Musk’s Facts Are Wrong (Maryann Keller guest post)

Maryann Keller
Principal at Maryann Keller & Associates LLC

Musk’s Facts Are Wrong Regarding the Termination of NUMMI Joint Venture

Published on February 11, 2017 on LinkedIn
cross-posted with permission

In response to Tesla workers at its Fremont, California assembly plant contacting the UAW to possibly seek out representation, Elon Musk responded that the former GM-Toyota NUMMI joint venture, at the same facility Tesla occupies today, was closed because it was a UAW plant and therefore not competitive. In fact, there is nothing further from the truth and his claim is likely due to the oft-prevailing view of the UAW’s role leading to General Motors’ bankruptcy. 

A little background about this plant located in the Bay Area of California. Originally built as a GM assembly facility in 1961, it would operate for some 20 years until GM ended the plant’s operation in 1982. Through most of that period, particularly through the 1970s, the plant was notorious for poor quality and terrible labor relations. But the plant would come back to life in the mid-1980s as a joint venture assembly plant between GM and Toyota called NUMMI (New United Motor Manufacturing Incorporated).

General Motors and Toyota each had their own reasons for entering into the joint venture. GM believed that by giving operating control of the plant to Toyota, the Japanese company would reveal its manufacturing secrets to GM, especially in automation. GM convinced Toyota to accept the closed plant in Fremont as GM’s contribution to the venture and rehire some of the plant’s previously laid off workers.

Toyota, at the time, was under great pressure to reduce U.S. imports from Japan and had already agreed to voluntary import restraints. This made production in the US inevitable for the Japanese automakers but, Toyota, being a very conservative company, worried that it could not implement the Toyota Production System in the U.S.; American automotive labor was blamed for low productivity and poor build quality. Without incurring the costs of building a new plant, the existing Fremont plant could be brought into production relatively quickly thus solving a problem for Toyota in its search for new U.S.-located capacity. My knowledge of this deal between GM and Toyota for NUMMI is quite intimate; my husband negotiated the deal between the companies for more than a year to come up with a working solution for both parties. 

My book, Rude Awakening, details the NUMMI experience but to summarize, Toyota decided to hire some ex-GM workers and train them in the Toyota Production System. The plant had its own UAW contract which was repeatedly renewed without a single strike and did not include many of the provisions of the UAW national agreement with GM. NUMMI quality was on a par with that of Toyota plants in Japan and the positive labor experience emboldened Toyota to establish its massive manufacturing footprint in the Midwest and Southeast.

The NUMMI message for Toyota was that it was not the American workers - even those organized by the UAW - who were to blame for GM’s productions pitfalls, but rather GM management that failed to train and share responsibility for results with the factory work force. But it would also prove that California, with its myriad of regulations at all government levels, tough environmental requirements, and high cost of living could no longer compete by the mid-2000s with the generous financial incentives and ease of doing business offered by other states for automotive manufacturing. 

Over time, GM took less and less of NUMMI production and by the 2000’s had effectively withdrawn from NUMMI. By then, Toyota assembly and supplier capacity was concentrated nearly two thousand miles away in lower cost locales. NUMMI became an isolated outpost that had lost its relevance to the two partners.

Both companies needed a reason to withdraw; ironically both partners used the GM bankruptcy to end the relationship. Tesla then got the plant for much less than its true value. NUMMI was terminated because it simply was no longer relevant to either partner.

Toyota successfully operated NUMMI with unionized labor for 25 years. The message, therefore, from NUMMI, is not whether the plant is unionized but rather how management engages with, trains, supervises, and values its hourly employees. Elon Musk is simply wrong to blame the closure of NUMMI on the UAW.

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In fact all the plants west of Kansas City were closed by the time NUMMI was set up, including those in British Columbia. At a slightly slower pace the same pattern is found on the East Coast where all factories were closed (such as the Ford truck plant in Norfolk VA for which a number of plants in my rural region made parts). The same was true of suppliers. And the same was true in Europe. Today, as detailed in the work of James Rubenstein and Thomas Klier, the industry is concentrated in an "auto corridor" or "auto alley" which minimizes shipping distance to consumer markets, and improves manufacturing logistics. When NUMMI was set up Toyota was relatively weak in the midwest and imported a wide array of parts from Japan. By the time it closed, its sales reflected the overall US market; a location on the West Coast made no sense, or rather cost dollars. Ditto for parts imports: today the overwhelming majority of vehicles Toyota sells in NAFTA are made in NAFTA using suppliers based in NAFTA. From that perspective a midwest location was also desirable. mike smitka

An interesting note is that John Krafcik, now president of Waymo [the Google autonomous car project] and previously President of the US arm of Hyundai, among other jobs, was a junior GM staffer assigned to NUMMI. That story forms the core of his MIT MBA master's thesis, when he was part of the International Motor Vehicle Project "The Machine That Changed the World" project. Among other contributions to that book, Krafcik was the one who coined the term "lean production." Back to NUMMI: when he and others assigned to the joint venture returned to GM they were scattered across the organization and any impact they might have had was diffused. That's one reason he moved on.mike smitka

I also know the (long-retired) GM executive who negotiated the benefits component of the NUMMI contract. Labor relations at the old GM plant were stormy, not the least because of plant management – those familiar with labor issues are well aware that a bad start due to poor plant-level management could poison labor relations for decades. NUMMI allowed a clean start, and under new management and without the baggage of history Toyota and the UAW got along well. In other words, the problem lay with GM at the plant level, made worse by the winding down of the branch plant system noted above.mike smitka

Written by Maryann Keller, Principal at Maryann Keller & Associates. Go to linked in for the original post.