CHAPTER 3

Organization of the Motor Vehicle Industry: Production

This chapter focuses on the organization of production of the world’s motor vehicles. The next chapter focuses on the organization of vehicle sales. This chapter identifies the leading carmakers and the location of production.

Worldwide production of motor vehicles has increased steadily during the seven decades since the end of World War II at an average annual rate of 1.4% (Figure 3.1). Production increased from 10 million vehicles in 1950 to 16 million in 1960, 30 million in 1970, 39 million in 1980, 44 million in 1990, 58 million in 2000, and 78 million in 2010. The annual average increase was 3.5% during the 1950s, 4.5% during the 1960s, 2.3% during the 1970s, 1.2% during the 1980s, 2.4% during the 1990s, and 1.8% during the first decade of the 21st century.

Production increased relatively slowly during the first years of the 1950s before widespread ownership of motor vehicles had diffused through most of the world. Production also stagnated between the ­mid-1970s and early 1980s, when demand was depressed by escalating petroleum prices. Between 1983 and 2007, production increased relatively rapidly, with declines in only four of those 25 years. Production declined sharply during the severe recession of 2007–2008 but quickly recovered to the historically high levels of volume and growth characteristic of the preceding quarter-century.

The Major Carmakers

Ten carmakers accounted for 76% of the global production of vehicles in 2012 (Figure 3.2). Six of the ten companies assembled between 5 and 10 million vehicles per year each, and the other 4 between 2 ­million and 5 million. Eight other companies assembled at least 1 ­million vehicles in 2012, and 21 others produced between 100,000 and 1 ­million. The six companies that produced at least 5 million vehicles each included two with headquarters in the United States (Ford and General Motors), two in Asia (Hyundai and Toyota), and two in Europe (Renault ­controlling Asia-based Nissan and Volkswagen). The other four top producing companies included two in Europe (Fiat controlling U.S.-based Chrysler and PSA Peugeot Citroën) and two in Asia (Honda and Suzuki). These 10 companies all produce and sell vehicles in more than one region of the world.

Whether competition has increased or decreased depends on how it is defined. The 10 largest carmakers increased their share of world production from 68% in 1990 to 75% in 2012. However, the share of world production held by the three largest carmakers declined from 36% in 1990 to 34% in 2012. The number of companies in the world producing at least one million vehicles increased from 13 in 1990 to 18 in 2012. Through a turbulent quarter-century of globalization, severe recession, and regional sharps, the lineup of major carmakers has changed remarkably little. Since 1990, the only changes in the list of 10 largest carmakers have been the takeover of two of them (Chrysler and Nissan) by two others on the list (Fiat and Renault) and the addition of Hyundai and Suzuki to fill the positions vacated by the two takeovers.

Why has there been so little movement in the lineup? On the one hand, very high capital costs are a strong barrier to entry of new large-scale producers. At the same time, the rapid increase in demand worldwide over the past quarter-century, as well as the prospect of strong growth in the future, has encouraged even unprofitable carmakers to stay in business to grab a portion of the additional sales.

The following is a review of the world’s 10 largest producers of vehicles, as of 2012, in alphabetical order.

Fiat/Chrysler

Fiat, an acronym for Fabbrica Italiana Automobili Torino, was founded in 1899 under the leadership of Giovanni Agnelli (1866–1945). The Agnelli family has remained in control of Fiat for most of its century-plus existence, either through direct management of the firm or indirectly through a family-owned holding company. Giovanni Agnelli’s great-great-grandson John Elkann became chairman in 2010. Fiat emerged early in the 20th century as Italy’s leading carmaker, primarily by focusing on high-volume, mass-produced, low-priced cars. High tariffs and trade barriers protected Fiat in its home market.

The Agnelli family has played an extremely prominent role in Italian politics, culture, and aristocratic society through the 20th century and into the twenty-first.1 Fiat especially dominates its home city of Turin. In addition to being by far the city’s largest employer for more than a century, the Fiat holding company owns the city’s principal newspaper La Stampa and its leading soccer team Juventus Football Club. The company’s iconic factory in the Lingotto district of Turin opened in 1923 and stopped producing cars in 1982, but it was remodeled by the architect Renzo Piano into a complex including a hotel, shopping mall, university, concert hall, and theater as well as corporate offices for Fiat.

Fiat gained control of U.S.-based Chrysler in 2009 as part of that company’s U.S. government-managed restructuring. Chrysler Motor Corporation was incorporated in 1924 by Walter Chrysler, who had been president of GM’s Buick division during the 1910s. During the early 1920s, ­Walter Chrysler was hired by banks to reorganize several insolvent carmakers, including Maxwell Motor Company and Chalmers, which were folded into Chrysler. Early Chrysler cars quickly gained a reputation for especially strong engineering. As sales rapidly increased, Chrysler acquired Dodge Brothers in 1926. Dodge had been founded by brothers John and Horace Dodge in 1900 to make car parts. The company grew rapidly because it was a leading supplier to Ford, and the Dodge brothers were major investors in Ford. Dodge started to assemble complete vehicles sold under its own name in 1915. Dodge was the second bestselling car in the United States in 1920, when both the Dodge brothers died. The Dodges’widows sold the company in 1925 to an investment firm Dillon, Read & Co. (currently part of UBS), which in turn sold it to Chrysler three years later.

Chrysler acquired American Motors (AMC) from Renault in 1987. AMC was formed in 1954 through the acquisition of Hudson Motor Car Company by Nash-Kelvinator Corporation. In 1916, Charles P. Nash (1864–1948), a former GM president, acquired the Thomas B. Jeffery Company, a nineteenth-century bicycle manufacturer in Kenosha, Wisconsin, that started to assemble cars in 1902. Hudson had been established in Detroit in 1909 by Roy D. Chapin Sr. (1880–1936); the carmaker was named for its principal financial backer, Joseph L. Hudson (1846–1912), who was also the founder of Detroit’s leading department store of the same name.

The principal asset that passed through AMC and Chrysler was the Jeep brand. Jeep originated as a vehicle commissioned by the U.S. Army in 1940 in anticipation of U.S. entry into World War II. The prototype was developed by the American Bantam Car Company, but the Army deemed Bantam too small to meet its needs, so it contracted Willys-Overland Motor Company to produce Jeeps. Willys-Overland made substantial alterations to the prototype and assembled 363,000 Jeeps during World War II. Ford assembled another 280,000 Jeeps during World War II using specifications supplied by Willys-Overland.

Willys-Overland was the second leading carmaker after Ford during the 1910s but had slipped well behind the leaders during the 1930s. John Willys (1873–1935) formed Willys-Overland through acquisition of a number of carmakers during the first two decades of the 20th century, beginning in 1908 with a division of the Standard Wheel Company that had started making cars called Overland in 1903. After World War II, Willys-Overland produced Jeeps for sale to civilians as well as the Army. Willys-Overland, including the Jeep, was purchased by Kaiser Motors in 1953. Kaiser (originally Kaiser-Frazer Corporation), founded in 1945 by Edgar Kaiser and Joseph Frazer, was one of a number of companies that started producing cars in the United States after World War II but ultimately failed during the 1950s. In Kaiser’s case, it halted production of cars in 1955 but continued to make Jeeps until 1970, when the company was sold to American Motors.

With European integration, Fiat has been especially aggressive entering Eastern Europe, and its largest European factories are now in Poland. Fiat has also been especially strong in South America with plants in Argentina and Brazil. Fiat’s half-dozen assembly plants in Italy now are utilized at very low rates, well under half of capacity.

Ford Motor Company

The Ford Motor Company, established in 1903, was Henry Ford’s third attempt to start a car company, after two failures.2 At a time when cars were luxury recreational toys for the wealthy living in big cities, Ford argued that cars would have practical applications, especially for farmers in rural areas. Most financial backers in the auto industry believed that profits resulted from selling at a high price a small quantity of handmade cars. Ford was convinced that demand for cars would become ­universal and was limited in 1900 only by the high prices. At odds with his ­financial backers, Ford set out to build the lowest-priced car possible. When introduced in 1909, the Ford Model T was initially priced at $850 at a time when most cars sold for around $2,000. The price dropped to $440 in 1915 and $260 in the 1920s. More than 15 million Model Ts were sold, the most of any model until passed by the VW Beetle in 1972. During the 1910s, more than half the cars in the entire world, as well as in the United States, were Model Ts.

Henry Ford became a folk hero for paying his workers $5 a day in 1914, more than twice the rate at other factories. He ran for the U.S. Senate from Michigan and narrowly lost in a race that many considered stolen from him. But the Ford Motor Co. failed to keep pace with the improved technology, design, and marketing of GM as well as upstart Chrysler. Henry Ford became increasingly authoritarian and erratic. He published anti-Semitic material, attacked the banking and entertainment industries, and accepted a medal from Nazi Germany. Disdainful of his only son Edsel, who died at a young age, Henry Ford turned over day-to-day management of the company’s Service Department to Harry Bennett, a former boxer with known connections to organized crime. The Service Department enforced draconian rules in the factory, beat up union organizers in front of news cameras, and checked up on workers in their homes. During World War II, the U.S. Government came close to nationalizing the troubled company to assure availability of essential war materiel.

In 1919, Henry Ford bought out all minority shareholders and held 100% of the stock of the company. A public stock offering was initiated in 1956, but the Ford family has retained financial control in the company through a special class of stock. The family has also retained control of the company’s management. With Henry Ford no longer competent to run the company in his old age, and his only child Edsel deceased, the oldest grandson Henry Ford II took over, serving as President, Chairman, or CEO from 1945 until 1979. To revive the company’s fortunes, Henry II hired a strong management team known as the Whiz Kids. The current Executive Chairman of the company, William C. Ford, Jr., is the great-grandson of Henry Ford, as well as of Harvey Firestone, founder of what is today part of the world’s largest tire producer. The Ford family plays a leadership role in the Detroit area, including ownership of the Detroit Lions National Football League team.

The Ford Motor Co. survived the severe recession of 2008–2009 without the government intervention and bankruptcy proceedings required to save Chrysler and GM. Credited with Ford’s success was a strong leadership team, including Bill Ford and the President and CEO Alan Mulally, who had been hired from Boeing Corp. Assets not central to the company’s primary mission of building popularly priced Ford brand models were sold. The company put up nearly all of its remaining assets as collateral to borrow money before the credit markets froze.

Ford pioneered overseas assembly plants. Its first overseas factory—in Trafford Park, a suburb of Manchester, England—opened in 1911 to assemble the Model T, which quickly became the best-selling vehicle in the United Kingdom. Earlier, in 1904, an independent company, the Walkerville Wagon Works, gained the rights to manufacture Ford vehicles in Canada. Ford’s principal assembly production facilities in Europe are in Germany, Spain, and Turkey. Ford has had a major presence in Eastern Europe for a long time, including facilities in Romania and Russia. It has closed E­uropean assembly plants in Belgium and the United Kingdom. South America markets are served from plants in Argentina, Brazil, and Venezuela. Ford has plants in India, Malaysia, and Vietnam. It is producing in China but trails the other major carmakers in that market. On the other hand, Ford has historically been a leader in production in Australia and South Africa.

General Motors

The story of General Motors differs from that of the other leading ­carmakers because it was originally designed to be a loosely organized holding company for highly autonomous assemblers and parts ­suppliers rather than a single tightly integrated manufacturing enterprise. GM’s founder William C. Durant incorporated GM in Flint, Michigan, in 1908 to oversee a number of companies he had acquired.3 Most of Durant’s acquisitions were manufacturers of obscure but necessary car parts or insolvent small-scale vehicle assemblers. Durant had founded and run the Flint-based Durant-Dort Carriage Company, which by 1900 had become the largest carriage manufacturer in the United States. The strongest ­performing carmaker in the original GM was Buick. In 1904, Durant had acquired a then-struggling Buick Motor Company, which was also based in Flint and turned it into the world’s best-selling brand in 1909.

Ousted from GM in 1910 by bankers unhappy with the company’s mounting financial losses, Durant formed two more auto companies, named Republic Motors and United Motors. He repeated his earlier strategy of acquiring obscure parts suppliers and insolvent assemblers, including Chevrolet Motor Company. Durant regained control of GM in 1916 and combined his various holdings into a company that was large enough to challenge Ford as the world’s largest carmaker. With GM once again financially overextended, Durant was forced out of the company for a second and final time in 1920. GM was taken over by E. I. du Pont de Nemours and Company (DuPont), which saw it as a lucrative customer for its paint products. GM passed Ford for good in 1931 as the best-selling vehicle producer in the United States, a title it has never relinquished. It was the world’s best-selling carmaker from the 1920s until overtaken by Toyota in 2008. Its principal overseas acquisitions were the United Kingdom’s Vauxhall Motors in 1925 and Germany’s Opel in 1929.

Alfred P. Sloan, the owner of one of the many parts companies acquired by Durant, was installed as GM President in 1923. He continued as President or Chairman of the Board until 1956. Under Sloan, GM became not only the world’s largest carmaker but, for a number of years, the world’s larger corporation of any sort. GM was considered a model of how a very large corporation could be successfully operated through decentralization and vertical integration. Each GM division had to meet a specified rate of return on investment but had considerable leeway in how to achieve it. GM was especially adept for much of the 20th century at marketing a variety of cars at various price points and styles, from the low-priced, mass-market Chevrolet to the exclusive, expensive Cadillac. For many years, as GM held roughly half of the North American market, one of its brands would regard other GM brands, rather than other carmakers, as its chief competitors.

GM’s market share in the United States started slipping, dropping from a historic high of 50 percent in 1956 to below 40% in 1986, below 30% in 1998, and below 20% in 2010. The long-term slippage in market share was somewhat masked by steady sales in the range of 4–5 ­million vehicles per year during the 1980s, 1990s, and most of the 2000s, although still below its historic U.S. high of 6.9 million in 1978. GM continued to operate as if nothing were amiss and its sales and market share would rebound to historic levels. Finally, during the severe ­recession of 2008–2009, as its sales plummeted from 3.8 million in 2007 to 2 million in 2009, GM ran out of cash. It asked the U.S. Government for help, and President Obama’s Auto Task Force responded by replacing GM’s top leadership and restructuring the company through bankruptcy laws. The government-managed restructuring turned GM into a smaller, financially viable company with its toxic assets isolated from the viable on-going business. GM has continued to lose market share in the United States but has been profitable at its smaller size. A large proportion of its facilities were closed as part of the government-managed restructuring.

Outside North America, GM’s production facilities are distributed in a pattern similar to Ford’s. Like Ford, GM has its principal European assembly plants in Germany and Spain, and like Ford, it has closed plants in Belgium and the United Kingdom. Eastern Europe is served primarily from plants in Poland. In Asia, in addition to China and India, GM is assembling vehicles in Thailand and Vietnam. Like Ford, GM has its major South American facilities in Brazil and also in Venezuela. Again like Ford, GM has a major presence in Australia and South America.

Honda Motor Company

Honda Motor Company was founded by Soichiro Honda. Prior to World War II, he ran a car repair shop and, in 1937, organized Tokai Seiki Heavy Industry to make piston rings for Toyota. Honda started making motorcycles in 1948 and has been the world’s largest motorcycle producer since 1959. Motorcycles now represent only 14% of the company’s revenues. Honda first produced motor vehicles in 1963.

Honda’s corporate strategy is distinctive among the largest carmakers in two ways. First, the company has chosen to focus to a greater degree than its North American competitors on passenger cars rather than trucks. Unlike the other major carmakers in North America, Honda does not produce large pickup trucks. Honda has depended instead on two high-volume passenger cars, Accord and Civic, and numerous other vehicles based on the platforms of these two vehicles. As a result, Honda’s market position is stronger when demand for trucks is weaker and its market position is poorer when demand for trucks is higher.

Honda’s second distinctive position is its large share of sales in North America. An also-ran with a relatively small market share and limited growth prospects in its home market in Japan, Honda became one of the world’s largest carmakers by becoming the first Japanese-owned company to assemble vehicles in North America, beginning in Marysville, Ohio, in 1982.4 It continued its leadership as the first Japanese-owned carmaker to build a second assembly plant in North America, in East Liberty, Ohio. Although its headquarters are in Japan, Honda gets nearly half of its sales in North America compared to only one-sixth in Japan. In comparison, one-third of Toyota’s worldwide sales are in North America and ­one-fourth in Japan. Ultimately, success abroad translated into growth in its home market, as Honda passed Nissan in 2001 to be the second leading producer of vehicles in Japan.

Honda is a leading producer in South and Southeast Asia with assembly plants in India, Indonesia, New Zealand, Pakistan, and Thailand. In South America, Honda has plants in Argentina and Brazil. The European market is served from plants in Turkey and the United Kingdom.

Soichiro Honda remained head of the company until 1973 and was active in the company until his death in 1991. Since then, the company has been owned by individual and corporate shareholders, without Honda family involvement. The largest shareholder, with 7% of shares, is the Japan Trustee Services Bank.

Hyundai Motor Group

Hyundai is the newcomer and fastest growing among the top 10 carmakers. The other leading carmakers trace their roots to the 19th or early 20th centuries, but Hyundai only began making cars in 1967, originally assembling Ford cars for the Korean market. The first Hyundai-designed car was not built until 1974. It did not start selling vehicles in the United States until 1986 and opened its first U.S. plant in 2005.

Hyundai Motor Group was organized in 1998 through the combination of South Korea’s two leading carmakers Hyundai Motors and Kia Motors. In 1998, Hyundai was the world’s sixteenth largest producer. After it consolidated with Kia, the combined company jumped to thirteenth largest in 1999. The combined company became the world’s eleventh largest carmaker in 2000, eighth largest in 2001, seventh largest in 2003, sixth largest in 2009, and fifth largest in 2010. The company’s policy has been to become a major international player by offering vehicles regarded by consumers and critics as competitive in quality with, yet less expensive than, the leading Japanese makes.

Hyundai Motors is part of South Korea’s largest chaebol (conglomerate), which was formed in 1947, starting with a construction firm. Chung Ju-yung (1915–2001) controlled the Hyundai chaebol until his death in 2001. The chaebol were created in Korea to help foster rapid and economic development and industrialization. The chaebol have centralized ownership, primarily the families that founded it. Some are involved in a large variety of activities, but most focus on core competences.

The original Hyundai chaebol, broken up around 2000, continues primarily as a shipping company. Most companies bearing the Hyundai name are now separate legal entities from Hyundai Motor Group, including Hyundai department store, heavy industries, and development companies. Hyundai Motor Group includes several so-called affiliated companies in addition to the carmaking Hyundai Motors. Affiliations include steel, car parts, construction, logistics, finance, and IT companies.

Kia, which became part of the Hyundai Motor Group in 1998, had been founded in 1944 to make bicycle parts. Kia started building cars in 1974 and became South Korea’s second-largest carmaker. Its products were derived primarily from Mazda, which was controlled at the time by Ford. Kia declared bankruptcy in 1997, and Hyundai outbid Ford for controlling interest.

The home country accounts for a smaller share of Hyundai’s total worldwide sales than any other major carmaker, not surprising given the relatively small size of the Korean market. China, the United States, and South Korea each account for around one-sixth of the company’s global sales. Hyundai is producing for the South American market in Brazil and for the European market in the Czech Republic, Russia, and Turkey. Like the other major carmakers, Hyundai has a presence in China and India.

PSA Peugeot Citroën

PSA Peugeot Citroën is the oldest of the world’s 10 largest carmakers.5 A metalworking firm, Peugeot Frères Aînés built its first gasoline-powered cars in 1890 under license from Gottlieb Daimler, who had patented a gasoline engine only five years earlier. The company was originally founded in 1810 to manufacture coffee mills, and it started to make bicycles in 1830. Cousins Armand and Eugène Peugeot split in 1896, with Armand establishing Société Anonyme des Automobiles Peugeot to focus on making cars and Eugène remaining in charge of the long-standing family metalworking business. The two Peugeot companies merged in 1910.

PSA was formed in 1976 amidst a buying spree by Peugeot S.A. during a period of consolidation in the wake of economic hardships brought on by the oil shocks. Peugeot acquired a 38.2% share of Citroën in 1974 and raised it to 89.9% in 1976. PSA also acquired Chrysler Europe in 1978.

André-Gustave Citroën (1878–1935) started building cars in 1919 in a factory he originally opened to produce armaments for the French government during World War I. The company filed for bankruptcy in 1934, and its assets were taken over by the company’s largest creditor Michelin. During World War II, Citroën was notable for cooperating less with the German occupiers and providing more active support to the resistance than did other French companies, in part a legacy of André Citroën being Jewish.

After World War II, Citroën’s fortunes were temporarily revived by streamlined designs, especially two unusually innovative and iconic models, the 2CV (deux chevaux) economy car and the DS with pneumatic suspension. The company bought the French pioneering carmaker Panhard in 1965 but two years later terminated the Panhard nameplate. Fiat acquired a 49% share of Michelin and thus of Citroën in 1968 but sold the shares back to Michelin five years later. A year later Citroën filed for bankruptcy protection, and the French government arranged for Michelin to sell its shares in Citroën to Peugeot. Peugeot and Citroën have separate marketing operations but share R&D and assembly operations.

Peugeot acquired Chrysler Europe in 1978 for $1 plus assumption of its liabilities and properties. Attempting to compete with Ford and GM as a major player in Europe, Chrysler Corporation acquired several ­long-standing European carmakers and operated them under the umbrella of Chrysler Europe.

• Rootes Group was founded in 1913 by William Rootes (1894–1964) and became the largest carmaker in the United Kingdom through acquisition of several companies, including Hillman and Humber in 1929 and Talbot and Sunbeam in 1935. After Lord Rootes’s death, the company was taken over by Chrysler, which over a period of years replaced the long-standing brand names with Chrysler. After acquiring Chrysler Europe, Peugeot revived the Talbot nameplate for eight years before renaming the models Peugeots.

• Simca, an acronym for Société Industrielle de Mécanique et Carrosserie Automobile (Industrial Society of Mechanical and Automotive Body), was founded in 1934 by Fiat to produce vehicles in France. A Fiat executive, Henri Théodore Pigozzi (who changed his name from the Italian Enrico Teodoro), ran Simca from 1935 until 1963, when Chrysler bought Fiat’s controlling interest. Simca had acquired Ford’s France operations in 1958 and utilized a former Ford facility as its principal assembly plant.

• Barreiros, founded in 1954 by Eduardo Barreiros to produce diesel engines and trucks, started to produce Chrysler cars for the Spanish market in 1963. Chrysler took full control of the company in 1969.

Renault/Nissan

Louis Renault (1877–1944) built his first car in 1898, in a workshop, which has been preserved, along the banks of the River Seine about 2 kilometers west of Paris in the commune of Boulogne-Billancourt. Louis founded Société Renault Frères in 1899 along with brothers Marcel and Fernand. Renault’s corporate headquarters remain along the banks of the Seine.

In 1919, Louis Renault purchased the entire Île Seguin, a 1-­kilometer-long, 15-hectare island in the Seine opposite his workshop. A decade later, he started construction of a large factory complex on the island. ­Boulogne-Billancourt, as the island complex was known, was France’s largest factory with 30,000 employees, Renault’s only manufacturing facility prior to World War II, and its largest facility until its closure in 1992. Heavy Allied bombing heavily damaged the complex during World War II, preventing it from being used to supply the Nazi army. Nearly all of the structures on Île Seguin were demolished between 2000 and 2002. Plans for a museum on the island fell through; a restaurant and park are now there. Renault’s headquarters are located along the banks of the Seine facing the island.

After the liberation of France in 1944, Louis Renault was arrested on charges of collaborating with the Nazis, and he died in jail later that year. The French government nationalized the carmaker in 1945. Appointed as the first chairman of the nationalized carmaker was Pierre Lefaucheux (1898–1955), a leader of the French Resistance during World War II and a concentration camp survivor. Lefaucheux set a style of management at Renault that minimized the impact of being nationalized. Resisting political pressure to focus on truck production, Lefaucheux’s priority was building small cars that became the best-selling models in France. Renault was privatized in 1996, although the French government continues to own around 15%.

Nissan Motor Company’s predecessor, originally called the Kwaishinsha Motor Car Works, was founded in 1911 by Masujiro Hashimoto. The company sold cars named DAT, derived from the acronym of the three major investors Kenjiro Den, Rokuro Aoyama, and Meitaro Takeuchi, and the company’s name was changed in 1925 to DAT Motorcar Company. DAT was acquired in 1930 by Nippon Sangyo, one of Japan’s largest holding companies. The carmaker was set up as a separate subsidiary Nissan Motor in 1934. The name Nissan came from the abbreviation used on the Tokyo Stock Exchange for Nippon Sangyo. Renault acquired controlling interest in Nissan in 1999; Renault’s CEO Carlos Ghosn took on the same title at Nissan. Renault owned 44% of Nissan as of 2013 and Nissan 15% of Renault. Renault also owns these formerly independent carmakers:

• Dacia, established in 1966, was Romania’s leading carmaker, producing vehicles primarily derived from Renault designs and tooling. Renault acquired Dacia in 1999 and has used the nameplate for lower priced models sold primarily in Eastern Europe.

• AvtoVAZ, founded in 1966 as Volzhsky Avtomobilny Zavod (VAZ), was Russia’s leading carmaker, producing vehicles based primarily on Fiat models and sold under the Lada nameplate. Renault-Nissan took majority control in 2012.

• Samsung Motors, established in South Korea in 1994 by one of the country’s leading firms, was sold to Renault in 2000.

• Oyak was founded in Turkey in 1969 as a joint venture between Renault, which owns 51%, and the Turkish Armed Forces Pension Fund, which owns 49%.

Suzuki Motor Corporation

Suzuki Loom Works was established by Michio Suzuki (1887–1982) in 1909 to manufacture looms for the silk industry and later for cotton. Efforts initiated during the 1930s to build motor vehicles were shelved with the outbreak of World War II. After the war, Suzuki—like Honda—entered the motor industry first with two-wheeled vehicles, beginning with motorized bicycles in 1952, then motorcycles, then cars in 1955. The company has specialized in small cars and trucks, and its fortunes have ebbed and flowed with the changing demand for small cars in Japan and elsewhere.

Suzuki formed joint ventures in 1981 with GM and Japanese truck producer Isuzu to build small cars and trucks for the North American market. Suzuki has also been a partner in developing vehicles with an unusually large number of other carmakers. The purpose of the joint ventures is to make full use of assembly plants by producing vehicles that are sold under the nameplates of more than one carmaker. GM owned more than 20% of Suzuki at the peak of the partnership between 2001 and 2006, but GM sold 17% in 2006 and the remainder two years later. VW now owns 20% of the company and is the largest shareholder. Relations between VW and Suzuki have been turbulent.

Suzuki’s most important subsidiary is Maruti, which has long been India’s leading carmaker. Maruti Technical Services Limited was formed in 1970 by the Government of India for the purpose of developing and mass-producing a low-priced car. Although lacking experience in the auto industry, Sanjay Gandhi—son of then Prime Minister Indira Gandhi—was awarded an exclusive license to produce Maruti cars. The company was liquidated following a scandal in 1977, and Sanjay Gandhi died in a plane crash in 1980.

The company was re-established in 1981 as Maruti Udyog [Hindi for “industry”]. When it finally started producing cars in 1983, Suzuki provided the designs and operated the company as a joint venture with the Indian government. With economic liberalization during the 1990s, the Indian government permitted Suzuki to acquire one-half of Maruti in 1992 and finally a controlling 54% in 2002.

As a specialist in producing relatively inexpensive small cars and trucks, Suzuki is a major player in the emerging markets of Asia. In addition to India, Suzuki has production facilities in Indonesia, Myanmar, Pakistan, and the Philippines. It also produces for Europe through an assembly plant in one of that region’s emerging markets, Hungary. Meanwhile, Suzuki’s U.S. subsidiary filed for bankruptcy in 2012 and stopped selling in the U.S. market.

Toyota Motor Company

Toyota, like Suzuki, traces its corporate roots to the textile industry.6 Toyoda Automatic Loom Company, founded by Sakichi Toyoda in 1924 to manufacture weaving machinery, established a carmaking division in 1933 under the leadership of Sakichi’s son Kiichiro. Toyota Motor Corporation became an independent company in 1937. The company name was changed from the family name Toyoda to Toyota because the spelling with the “t” is regarded as carrying good fortune in Japanese, whereas the spelling with the “d” means “fertile rice paddies.”

The Toyoda family has dominated the management of the carmaker. The founder Kiichiro Toyoda was president of the carmaker until 1950. His son Shoichiro was president during 1982–1992, and Shoichiro’s son Akio became president and CEO in 2009. The family owns 9% of the company, although its stake is smaller than those held by the Ford, Peugeot, and Agnelli [Fiat] families in their respective carmakers. The largest stakeholder, holding 10% of the shares, is Japan Trustee Services Bank, two-thirds of which is owned by Sumitomo Mitsui Trust Holdings and one-third by Resona Bank. Both of these financial institutions have substantial backing from the Japanese government.

Nissan was Japan’s oldest and leading carmaker prior to World War II, but as Japanese carmakers restructured in the decade after the country’s defeat, Toyota passed Nissan to become by far Japan’s best-selling carmaker without exception through the second half of the 20th century and into the 21st.

Toyota controls two other Japanese vehicle manufacturers—Daihatsu Motor Co. and Hino Motors. Daihatsu (known until 1951 as Hatsudoki Seizo Co. Ltd) was Japan’s oldest carmaker, founded in 1907. The company specialized in smaller cars and exports to developing countries. Toyota acquired a controlling 51% interest in 1999. Hino was founded in 1917 by Tokyo Gas Industry Company, which had been established seven years earlier to produce gas and electric parts. Since becoming part of Toyota in 1967, the company has focused on production of medium- and heavy-duty trucks.

Toyota also owns 17% of Fuji Heavy Industries, which produces Subaru cars. Fuji was founded in 1915 to produce aircraft. It started assembling cars in 1954. Nissan acquired 20% of Fuji’s shares in 1968. When Renault acquired control of Nissan in 1999, the Fuji shares were sold to GM. GM in turn sold 9% of Fuji’s shares to Toyota in 2005 and sold the rest of its 20% stake to the public.

Toyota supplies the European market through facilities in France, Portugal, and the United Kingdom. South American facilities are in Argentina and Brazil. Indonesia and Thailand are sites of major production facilities in Southeast Asia. As with other major carmakers, Toyota has facilities in Australia and South Africa.

Volkswagen GmbH

Volkswagen GmbH (known in its first year as Gesellschaft zur Vorbereitung des Deutschen Volkswagens mbH) was founded in 1937 by the Deutsche Arbeitsfront, the National Socialist union established by the Nazis.7 The purpose of the company was to build a low-priced car that would be affordable for a large percentage of Germans. A factory was constructed in Wolfsburg (known before World War II as KdF-Stadt) in 1938, but only a few cars were produced before the factory was converted to military vehicles with the outbreak of World War II in 1939.

After World War II, Wolfsburg—including the VW factory—was in the British occupied sector. The British military tried but failed to find an international carmaker willing to take over the VW factory, though Ford strongly considered it. Instead, the company was restructured in 1949 under the ownership of the Federal Republic of Germany. The government sold its shares in 1960.

VW concentrated on building a single model, a beetle-shaped car that passed the Model T in 1972 as the world’s best-selling model of all time. A year later, production of the beetle ended in Europe, but it continued in Mexico until 2003. Ultimately, 21.5 million cars were produced worldwide.

VW took over several smaller German companies during the 1960s. Auto Union, acquired in 1964, had been formed in 1932 by consolidating four small German carmakers Audi, DKW, Horch, and Wandered, all originally founded between 1904 and 1916. NSU, acquired in 1969 and folded into Auto Union, was originally a manufacturer of knitting machines and had started to make cars in 1905.

VW solidified its position as the best-selling carmaker in Europe by acquiring SEAT and Sˆkoda. Sˆkoda began as a manufacturer of armaments in 1859 and motorcycles in 1898, adding cars in 1905. The company was nationalized after the communist takeover of Czechoslovakia in 1948. After the fall of communism in 1989, Sˆkoda was auctioned off by the government, and VW outbid Renault for it.

SEAT (an acronym for Sociedad Española de Automóviles de Turismo, or Spanish Touring Car Company) was founded in 1950 by the government of Spain. The company became the dominant carmaker in Spain, producing primarily vehicles derived from an alliance with Fiat. SEAT switched its alliance in 1982 to VW, which acquired 51% of the company in 1986. In 1990, SEAT became a wholly owned subsidiary of VW.

VW also owns the premium carmaker Porsche through a complex series of arrangements designed to ward off a hostile takeover of VW. Ferdinand Porsche was the designer of the original VW beetle. A Porsche holding company actually owns most of VW, but VW in turn controls the holding company. The State of Lower Saxony owns 20% of VW, and the government of Qatar 17%.

VW has positioned Audi and Porsche as premium brands, Seat and Sˆkoda as low-priced brands, and the Volkswagen division as the high-volume, mid-priced brand. VW accounted for half of the company’s sales in Europe in 2012, whereas the other brands divided the remaining half. Outside of Europe, VW also is the leading carmaker in China and Mexico.

Distribution of Vehicle Production

Vehicle production in 2012 exceeded 1 million in seventeen countries, including seven in Asia, five in Europe, three in North America, one in Latin America, and Russia. Another twenty countries had production in excess of 100,000, including 10 in Europe, six in Asia, and two each in Africa and Latin America.

Three regions—Asia, Europe, and North America—account for 94% of the world’s motor vehicle production. In 2012, 44 million vehicles were produced in Asia (including Oceania), 20 million in Europe (including Russia), 16 million in North America (including Mexico), 4 million in South America, and 1 million in Africa and the Middle East. Thus, more than one-half of the world’s vehicles were assembled in Asia, nearly one-fourth in Europe, and nearly one-fifth in North America (Figure 3.3). Within each of the three regions of motor vehicle production, assembly plants have distinctive distributions.8

Distribution of Production Within North America

In 1950, 8 million of the world’s 10 million vehicles were produced in just one country, the United States. U.S. dominance of world production dated from Ford’s installation of the moving assembly line and adoption of other elements of mass production during the 1910s. Other industrialized countries had not fully recovered from the devastation of World War II by 1950, and industrialization had not yet diffused to other regions.

The U.S. motor vehicle industry consolidated in the hands of three companies—GM, Ford, and Chrysler—known for much of the 20th century as “the Big Three.” By the 1950s, the Big Three together accounted for 95% of car production and sales in the United States. In the 21st century, GM, Ford, and Chrysler produce only half of the vehicles in North America, and reflecting their less dominant position, they are now known as the Detroit Three rather than the Big Three. Japanese carmakers constructed assembly plants in North America beginning with Honda in 1982, and foreign-headquartered companies now account for half of the vehicles produced in North America.

The North American auto industry is highly clustered in a region known as auto alley (Figure 3.4).9 Auto alley is a narrow corridor approximately 100 kilometers wide and 1,000 kilometers long that extends north–south between the Great Lakes and the Gulf of Mexico. The spine of auto alley through the United States is formed by two north-south interstate highways, I-65 and I-75. East-west highways, including I-40, I-64, I-70, and US 30, form ladders connecting the two north-south routes. Auto alley extends into southwestern Ontario along Highway 401. The principal auto production center in North America outside of auto alley is in Mexico.

U.S. motor vehicle production clustered in southeastern Michigan during the first decade of the 20th century. Until then, production had been scattered across the northeast. Carmakers clustered in southeastern Michigan primarily because of proximity to key inputs. The leading manufacturers of gasoline engines, transmissions, and carriage bodies were in the region. In addition, wealthy investors in the Detroit area were willing to provide capital for fledgling carmakers at a time when the industry was viewed as an unacceptable risk by leading banks in New York and elsewhere in the northeast.

The emergence of the Ford Motor Co. as the dominant carmaker in the second decade of the 20th century signaled a change in the geography of production. Ford produced most of the parts in southeastern Michigan and shipped them to large cities around the country where they were put together into completed vehicles at branch assembly plants. GM, Chrysler, and smaller carmakers emulated Ford’s branch assembly plant strategy.

The Detroit Three carmakers closed their branch assembly plants beginning in the 1970s, and all of them were gone in the early 21st century. New assembly plants were constructed and older ones modernized in auto alley in order to minimize aggregate shipping costs to the entire North American market. Meanwhile, when Japanese-owned carmakers began to construct assembly plants in the United States in the 1980s, they also sought locations in auto alley.

Within auto alley, a spatial division has emerged between the north and the south. North of US 30 (Michigan and northern portions of Illinois, Indiana, and Ohio), all 18 assembly plants are owned by the Detroit Three carmakers. To the south, 16 of 18 assembly plants are owned by foreign-headquartered carmakers.

For much of the 20th century, U.S.-owned carmakers produced vehicles in Canada for sale in Canada and vehicles in Mexico for sale in Mexico. Trade restrictions limited the number of vehicles produced in one North American country and sold in another. Free trade agreements between the United States and Canada resulted in integration of production between those two countries beginning in the 1960s. The North American Free Trade Agreement extended the integration of production to Mexico beginning in the 1980s.

Mexico is the principal center of vehicle production outside auto alley. Assembly plants within Mexico are located either near Mexico City, the country’s largest market, or in the north to minimize shipping to U.S. customers.

Distribution of Production Within Europe

Motor vehicle production increased rapidly in Europe during the 1950s and 1960s, from less than 2 million in 1950 to more than 13 million in 1970. Europe’s share of world production reached a historic high of 44% in 1970, before declining to 35% in 2000 and 25% in 2010.

Fifteen of 27 European Union (EU) countries produce at least 100,000 vehicles a year. Germany accounts for about one-third of vehicle production; France and Spain together are responsible for another ­one-fourth. The United Kingdom ranks fourth among the 27 EU countries.

Vehicle production in Europe originated independently in each country. High tariffs minimized the movement of vehicles among countries within Europe, let alone from other world regions, for most of the 20th century. With most vehicles produced in an individual country also sold in that country, the optimal locations for production were near the geographic center of the various national markets, or near the wealthiest regions where car buyers were most numerous. Thus, most assembly plants in the United Kingdom were located in the West Midlands, especially near the city of Coventry. The Paris region was the center of national production in France, Turin in Italy, and Wolfsburg in Germany.

Although the EU has eliminated barriers to movement of vehicles within Europe, labor laws make it difficult to close assembly plants in Europe. As a result, the distribution of plants within Europe is influenced by the legacy of protected national carmakers. Nevertheless, despite national legacies, the distribution of assembly plants within Europe is highly clustered and occupies an area of approximately the same size as North America’s auto alley. Europe’s auto producing region is oriented east–west between the United Kingdom and Slovakia. The heart of the region is southern and western Germany, where a high percentage of the continent’s production is centered. The other principal production area in Europe is in northern Spain (Figure 3.5).10

The fastest growing car producing area within the EU is Eastern Europe. The Czech Republic, Poland, Slovakia, and Romania together accounted for 16% of total EU output in 2012, compared to only 3% in 1970. These former Communist countries have much lower wage rates than in Western Europe; the wage-rate differential between Eastern and Western Europe is actually much greater than that between Mexico and the United States. At the same time, Eastern Europe is positioned close to the heart of the Western European customer base.

On the other hand, France, Italy, and the United Kingdom have had the most rapid declines; the share of European production in these three countries declined from 54% in 1970 to 21% in 2012. These countries have had difficulty maintaining competitive cost structures in the face of greatly enhanced productivity in Germany and lower wage rates in Eastern Europe. Germany’s share of European production in the 21st century is about the same as the combined share for East and West Germany in 1970.

Russia and Turkey are the principal producers of vehicles in Europe outside the EU. The auto industry in Russia is in part a legacy of the Soviet Union era when the communists emphasized investment in heavy industry. Soviet-era plants have been for the most part turned over to international carmakers, but most have been running well below capacity. European carmakers have constructed new plants. Turkey has also seen some new investment by European carmakers. European carmakers regard Russia and Turkey as potentially important centers for low-cost assembly, but they remain wary of investing in the countries because of an unstable investment climate.

Distribution of Production Within Asia

Worldwide production increased by 19 million vehicles during the first decade of the 21st century. Nearly all of the growth has been in Asia, where vehicle production increased from 18 million to 41 million during the period, whereas it declined from 18 million to 12 million in North America and remained unchanged at 20 million in Europe. As a result, the percentage of world production in Asia increased from 30% in 2000 to 53% in 2010. Asia had increased from 3% of world production in 1960 to 19% in 1970 and 31% in 1980, but the percentage did not change during the last two decades of the 20th century, before the rapid increase in the 21st century.

Within Asia, most vehicle production is distributed among a handful of countries (Figure 3.6). China accounts for 45% of Asian production, Japan for 20%, India and South Korea for 10% each, and Iran and Thailand for 5% each. Integration of vehicle production among countries within Asia has not occurred to the same extent as in Europe and North America. Long-standing political differences and military tensions have impeded cooperation in East Asia among Japan, South Korea, and China, as well as in South Asia between India and its neighbors. These issues have also induced consumers to avoid vehicles produced by adversarial countries.

Japan was responsible for most of Asia’s car production increase during the 1960s and 1970s. Japan became the world’s second leading producer during the 1960s, ahead of several European countries, and passed the United States to become the world leader during the 1970s. The United States and Japan maintained roughly comparable production levels through the end of the 20th century and into the first decade of the 21st century.

Toyota dominates production in Japan, accounting for nearly half of the light vehicles assembled there. Most of the other half is divided roughly evenly among Honda, Mazda, Nissan, and Suzuki. Japan’s carmakers have clustered most of their headquarters and production facilities in the Tokyo-Yokohama metropolitan area. The principal exception is Toyota, which has most of its facilities 250 kilometers to the west in the Nagoya area.

In India, vehicle production displays a pattern similar to that of Japan, with one company responsible for one-half of the market and several other companies at around 10% each. The leader in India is Maruti Suzuki India Limited, a company that began assembling vehicles in 1983. The company is jointly owned by Suzuki and the government of India. The other three leading carmakers in India are Hyundai, Tata Motors, and Mahindra & Mahindra.

When Maruti Suzuki began production, India’s car market had been dominated first by Hindustan Motors and then by Premier Automobiles. These two companies assembled vehicles based on designs by the British firms Morris and Fiat, respectively. In both cases, models that were outdated when introduced were kept on the market for several decades. This left a wide opening for a newcomer to enter the market with an up-to-date model, and that proved to be Maruti.

Tata Motors, founded in 1945, is part of the Tata Group, one of the world’s largest corporations. Tata specializes in commercial vehicles, though it has gained international attention by developing the Nano, considered the world’s cheapest new car, selling at around $3,000 in 2012. Mahindra & Mahindra, founded in 1945, specialized in light trucks until 2007, when it started to assemble cars under a joint venture with Renault.

South Korea’s auto industry is dominated by Hyundai Motor Group, which has 75% of the domestic market through its Hyundai and Kia brands. Hyundai operates what is considered the world’s largest production facility at Ulsan, along the southeast coast.

China became the world’s leading vehicle producer during the first decade of the 21st century. By 2010, China’s output of more than 18 million vehicles exceeded the next two countries combined, the United States and Japan.

Vehicle production within China is not as clustered as in the other major producing regions. Around 25% of the country’s production is in the Shanghai area, and the second-largest production center, with around 15% of the national total, is 1,500 kilometers to the north, around Changchun. The third-largest center, Beijing, is roughly midway between Shanghai and Changchun, and the fourth-largest center, around Chonqing, is 1,500 kilometers west of Shanghai.

Vehicles can be assembled in China only by Chinese-controlled companies. These companies can assemble vehicles that they develop and market, or they can assemble vehicles through joint ventures with foreign-owned carmakers. All 10 of the largest international carmakers, as well as several smaller ones, have joint ventures in China. Joint ventures involving GM and VW hold about 15% each of China’s light vehicle market. Joint ventures with the other international carmakers together account for about 25% of the market. A dozen Chinese companies together have about 30% of the market, none with as much as 5%. The remaining 15% is scattered among numerous smaller firms.

The four leading Chinese carmakers are SAIC Motor, Dongfeng Motor, FAW Group, and Changan Automobile Group. These four companies together assemble around one-half of all vehicles in China, principally through joint ventures with international carmakers. SAIC (an acronym for Shanghai Automotive Industry Corporation), based in Shanghai, produces more than 20% of all light-vehicles in China primarily through joint ventures with GM, VW, and Fiat (through Iveco). Dongfeng, based in Wuhan, has joint ventures with Honda, Hyundai (through Kia), Nissan, and PSA Peugeot Citroën. FAW (an acronym for First Automobile Works), based in Changchun, has joint ventures with GM, Toyota, and VW. Changan, based in Chongqing, has joint ventures with Ford, PSA Peugeot Citroën, and Suzuki.

China’s leading carmakers assembling and marketing primarily their own vehicles rather than joint ventures include Beiqi Foton Motor, Brilliance Jinbei Automobile, BYD Auto, Chery Automobile, Great Wall Motors, Jianghuai Automotive, and Zhejiang Geely Holding Group. These seven carmakers account for between 2% and 3% each, and a combined 20%, of China’s light-vehicle production. Chery and Geely are best known outside of China, Chery because of efforts to export vehicles from China to Europe and North America, and Geely because it owns the Volvo brand name.

Distribution of Production Within South America

Most of the world’s vehicle production not clustered in the three principal regions described above is in South America. The region accounts for 5% of world production or all but 1% of the total not in Asia, Europe, and North America.

Within South America, Brazil is the dominant producer. Brazil is the seventh largest vehicle producing country and accounts for 4% of world production. Most of the remainder is in Argentina. Vehicle production in South America is controlled by the large international carmakers. High tariffs and domestic content requirements limit import of vehicles, so nearly all vehicles sold in the region are domestically assembled. Fiat, VW, and GM share more than 70% of Brazil’s market. In Argentina, production is more evenly distributed as seven of the 10 leading international carmakers—PSA Peugeot Citroën, GM, VW, Renault, Toyota, Ford, and Fiat— produce between 10% and 17% of the vehicles.

Labor Relations in the Auto Industry

Most of the world’s assembly plant workers belong to a trade union. The principal exception is North America, where fewer than half of assembly plant workers are union members. Relatively few workers in parts supplier plants belong to a union.

Early cars were put together by skilled craftsmen. Pattern makers, molders, core makers, and forge operators fashioned unique parts for each individual car. Machinists finished rough castings into an engine and transmission. Woodworkers, painters, and upholsterers fashioned the body. Mechanics fitted the handmade parts into a finished car at a stationary work station.

Because of their specialized knowledge and skills, early craft workers were able to set the pace and accuracy of production. They used this power to force higher wages, reduced working hours, and beneficial job roles. Skilled craft production was replaced with specialized, repetitive, and automatic work, requiring little thought, judgment, or skill.

Motor vehicle production was transformed during the early 20th century from skilled to unskilled work. Most critical in deskilling the workforce was the introduction of the moving assembly line in 1914 by the Ford Motor Co. Each worker was positioned at a particular spot along the moving line and assigned a specific task in the assembly of the vehicle to perform repeatedly. The organization of auto factory work using minimally skilled labor became known as Taylorism, after Frederick W. Taylor, known as the father of scientific management. Taylor’s influential book published in 1911, The Principles of Scientific Management, recommended breaking down factory jobs, based on careful time and motion studies, into simple repetitive tasks capable of being performed by minimally skilled laborers.

With deskilling of the production process, workers lost control of the workplace. In reaction, workers in the motor vehicle industry were among the first to organize unions around an industrial sector. Nineteenth century unions were organized around crafts such as painting and metal finishing, a legacy of medieval craft guilds and apprenticeships. With the rise of mass production in the 20th century, most notably in the auto industry, unions were organized to represent workers in industrial sectors such as steel and mining, regardless of the specific task they performed in the factory.

Labor Relations in the North American Auto Industry

The mind-numbing and physically debilitating work along Ford’s moving assembly line resulted in an extremely high turnover rate. Ford retained workers by paying them $5 a day in 1914, more than twice the average factory wage rate at the time. However, the Great Depression that followed the 1929 stock market crash brought widespread layoffs, and those still employed suffered from harsher working conditions and lower wages. In reaction, efforts to unionize auto workers gained momentum, and New Deal legislation and policies provided legal protection for organizing. In the U.S. auto industry, organizing efforts culminated in 1937 into GM’s recognition of the United Auto Workers (UAW) union following a sit-down strike at several GM parts plants. Chrysler quickly followed in recognizing the union. After several years of violent confrontations, Ford workers voted to join the UAW in 1941.

During the second half of the 20th century, the UAW and U.S. carmakers negotiations followed a pattern. As three-year contracts were about to expire, the UAW would select one company as the bargaining target. The target company was threatened with a strike if negotiations failed, whereas production would continue at the other carmakers. Once agreement was reached with the targeted company, the other carmakers would be offered the same contract. Pattern bargaining resulted in ever more favorable contracts. Prosperous carmakers were willing to share profits to buy labor peace. Workers were offered and accepted a deal: work hard at mindless, thankless jobs for 30 years in exchange for high wages, health care for the entire family, and generous pensions. U.S. and Canadian auto workers ranked among the world’s highest paid and best protected factory workers. Canadian auto workers split off from the UAW to form a separate Canadian Auto Workers Union in 1985.

The success of the Japanese at producing and selling vehicles in North America ended the half-century pattern of bargaining between the UAW and U.S. carmakers. No Japanese-owned assembly plants in North America were unionized. By the 21st century, North American assembly plants were divided into a unionized half owned by the Detroit Three ­carmakers and a nonunionized half owned by Asian and German carmakers. Uncompetitive labor contracts were one of the factors leading to the bankruptcy of Chrysler and GM in 2009.

Labor Relations in Europe’s Auto Industries

European auto workers are nearly all unionized, and they are protected by relatively strong laws compared to other carmaking regions. Wages are higher in Western Europe than in other regions, though wages lag in formerly Communist Eastern Europe. Because labor laws require that they be consulted extensively, auto unions in Europe can successfully resist management attempts to lay off workers or close plants. Layoffs and closures do not eliminate requirements to pay the workers, so management is likely to keep open a plant with limited production.

In Germany, a large nationwide union IG Metall (Industrial Union of Metalworkers) represents much of the automotive workers as well as those in other manufacturing industries. German labor law grants union ­representatives half the seats on companies’ supervisory boards. Every factory has a council where management and employees collaborate on working conditions.

In France as a whole, only 5% of private sector workers are members of unions, but unions represent most auto workers. To be recognized as a representative union in France, at least 10% of the workforce in an industrial sector must vote to support that particular union. The five largest confederations of unions in France are—in order of number of members—CGT (General Confederation of Labor), CFDT (French Democratic Confederation of Labor), CFTC (French Confederation of Christian Workers), CGT-FO (General Confederation of Labor—Workers’ Force), and CFE-CGC (French Confederation of Management—General Confederation of Executives). All five represent auto workers. Consequently, management must negotiate with multiple unions of varying degrees of militancy and positions on specific issues.

In Italy, national federations of unions are affiliated with the various political parties, including Christian Democrat-affiliated Italian Confederation of Trade Unions (CISL), Communist-affiliated Italian General Confederation of Labor (CGIL), and Socialist-affiliated Italian Labor Union (UIL). Fiat workers are represented by a collection of unions of metalworkers affiliated with the various political groups, including Christian Democratic (FIM-CISL), Communist (FIOM), and Socialist (UILM) as well as Fascist (UGL) and politically unaffiliated (FISMIC).

Labor Relations in Asia’s Auto Industries

Japan does not have a tradition of independent labor unions. Prior to World War II, individual companies had factory councils organized by management. After the war, the victorious Allies imposed democratic legislation, giving Japanese workers the right to organize independent trade unions as bargaining agents. Separate unions were set up at the various carmakers, replacing the factory councils. The company-specific unions have joined together in a confederation Jidosha Soren (Confederation of Japan Automobile Workers’ Unions).

The Japanese auto industry has been in the forefront in replacing long-standing so-called Fordist or mass production practices with flexible or lean production. Japanese companies were inspired to adopt flexible production by W. Edwards Deming (1900–1993). Deming introduced Japanese engineers and managers to concepts of quality. He showed that higher quality would have a positive impact on net income through improved productivity and increased sales. In fact, as the first carmakers to adopt flexible production, Japanese companies were able to increase sales internationally, especially during the late 20th century, by selling vehicles that consumers and independent testing organizations found to have higher quality than vehicles produced by U.S.- and Europe-based companies.

Flexible production has reduced the ability of trade unions to negotiate workplace rules such as allocating jobs by seniority and requiring 10-­minute breaks every hour. Instead of allocating to each individual worker a specific repetitive task, under flexible production a team of workers is assigned a set of tasks. The team is given responsibility for organizing itself in order to perform the collection of tasks. One of the team members is appointed team leader and performs coordination tasks. Productivity has increased, because teams are constantly working on a variety of tasks. Under mass production, a worker might stand idle waiting for someone down the line to catch up, and jobs were allocated according to seniority rather than skill.

China has a single official union, the government-controlled All-China Federation of Trade Unions (ACFTU). The union has branches in various regions and industrial sectors. European and American unions do not consider ACFTU to be independent. Union leaders are appointed by the Communist Party rather than elected by workers. Workers may not choose to organize and join another union if they prefer. The union does not negotiate collective bargaining agreements. The ACFTU operates in most of China’s assembly plants. ACFTU officials in the assembly plants act as consultants to management on concerns of wages and working conditions. The ACFTU is not represented in most of the supplier plants.