similar to that of neighboring Indiana.

b almost the same as the national average.

c the highest in the U.S.

d high but falling.

4. Toyota is able to manufacture cars for less than it costs Detroit's Big Three for several reasons. One of those reasons is that

a Toyota imports most of its parts from its home base in Japan.

b the cost of shipping finished cars is cheaper in the South.

c salaries and benefits paid to workers in the South are lower than in the Midwest.

d Kentucky and other states in the region subsidize the cost of operating Japanese-owned auto plants.

5. One cost that is much higher for Detroit's Big Three than than for Japanese carmakers in the South is that of

a steel and rubber.

b workers' health care benefits and pensions.

c redesigning cars every year to appeal to new customers.

d updating aging factories to comply with federal safety regulations.

QUIZ 2

1. Auto workers have Lost their jobs, causing an economic decline in the rest of the community. [Similar wording is acceptable.]

2. [b] Kentucky's legislature offered Toyota a large financial incentive package.

3. [c] the highest in the U.S.

4. [c] salaries and benefits paid to workers in the South are lower than in the Midwest.

5. [b] workers' health care benefits and pensions.

IN-DEPTH QUESTIONS

1. In 1980, the federal government provided $1.2 billion in loan guarantees to save Chrysler from bankruptcy. Should the government do the same today? Or should it let the market decide the fate of U.S. auto companies?

2. Some Americans refuse to buy foreign cars as a show of support for U.S. workers and companies. Is a Toyota foreign if it's made in the U.S.? Does a boycott make sense or not?

Micheline Maynard is Detroit bureau chief for The New York Times. Additional reporting by Nick Bunkley and Jon Gertner for The Times.

MOST POPULAR CARS & TRUCKS IN THE U.S. *

                        JAN. 2007   CHANGE FROM
                        SALES        JAN. 2006

FORD        F SERIES    44,919         -18%
CHEVROLET   SILVERADO   38,393          -3
TOYOTA      CAMRY       31,461         +10
HONDA       ACCORD      25,714         +12
TOYOTA      COROLLA     25,519          -2
CHEVROLET   IMPALA      25,275         +12
NISSAN      ALTIMA      24,394         +40
DODGE       RAM         24,379          +7
DODGE       CARAVAN     18,593         +10
HONDA       CIVIC       18,378         -29

* BASED ON AVERAGE DAILY SALES

SOURCE: WARD'S AUTOINFOBANK

DOMESTIC VS. FOREIGN

Carmakers' U.S. Market Share

           1980     2006

DOMESTIC    73%       51%
FOREIGN     27%       49%

SOURCE: AUTODATA CORPORATION

Note: Table made from pie chart.