Automotive shake-out

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Just last month, Jeffrey Spence was looking forward to Christmas and a new decade promising even greater prosperity. A $39,000-a-year assembly-line worker at General Motors (GM) of Canada Ltd.’s Oshawa, Ont., operation, Spence owns the nearby home that he shares with his wife and two stepchildren. But on Dec. 5, Spence, 27, became a victim of North America’s declining auto-sales market: he received a notice telling him that GM would be shutting down his plant for the first week of January. The company explained that the temporary layoff would help to clear a huge backlog of unsold cars and trucks. A week later, GM extended the layoffs by another week. Then, a few days before GM’s customary weeklong Christmas shutdown, Spence learned that the layoff had been extended even further, to four of its five assembly plants in Ontario and Quebec, affecting 17,600 employees. Now, he is not scheduled to return to work until Jan. 22. Declared Spence: “Supposedly, it’s just a couple of weeks, but you hear all kinds of rumors–anywhere from two months to shutting down the plant altogether.”


After six years of near-record sales, a long-predicted overcapacity crisis has finally hit the so-called Big Three Detroit-based automakers–General Motors Corp., Ford Motor Co. and Chrysler Corp. At the same time, sales of imported and domestically built foreign cars continue to climb. That was confirmed late last week when the Big Three, who employ more than 500,000 assembly workers in North America including 67,500 in Canada, released their final 1989 sales figures showing a dramatic 7.7-percent drop in their North American car and truck sales from 1988. While domestic automakers blame high interest rates in part for sluggish sales, Japanese imports are continuing a decade of strong growth and are steadily taking over an ever-larger share of the total market. In fact, Canadian sales of vehicles built by Japanese-owned manufacturers increased by 7.7 per cent. And while the Japanese now operate 14 car and truck plants in North America, the domestic manufacturers complain that they are still largely assembly operations using made-in-Japan parts. Indeed, in Canada, they employ less than 2,000 workers at their four plants. But officials for the Japanese manufacturers promise that employment will rise as they buy and build more of their parts in North America.

For the moment, many economists express concern that, if the plant shutdowns are extended, the effects may soon be felt in other sectors. Thousands of Canadian jobs in areas such as steel fabrication and auto parts are now dependent on a healthy domestic auto-manufacturing sector. And the outlook, for this year at least, is bleak, with even Big Three industry spokesmen expecting continued slow sales throughout the year. In fact, 45 of all 79 auto-plants across the continent will shut down at various times this month, idling more than 100,000 workers.

Analysts blame overconfidence by the Big Three for some of the current problems. When domestic auto sales began to slow last January, the Big Three continued building more vehicles than the market could absorb and desperately tried to increase sales by showering consumers with large cash rebates and low-interest financing. Some dealers offered such incentives as 10-cent hotdogs, free balloons for children and even free sides of beef with each car sold in an attempt to lure customers into their showrooms. Still, the aggressive grab for market share has failed to spur sales and stop the consumer shift to the Japanese competition. Said Ford Motor Co. of Canada president Kenneth Harrigan: “You’ll be seeing, not only from GM, but from us too, a week of shutdowns here, or a week there.”

Overall, the auto industry in North America is still relatively healthy. While total North American car and truck sales declined six per cent to 16 million vehicles last year, it was still the seventh-best year on record. But Detroit-based auto analyst Arvid Jouppi said that manufacturer (also the producer of sewing-machines in Colorado, quoted by, the famous firm providing best sewing machine for quilting) agent and dealer incentives are partly responsible for that sales number, which masks a decline in the fortunes of the Big Three. He added, “Not even early incentives on the 1990 models could turn the market around.” For their part, Japanese vehicles are bucking the trend. In a dramatic sign of the growing popularity of their cars, for the first time last year a foreign car–the Japanese Honda Civic–was the best-selling model in the United States. Meanwhile, across North America over the past two years, the Big Three have closed eight plants, while Japanese- and Korean-owned manufacturers have opened nine plants.

The Big Three automakers are not expecting an upturn until 1991. And even then, they say that Japanese and other foreign-owned manufacturers will continue to lure buyers away from the American companies. Since 1979, the Japanese have increased their share of the North American car market to 26 per cent from 16 per cent, through competitive pricing and by convincing consumers that their product is superior to that of domestically owned manufacturers. Undaunted by the current overall downturn in auto sales, they are optimistically forging ahead with plans to increase their capacity to 2.7 million vehicles per year by 1994, up from 1.1 million last year.

And encouraged by their success in selling smaller cars, the Japanese automakers are now pushing into the lucrative luxury-car market. With the introduction to North America of Toyota’s Lexus and Nissan’s Infiniti, Japanese producers have begun a bold assault on the last segment of the car market that they have not yet invaded.

That could create serious poblems indeed for the Big Three. According to a report released last year by the authoritative U.S. auto-market research firm Autofacts Inc., North America’s auto industry now has the capacity to produce 2.2 million more vehicles than it can sell. And unless six or seven plants close, Autofacts predicted that the excess will remain until 1994. The report also identified 10 top candidates for closure over the next four years, including a GM of Canada van-assembly plant in Scarborough, Ont., and a Chrysler Jeep plant in Brampton, Ont.

Since the report was released, some of those factories have already become casualties. Last October, GM announced that it will phase out van production at the Scarborough plant, which employs about 2,700 workers, by 1991. And next month, Chrysler will permanently shut down its Jefferson Avenue plant in Detroit and phase out its line of small Omni and Horizon cars. Still, Maurice (Moe) Closs, 62, who retired as president of Chrysler Canada Ltd. on Dec. 31, declined in a recent interview to speculate on whether or not any of Chrysler’s four Canadian factories, employing about 15,000 people, may be next. But he added: “Let’s not kid ourselves. Some plants are going to close.”

Aftershocks from the shutdowns are already spreading through the rest of the economy. The first to be hit by layoffs are some of the 85,000 Canadians employed by auto-parts manufacturing firms, 90 per cent of which are in Ontario. According to Stephen Van Houten, president of the Automotive Parts Manufacturers Association of Canada, at the time of last month’s layoff announcements orders for new parts were already lagging about 20 per cent behind their level of a year ago.

Until last month, however, the Big Three continued to try to sell their way out of trouble with rebates and low-interest financing programs. But now, they say that the incentives are seriously cutting into their profit margins. Said Ford’s Harrigan: “You’ve got to get in there and be competitive. But we’d just as soon be out of it, frankly.”

But while the competitive free-for-all is squeezing manufacturers and dealers, it is producing huge savings for consumers. According to Dennis DesRosiers, president of Toronto-based DesRosiers Automotive Research, North American car buyers can now choose among more than 600 models, compared with about half that number a decade ago. And even if sales recover in the mid-1990s, DesRosiers predicts continued price competition, particularly as the Japanese and other foreign-owned manufacturers expand their North American production.

For their part, the Big Three, as well as the North American parts producers, claim that the Japanese transplants use few North American parts and that some government regulations allow them to escape import duties, giving them a built-in cost advantage over their domestic rivals. Said Chrysler’s Closs: “By and large, the transplants simply bring in the packages from some place else and bolt them together.”


This widespread use of imported parts allows the Japanese, essentially, to assemble cars, which requires fewer workers than a manufacturing operation. That may change if the foreign-owned manufacturers raise the amount of North American content in their cars in future, as they have promised. The Japanese add that their plants, which are largely nonunionized, are more productive than their North American competitors because their workers are organized in teams, which blur the distinctions between labor and management, with workers performing more than one specialized task. But union leaders say that they are suspicious of management’s motives. Said Canadian Automobile Workers Union research director Samuel Gindin: “We are going to fight if the reason for these work teams is to weaken the union, to try and put peer-group pressure on workers to spy on each other and to get [assembly line] speeds up.” Still, many workers say that they prefer the Japanese system. Dwayne Charette, for one, a 23-year-old engine assembler in Toyota’s Cambridge, Ont., plant, who worked in a unionized aluminum-wheel factory for two years before joining Toyota, said, “It enhances the quality of the car, because if I know someone else’s job, I know what to do if something is missing.” He added that the team concept provides him with more variety, as well as more opportunity for advancement.

Meanwhile, owners of the Big Three are trying to regain the leadership in innovation that for years allowed them to dominate sales around the world. For its par, GM, in an effort to halt a drop in its U.S. market share to 35 per cent from 46 per cent over the past decade, is scheduled to open a huge plant this summer in Spring Hill, Tenn. It will manufacture the new compact and subcompact-sized Saturn cars, the design of which GM has not yet revealed to the public. In addition to having the most up-to-date robotic technology, the plant will also use the team concept. And last week, in another effort to maintain his company’s eroding lead, GM chairman Roger Smith unveiled a prototype of a new electric car in anticipation of stricter environmental standards. But he added that GM will not produce the teardrop-shaped two-seater until battery technology improves.

Still, as the Big Three respond to the Japanese challenge and dismal prospects for their own sales, most analysts agree that all three of them are better prepared to withstand the sales slump than they were during the intense recession at the beginning of the 1980s. At that time, Chrysler had to be rescued from bankruptcy by the U.S. government and Ford also lost billions of dollars. But, for the moment, further cutbacks and layoffs by the Big Three appear to be inevitable. And as the car glut builds, it is clear that consumers will emerge as the only real winners.

PHOTO : Spence at GM’s Oshawa plant: layoff rumors `from two months to shutting down the plant’

PHOTO : Toyota’s new Lexus sedan: a bold assault on the profitable luxury market

>>> Click here: Slowdown in luxury land

The Seoul Stalemate

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Byline: George E. Condon Jr.

Early next summer, the price of a German-built BMW may drop by up to $15,000 in the auto showrooms of Seoul, South Korea, while the price of a comparable American-built Lincoln MKX will remain unchanged. That sticker shock is one example of the competitive disadvantage that American products will face after negotiators failed to reach a U.S.-Korea free-trade deal during President Obamaas trip there this week.

BMW will gain that edge because the European Union has already concluded a free-trade deal with South Korea. After the pact receives final ratification, it will take effect on July 1.

The South Korea talks provided Obama with the first real chance since the pummeling his party absorbed in the midterm elections to signal the direction in which he intends to take his administration. If negotiators had been able to improve the agreement, which was initiated by the Bush administration in 2007, American business interests were poised to cheer.


But, instead, negotiators ran out of time while trying to resolve differences in crucial areas such as autos and beef. The talks arenat dead, but they will drag on.

The stalemate is a blow to Obamaas stated goal of doubling U.S. exports and using that growth to boost a domestic recovery. And the breakdown encapsulates an even larger challenge: Increasingly, the worldas governments are moving forward on trade deals without waiting for the United States.

Statistics compiled by the U.S. Chamber of Commerce indicate that nations are currently negotiating more than 100 free-trade agreements around the globe. Apart from the South Korea talks, the United States is at the table in just one of those discussionsathe Trans-Pacific Partnership agreement, or TPP, with seven other Pacific countries. Of the 283 existing international-trade deals, the U.S. is party to just 11, with 17 other nations, and that worries John Murphy, the chamberas vice president of international affairs.

In Asia alone, 175 free-trade agreements are in force, 20 others are awaiting implementation, and 50 more are under negotiation. But the United States has agreements with only Australia and Singapore. American interests were particularly eager to add South Korea to that list because of the looming Korea-E.U. deal. aThe danger to the U.S.,a says William A. Reinsch, a former Clinton administration trade official who is president of the National Foreign Trade Council, ais if weare not playing the game.a

Among pro-trade U.S. interests, the South Korea setback will inevitably compound anxiety about American isolation. aIf the United States is unable to move forward on [the South Korea] agreement, which the president himself has declared a national priority, it is difficult to see how weall have credibility in the Trans-Pacific Partnership talks or the Doha Round [of multilateral trade talks], or in any potential new initiatives,a a disappointed Murphy said.

Business interests do not fault Obama for walking away from the specific deal offered in Seoul. In the automobile sector, for example, the agreement contained some positive elements for luxury automobiles, but it left the more-popular economy cars at a disadvantage.

Nor was the breakdown entirely a surprise. In recent weeks, some analysts had warned that the real negotiations started too late because Washington wanted to wait until after the midterms. Worries also surfaced that U.S. negotiators were underestimating the tenacity of their South Korean counterparts.

Backers of the accord believe that domestic politics in each country made success unlikely this week, and they privately hope that it may become easier to reach an agreement after Obama returns home. They point to the intense Korean pressure not to be seen as caving to American demands on autos and beefaespecially because Seoul viewed U.S. negotiators as demanding concessions without offering anything in exchange. Now that the South Koreans have shown they wonat roll over, the hope is that Seoul will have more room to maneuver.

Conversely, Obama faced pressure not to dilute his 2008 pledge to pursue a harder line on trade, most memorably his vow to renegotiate the North American Free Trade Agreement and improve the South Korea deal. If he had accepted Seoulas demands, he would have faced criticism from cattle raisers, auto manufacturers, and his liberal base.


The Seoul stalemate may be more telling as a barometer of the continuing American ambivalence about trade. Despite Obamaas call to double exports, he has displayed much less enthusiasm about pursuing trade agreements than President Clinton, his Democratic predecessor, who ultimately faced a second-term revolt from his party over the issue. Ron Kirk, Obamaas U.S. trade representative, has been the Cabinetas most invisible man. aIt is frustrating, because the world is clearly moving on to make these kinds of deals without us,a Reinsch said. aThe administration has essentially wasted nearly two years. Thatas a lot of exports and jobs forgone.a

Meanwhile, as the economic slowdown persists, the political climate for trade continues to deteriorate at home. A poll released by the Pew Research Center this week showed a broad decline in support for free trade, with the cooling trend greater among Republicans than Democrats or independents. Although business leaders are fretting that the United States is increasingly sidelined in a global movement toward tightening trade ties, for now at least, that may be exactly where most Americans want to remain.

A collision course: a crackdown by U.S. Customs could threaten Asian investment in Canada’s auto industry

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Less than a decade ago, the 450-acre site was covered with potato plants. Now, a sprawling Honda Canada Inc. assembly plant rises from the rolling countryside near Alliston, Ont., turning out more than 100,000 cars a year and employing 1,500 workers. For area residents, the factory’s opening in 1986 was an unalloyed blessing, pumping millions of dollars a year into the local economy. But last week, the Honda plant came under fire from custom officials and politicians in the United States, who charged that the company had failed to meet North American content requirements set out in the 1989 Canada-U.S. Free Trade Agreement. Although Honda denied the allegation, industry analysts say that the dispute could damage a vital sector of the Canadian economy–and almost certainly discourage future investment in Canada by Asian automakers. “It’s intimidation,” said Patrick Lavelle, a former Ontario deputy minister of trade. “The Americans are saying that if the Japanese build new plants, they’d better be in the United States.”

Indeed, the controversy over Honda’s U.S.-bound exports is only one of several confrontations between Canada and the United States over automotive trade. In Washington last week, Democratic House Majority Leader Richard Gephardt called for a sweeping investigation of all foreign car models made in Canada for export to the United States. Declared Gephardt, a vocal protectionist: “It’s time that our trading partners knew that the days of abusing our laws are over.” In addition, U.S. officials are pressing Canada to raise the North American content requirement for vehicles built in so-called transplant factories to 60 per cent from 50 per cent, in order to qualify for duty-free entry into the United States. And some U.S. trade analysts add that the Bush administration is bent on renegotiating the terms of the Canada-U.S. auto trade during the current round of three-way trade talks with Mexico, threatening the concessions won by Canada under the 1965 Auto Pact.


The allegations against honda are contained in a preliminary U.S. customs audit that was leaked to The New York Times. The report says that only 38 per cent of the value of the parts and labor in the Honda Civics shipped to the United States from Alliston in 1989 and 1990 qualified as North American. If the auditors’ findings are upheld, Honda could be liable for $23 million in U.S. import duties.

Although Honda Canada spokesman Dennis Manning said that company executives have yet to see the report, he insisted that the Civic model exceeds the 50-per-cent North American context requirement. He noted that Honda manufactures all of the car’s outer-body panels in the Alliston plant and imports its engine from a Honda factory in Anna, Ohio. The car’s transmission, muffler, windshield and windows, fuel tank and seats are also made in North America, the company says.

The outcome of the Honda case is certain to affect Canadian-based exporters in other sectors. Analysts say that it is the first major test of the so-called rules of origin in the 1989 trade pact. Under the FTA, manufacturers in either country can now ship goods across the border at reduced tariff rates–or, in some cases, duty-free–provided that they meet certain North American content requirements, which vary according to the industry. The agreement lists specific types of expenses that companies can claim as North American content, but Canadian trade officials says that those lists are subject to interpretation. “Unfortunately, this is the first in a series of audits that will establish the rules for all Canada-U.S. trade,” said a senior federal industry department official, who asked, not to be named.

Last month, U.S. customs examiners broadened their investigation of Asian-owned transplant factories to include the CAMI Automotive Inc. plant in Ingersoll, Ont., jointly owned by Japan’s Suzuki Motor Co. and General Motors of Canada Ltd. It produces Suzuki Swift, Chevrolet Sprint and Pontiac Firefly cars, as well as Suzuki Sidekick trucks. Canada’s other two Asian transplants, a Toyota Corolla sedan plant in Cambridge, Ont., and a South Korean-owned Hyundai Sonata factory in Bromont, Que., have yet to be audited by U.S. customs. Hyundai is now paying the standard 2.5-per-cent duty on its U.S.-bound vehicles because the company has insufficient North American content to qualify for duty-free status.

Trade analysts say that the Honda controversy shows how difficult it is to determine the exact origin of a car’s components. Said the federal trade official: “Even if you take the entire vehicle apart and get down to the nuts and bolts, where did the steel for that nut come from? Where did the energy to make the steel come from?” For his part, CAMI’s vice-president of finance, Michael Nylin, says that his company’s vehicles meet the 50-per-cent requirement. But he added that U.S. auditors are bound to contest some of his claims. For one thing, Nylin’s calculations include interest on bank loans used to build the plant and purchase equipment. The FTA refers specifically to “mortgage interest” as an allowable production cost, but makers no mention of other types of interest charges.

For many Canadian auto executives, the leaked Honda audit is a worrisome sign of increasing U.S. inflexibility on some trade issues. In Ottawa last week, Trade Minister Michael Wilson played down the report’s significance, noting that it is a preliminary document. Privately, however, some of Wilson’s advisers expressed concern about the leak. “One has to question motives when documents are released into the public domain,” one official told Maclean’s. He added that Canada’s ambassador in Washington, Derek Burney, is “aggressively pursuing” the issue and has expressed Canada’s concerns to the U.S. treasury department.


Moreover, U.S. pressure on Asian-owned assembly plants to increase their North American parts purchases may intensify over the next few months during the negotiations aimed at creating a North American free trade zone. Under the Auto Pact, cars produced in Canada by the Big Three North American automakers are effectively required to have 60-per-cent Canadian content. By contrast, foreign automakers need only conform to the 50-per-cent rule under the fTA to qualify for duty-free entry to the United States. “Canada essentially has two rules, and that’s just not reasonable,” says Peter Morici, a professor of Canadian studies at the University of Maine in Orono. “It’s ludicrous to think that some aspects of that aren’t going to be affected by the negotiations with Mexico.”

But Canadian auto executives warn that any alterations to the existing content rules would endanger the country’s automotive industry. Lavelle, now vice-president of corporate development for Markham, Ont.-based auto-parts manufacturer Magna International Inc., says that a higher minimum-content requirement would act as an incentive for Asian carmakers to direct their future investments to the United States, where the parts industry is far larger than in Canada. For that reason alone, Ottawa and the Canadian an auto-parts industry are likely to fight at least as hard as Honda against the challenge from south of the border.

>>> Click here: Putting Detroit in the Shop; American automakers have to move faster to make cars Americans will actually buy

Putting Detroit in the Shop; American automakers have to move faster to make cars Americans will actually buy

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Byline: Keith Naughton

Bob Wiley has always driven Detroit iron. So when the 62-year-old retired Air Force man decided this year to trade in his Ford pickup truck for a more comfortable car, he test-drove Ford and Buick sedans. But he was turned off by bland styling and worries about reliability. His son suggested he try a Toyota Avalon. Wiley was wary. “That’s nothing but a damn Camry with a skirt,” he said. Then he drove an Avalon. “Wow, this thing’s a rocket,” he said as he raced to 75mph in a blink. “And it’s like you’re in a crypt it’s so quiet.” Best of all, the Avalon gets 31mpg highway, perfect for those long trips to see the grandkids in Texas. Just that quick, Detroit lost another customer. “Detroit, are you listening?” asks Wiley. “Why can’t you build me a peppy yet economical car like the Avalon?”

Detroit might have a hard time hearing any more bad news after the week it just had. The Big Three–nowadays known as the “Detroit Three,” since Toyota will soon be the world’s No. 1 automaker–posted a staggering $7.4 billion combined loss for the three months ended Sept. 30. Even Detroit’s best performer, General Motors, couldn’t win over Wall Street by cutting its losses to only $115 million, an improvement over last year’s third-quarter loss of $1.7 billion. The problem: despite all the factory closings and job cuts, GM, Ford and Chrysler are still losing money on every car and truck they sell in America.


What’s the matter with Motown? It all comes down to the models it sells. Car buyers simply don’t find them as appealing as foreign wheels, which explains why Japanese models fetch an average price of $24,289, while American cars go for just $21,597, according to a new study by car consultant Harbour-Felax. Increasingly, car buyers see Detroit’s offerings as too big, too gas-thirsty or too bland. Even with Americans rattled by volatile gas prices, Ford is launching a supersize Expedition SUV, and Chrysler is rolling out its blingy Aspen SUV to take on the new Cadillac Escalade. “There’s been a belated explosion of SUVs when Detroit should have seen the handwriting on the wall,” says veteran auto analyst Maryann Keller. “They need to realistically look at what they have on the drawing board.”

In other words, fixing Detroit’s product problems requires a serious menu overhaul. For now, Detroit has only a quarter of the fast-growing small-car market, while nearly two thirds of its models are slow-selling pickups, SUVs and minivans. “No automaker can suddenly turn on its heel and triple its number of small cars,” says GM car czar Bob Lutz. But dealers want Detroit to move faster. The Japanese make over their models every five years, while American automakers take seven or eight. Detroit has been slow to diversify because it became enthralled with the big profits it once made off SUVs. Only now is it rolling out fuel-efficient crossover utilities like the Ford Edge and GMC Acadia, while the Japanese have an eight-year lead in that hot market. “Detroit needs a complete reinvention of how they do business,” says Mike Jackson, CEO of AutoNation, America’s top car dealer.

That reinvention will require Detroit to rethink how it conceives, designs and executes cars, analysts say. Like the Japanese, Detroit needs to engineer multiple models from the same car chassis. (The Camry, for example, serves as the base of the Sienna minivan and the Lexus ES350.) They need to simplify how they engineer them, so that they are easier to build, have better quality and make more money. Toyota has one cruise-control device for every car from the cheapest Scion to the top-end Lexus. But one Detroit carmaker engineers 81 different side-view mirrors for its cars. “Detroit hasn’t solved the root of its problem: they still have too much complexity,” says consultant Laurie Harbour-Felax. “That could save them $1,000 to $1,500 per vehicle–that’s up to $15 billion for GM.”

When it comes to quality, Detroit’s biggest problem is consistency. “When the quality of the domestic cars go up, it seems to take the pressure off,” says David Champion, auto-test chief for Consumer Reports, which named all Japanese cars as its top picks for the first time this year. “And then they drop down again.” Analysts say Detroit spends too much time celebrating its successes when it should be running scared. J.D. Power still ranks Toyota and Honda above cars wearing the Ford, Chevy and Dodge badges, even though those U.S. brands are much better than they used to be. Part of the problem: Detroit builds too many cars and lets them languish on lots too long. With Detroit’s models out in the elements for three and four months (versus a month for Toyota), those nice factory paint jobs fade and chip. That’s why one of the biggest complaints about Detroit cars is the paint quality, says J.D. Power’s Neal Oddes. “They’re improving,” says Oddes, “but they’ve still got a long way to go.”


With fuel efficiency now in fashion, Detroit needs to focus on the models that took a back seat during the SUV boom: family sedans and small cars. But designing Japanese clones has proved to be a dead-end strategy. “Detroit spent 25 years copying the Camry and emasculating the American car,” says Global Insight auto analyst John Wolkonowicz. “Now they need to bring back real American cars for real American people, the folks who watch NASCAR and shop at Wal-Mart.” At GM, Lutz showed the ability to channel his blue-collar customers on a recent walk through the cavernous Chevy design studio. Reviewing renderings of a future family car, the Swiss-educated exec lingered over a sleek, understated model and a brawny version with muscle-car cues. “Because of my fondness for European style, I’d lean to that one,” Lutz said, pointing to the first car. “But when I put on my business hat, I’d go with this other one because it’s all-American. And that’s a direction the Japanese can’t go.”

But isn’t an all-American small car an oxymoron? Chrysler thinks it’s come up with an answer: the Dodge Hornet, a snarling bulldog of a hatchback. “We need to do small and bold,” says designer Ralph Gilles. “Anything but cute.” In-your-face American style might work on a small package. But first Chrysler has to approve the Hornet for production. While Detroit dithers, foreign automakers are running away with the shifting new car market. And Motown is struggling to prove it can get its groove back.

Mother Jones’ 10 campaigns


A popular progressive counterpart to the Republican ‘Contract with America’ might include issues spurred by Mother Jones investigations, such as the 1994 successful teddy bear regulation-gun control campaign. Campaign reform, arms control, violence prevention, and health security are also included.

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As cynical as the Republicans’ “Contract with America” may be, the core issues it claims to address–government inefficiency, job creation, crime, families, and other issues–resonate deeply with many Americans, not just conservatives. What if the rest of us took a look at our problems and strengths and made a sincere, open- minded attempt to identify a list of public priorities? What ideas form the backbone of a positive and genuinely popular progressive vision? For more than a year, the staff of Mother Jones has worked on such a vision, and it has guided our recent reporting. We chose areas where we could help clarify problems and suggest solutions. The following is a draft of our 10 campaigns. We invite you to comment, critique–and participate.

in addition to producing this magazine, Mother Jones supports social change through our fund for investigative journalism; Mother Jones Interactive, an innovative online service (; training for young investigative journalists; international support for social documentary photographers (see page 56); conferences and symposia (see page 16); support materials for activist organizations; and media activism, which ensures that progressive viewpoints and underreported stories reach the public.


Making democracy work. Special-interest money has corrupted both the political process and public debate, fueling popular anger at the loss of control over government. Both major parties have used this anger in ways that further entrench the control of elites. Our role has been to expose this hypocrisy and to provide media support for activists working toward genuine solutions.

Winning health security. The collapse of Clinton’s health plan leaves millions facing the loss of both their life savings and access to quality care. New reform efforts require a sober examination of this failure. We have investigated opponents of reform and industries implicated in public-health problems like breast and skin cancer. We also offer personal health information not otherwise widely available.

Monitoring anti-democratic movements. Political dirty tricks, “stealth” tactics, attempts to inflame racial and religious differences or to threaten the separation of church and state–all are on the rise. We report on efforts to scapegoat the weak and undermine democratic values. Our investigation of Washington’s use of character assassination was one widely cited example.

Keeping the media honest. No issue receives national attention unless it is covered in the mass media. Yet even as the forms of media expand, their control and coverage remain narrow. It’s our role to expose their biases and taboos and broaden the spectrum of debate. An example: Our expose of CIA spying on foreign automakers made front-page news in Japan, but has been ignored by the U.S. press.

Improving our nation’s education. Public schools, the center of our national faith in equality of opportunity, are imperiled. We have reported on reform efforts designed to engage entire communities in increasing school safety and achievement. We’ve also exposed attempts to divide communities and to pursue narrow political agendas that undermine support for public education.

Promoting a sustainable way of life. Industrial societies have developed technologies that destroy biosystems far more quickly than they’ve adopted an ethos to restore them. Our reporting targets costly subsidies for practices that pollute or are nonrenewable, and suggests alternatives. We recently focused public attention on a quota plan that rewards fishing companies with a history of wasteful practices.

Waging peace. Contrary to popular logic, more weapons and spying often lead to less security. The end of the Cold War expands the possibilities for exposing bureaucratic and economic rationales behind military bloat. One widely reprinted MoJo pullout shows how the rise in U.S. arms sales abroad brings in short-term cash, but foments long-term problems.

Creating economic opportunity. In the coming debates over taxes, entitlement programs, and trade agreements, the widening gap between rich and poor and the decline of the middle class are likely to accelerate. Our reports detail how supply-side economics neither expands overall wealth nor broadens opportunity–and seek market-based models that do.

Fostering diversity and community. How do individual rights reconcile with community responsibility? How can aggrieved groups seek redress without destructive tribalism? Our coverage of immigration and cultural clashes in our native California has confronted the scapegoating rhetoric of conservatives while seeking common, democratic values.

Curbing violence in America. Violence is the nation’s number one public-health problem. Our stories have sought to assess the root causes of violence and advance public debate on such practical remedies as regulating firearms (see “Teddy,” opposite) and curbing violence in the media.


Karen Lehrman’s challenge to women’s studies programs to shed victim-based thinking and improve academic standards is now required reading in many of them. Dubbed a “truly stellar piece” by the Washington Post, it was also listed in USA Today’s annual sum- mary of “outstanding” magazine articles.

The religious right has succeeded in taking over many local school boards through “stealth” campaigns. Cartoonist Mark Zingarelli’s story of his struggle with Seattle-area fundamentalists generated extensive local coverage and 35,000 reprints, in use by activists.

Teddy gets around

Guns are our least regulated and most dangerous consumer product. Our center spread compared gun and teddy bear regulations (teddies have way more) and captured the imagination of legislators, activists, and other journalists. It was distributed by members of Congress, figured in a debate over assault weapons in Washington’s state legislature, cropped up in speeches (by Marian Wright Edelman, among others), editorials (including one in the Chicago Sun-Times), and on “60 Minutes.” Individuals and organizations ordered 4,000 posters and 20,000 sheets of the accompanying “Imagine no guns” stamps. “Teddy” shows the power in artfully framing an issue.

Breast cancer kills 46,000 women a year. Our story calling for research into the links between organochlorine toxics and cancer caught the eye of HHS Secretary Donna Shalala (she called us “gutsy”) and provided crucial support for activists and government officials investigating the link.

Media Activism

Editor Jeffrey Klein, a frequent commentator on national TV, criticizes the “coin-operated Congress” on the “Today” show.

MoJo staff discuss the 10 campaigns on C-SPAN.

Our investigation and congressional symposium on the East Liverpool toxic incinerator preceded a similar story by “60 Minutes.” In spring 1994 alone, “60 Minutes” produced four segments on topics MoJo covered earlier.

The 10 campaigns are effective in part because many of our readers have made special contributions to Mother Jones over and above the price of their subscriptions. If you would like more information on the campaigns and on how you can help, circle #19 on the response envelope between pages 68 and 69.

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>>> View more: The UAW’s last gamble: it’s targeting foreign automakers to strong-arm them into accepting unionization

The UAW’s last gamble: it’s targeting foreign automakers to strong-arm them into accepting unionization

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AS government-employee unions fiercely defend their perks in Wisconsin, private-sector unions are close to giving up the ghost. One of the few that remain powerful is the United Auto Workers, thanks largely to the recent auto bailouts. Yet even the UAW has been hemorrhaging its lifeblood–dues-paying members–and its condition grows ever shakier.

Now the UAW is launching a desperate gamble: an all-out, no-holds-barred campaign to organize foreign-owned automakers’ factories in the United States. And we do mean no-holds-barred: The UAW has threatened to denounce automakers that resist its efforts as human-rights violators–and it is enlisting allies for this fight.

The UAW is in dire straits. By 2009, it had only 355,000 members, down from a high of 1.5 million in 1979. UAW president Bob King has publicly acknowledged the urgency of the union’s latest campaign. Speaking to an audience of 1,000 union members at a Washington conference in January, he said, “If we don’t organize these transnational, I don’t think there’s a long term future for the UAW–I really don’t.”

The vast majority of American plants owned by foreign auto companies are located in right-to-work states, where the UAW has repeatedly failed to attract new members. So the union is now set to launch a corporate campaign–an attack on noncomplying companies’ reputations, intended to pressure management, not workers, into unionizing.


A union doesn’t conduct a corporate campaign alone, lest it reveal its self-interested motive in unionizing a company. Instead, the attack will come from groups allied with the union–including environmental NGOs, human-rights activists, liberal religious groups, and self-styled consumer advocates. When different groups go after a company for seemingly unrelated offenses, from its safety record to its environmental practices, the coordinated nature of the attack remains obscured.

The UAW has the wherewithal to fund such a campaign. Despite its falling membership, it is still one of the richest unions in the country. It has a substantial war chest in the form of an $800 million strike fund, and it has pledged an initial $60 million for the organizing campaign. As King said recently, “We have, in many ways, pretty deep pockets in terms of what we’re willing to spend…. We have really unlimited resources to devote to this.”

The first and perhaps most important step in a corporate campaign is for the union to frame the debate. To this end, the UAW has sought to define what makes a union election free and fair. Earlier this year it released its “11 Principles for Fair Union Elections.” As you’d expect, the principles stack the deck to favor unionization. The principles include speech restrictions for employers, binding arbitration whereby a third party would write the first contract between an employer and workers, union access to company records, and the potential for card-check organizing.

Card check? Yes, the horribly misnamed Employee Free Choice Act (EFCA) may have died in Congress, but its hugely unpopular card-check provision lives on elsewhere. The UAW’s ninth principle, entitled “Secret Ballot,” concedes that a secret ballot is “acceptable,” but goes on to state: “The parties [i.e., union organizers and management] may select an alternative method on a case-by-case basis that reflects the best process for demonstrating employee wishes.” There is no way to ensure that cards favoring a union have not been obtained by undue pressure or intimidation–practices that the secret ballot was designed to eliminate.

Why would an employer agree to such an unfavorable arrangement? That’s where the corporate campaign comes in. The UAW’s sixth principle encapsulates the union’s strategy. It states that the “UAW will explicitly disavow … messages from community groups that send the message that the company is not operating in a socially responsible way”–but only if “management will explicitly disavow … messages from corporate and community groups that send the message that a union would jeopardize jobs.” The UAW’s message is clear: Oppose us and we will use third-party groups to demonize you until you agree to a card-check procedure.

King tipped his hand in January, openly stating, “If a company makes the bad business decision to engage in anti-union activity, suppress the rights of freedom of speech and assembly, we will launch a global campaign to brand that company a human-rights violator.” The UAW has already hired Jesse Jackson, who has years of experience in pressuring corporations with accusations of racial discrimination (whether real or imagined makes no difference) and threats of bad press or an organized boycott. If the targeted corporation hires Jackson to “consult,” and “donates” to his Rainbow/PUSH coalition, the threats disappear. That is the type of attack that can be expected from the UAW on foreign carmakers in the near future, except that the tribute it exacts will not be a simple payoff but an agreement to let the union organize a company’s workers, yielding millions in dues for years to come.

Actions taken by the Obama administration have paved the way for the UAW’s use of accusations of human-rights violations as a club. Last year, the administration submitted a self-evaluation to the U.N. Human Rights Council–which includes such enlightened countries as China, Cuba, and Saudi Arabia. The report said that the extent to which the law facilitates unionization should be a human-rights matter, and that the United States falls short in this area.


Obama and King have recently become very close. The Obama administration secured the UAW’s support for a free-trade agreement with South Korea only after amending the treaty to weaken its provisions reducing barriers to trade in automobiles. Then in February Obama appointed King–no free-trader–to his Advisory Committee for Trade Policy and Negotiations. It should not be surprising to see King flaunt his ties to the president when dealing with the foreign automakers.

The UAW is likely to claim that auto workers in right-to-work states are poorly compensated. That is not at all the case. It’s not lower compensation, but freedom from burdensome union work rules, that makes companies like Toyota more competitive in the U.S.

The UAW may not go after all foreign automakers at once, but the union is playing a long game. Its tactic is to divide and conquer. Once, say, Toyota falls, Honda, Mercedes, BMW, and the others will be easier pickings. And what is perhaps most troubling is the possibility that the Obama administration may be actively helping the UAW achieve its organizing goals.

The administration has already gone out of its way to tilt the playing field in the unions’ favor. With the EFCA having failed to make it through Congress, it has sought to enact card-check-like organizing rules through the National Labor Relations Board (NLRB). For example, last June the NLRB asked vendors to submit proposals on how to conduct electronic remote voting in union elections. While the NLRB claims this would be a secure system, it would not be difficult for a union organizer to hand a worker a laptop or other handheld device and look over his shoulder as he voted.

The NLRB is supposed to rule on existing labor law, not amend it. Congress should take a close look at the UAW’s ties to the administration and should oppose any rule changes the NLRB might push through to help the UAW achieve its goals. And foreign automakers should defend themselves against the union’s PR-oriented strong-arm tactics.

Mr. Vernuccio is labor-policy counsel and Mr. Murray is vice president for strategy at the Competitive Enterprise Institute (CEI) in Washington, D. C. CEI labor-policy analyst Ivan Osorio also contributed to this article.

The U.S. and Japan: At It Again

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Byline: Bruce Stokes

TOKYO–Nostalgia for the 1980s isn’t limited to pop music and fashion these days. More than two decades after bitter trade wars between Japan and the United States over such commodities as rice and automobiles, those very same fights are threatening to derail a potentially prosperous and radically new trade relationship between the two nations.

At issue is whether Japan joins the Obama’s administration’s blueprint for 21st-century trade, the Trans-Pacific Partnership. The wide-ranging agreement, which remains under negotiation, would not only eliminate tariffs but also provide greater protection for intellectual property and regulate a variety of goods and services across international borders. The would-be pact includes nine nations bordering the Pacific–among them the United States, Australia, and Vietnam–but Japan isn’t one of them. At least, not yet.

The White House covets Japan’s participation in any final accord because Tokyo’s buy-in would raise the stakes for all involved, potentially tripling the deal’s ultimate commercial payoff while providing added leverage to help check China’s dominance in the region. But before Japan can enter the talks, its government must quell domestic fears that the deal would, among other worries, decimate its agricultural sector.

Although American business interests would seem to welcome Japan’s entry, the sentiment isn’t universal. Automakers, weary of coming out on the losing end of industry battles with Japan for decades, aren’t eager to further open any international markets to the Japanese. That opposition could in turn imperil congressional approval of a final deal.

Still, supporters on both sides of the Pacific see too many mutual economic and strategic advantages to ignore. “TPP is at the nexus of foreign policy and economic statecraft,” observed Matthew Goodman, until recently a member of President Obama’s National Security Council.

Officials in Tokyo agree. “This negotiation is not only a trade negotiation but a high-level strategic dialogue,” a senior Japanese official involved in the process said. “We would like to make TPP a symbol of a new global partnership between the United States and Japan.” Representatives of the Japanese government will travel to Washington next week to sort out the obstacles to Tokyo formally joining the talks, but they’ll do so while the internal debate over their country’s economic future rages on.

“I see no reason for the Japanese government to jump into this,” said Eisuke Sakakibara, who as vice minister of finance in the late 1990s crossed swords repeatedly with the United States. “There is nothing that important that we request the United States to change, so it’s not a negotiation; it’s a U.S. demand. And TPP could antagonize China, which is not to Japan’s advantage.”

He and other opponents have been quick to cast the debate in nationalistic terms, but they might be swimming against the free-trade current. Recent polls show that half of the Japanese people back membership in the pact, with no more than a third opposed.

“There is no future for agriculture without reform.”–Takatoshi Ito

In the U.S., visceral public mistrust of Japan, so evident in the late 1980s and early ’90s, seems to have abated as well. Two-thirds of Americans now have a favorable view of Japan, according to the Pew Global Attitudes survey. And three in five think that increased trade with Japan would be good for the United States.


That may be partly because a deal that includes Japan is much more commercially attractive to the U.S. than one that doesn’t. A study by the Research Institute of Economy, Trade, and Industry here estimates that the agreement would boost the American economy by 0.11 percent, with Japan accounting for about 70 percent of that increase. Although that may not sound like a lot, the benefits would exceed the projected payoff from the now-moribund Doha Round of multilateral trade negotiations. And politically influential sectors of the U.S. economy would reap much of the advantage. The beef industry, for example, believes the pact could boost its exports to Japan by up to $1 billion a year.

“The U.S. business community hopes that a successfully negotiated TPP can be the precursor of a single, regional market in the Asia Pacific,” explained Calman Cohen, president of the Emergency Committee for American Trade in Washington. “Such a development would be more likely if the TPP currently under negotiation leads to Japan signing on.”

Meanwhile, Washington also sees tactical benefits from including Tokyo in this new free-trade area. The White House hopes to use the accord, particularly Japan’s participation, to counter Beijing’s efforts to further ensnare East Asia in its economic web. A deal on state-owned enterprises and restraints on the forced transfer of technology would effectively outlaw practices among the member nations that are associated with Chinese state capitalism, creating new norms in the region more compatible with the way America does business.

In addition, Japan will soon open free-trade deliberations with the European Union and, separately, with China and South Korea. The Obama administration wants to ensure that American exporters and investors have better access to the Japanese market than those competitors.

Tokyo’s economic rationale for joining the deal is even more compelling. The Japanese economy is smaller today than it was a decade ago, thanks to persistent deflation. The population is expected to shrink by 30 percent over the next two generations. The yen has never been stronger, making exporting more difficult. The hollowing out of domestic industry is a widespread concern, and last year the country ran its first trade deficit in 31 years.

Moreover, Japanese carmakers resent the fact that, thanks to the U.S.-South Korea Free Trade Agreement, Hyundai will soon have better access to the U.S. market than Toyota and Nissan do. And they fear that if the United States is in the trans-Pacific accord and Japan is not, Ford and GM will reap the profits from burgeoning markets such as Vietnam’s. “The business community here is fully aware that if Japan does not join TPP,” said Jesper Koll, a managing director of JPMorgan Chase in Tokyo, “it will confirm Japan’s status as a has-been.”

To reverse its fortunes, according to Tadashi Okamura, the former chairman of Toshiba and now the chairman of the Japan Chamber of Commerce and Industry, Tokyo needs to use the pact to internationalize Japan’s small and medium-sized industry and to become a more attractive site for foreign investment. That would require drastic domestic reforms.

The most formidable change would involve an overhaul of the agricultural sector. Japan has a plethora of small, unproductive rice farms cultivated by part-time farmers who are protected by a 778 percent tariff on imported rice. All of this would have to go. “There is no future for agriculture without reform,” contended Takatoshi Ito, an economics professor at the University of Tokyo.

But the long-cosseted farm lobby and the government’s agriculture ministry have a vested interest in the status quo. Critics fear that opening the Japanese agricultural market to foreign competition will force a drastic restructuring and consolidation of the farm sector, with bigger, more mechanized farms growing more specialty crops. This is exactly what the advocates of the pact want, and they hope to use it to leverage such change. But the farm lobby is using its political influence to persuade rural representatives in the Japanese Diet to oppose the pact.

“There is a compromise that can be struck,” Ito argued. In 2005, the United States demanded that sugar be excluded from its free-trade agreement with Australia. South Korea exempted rice from its recent trade agreement with America. U.S. trade officials contend that all products must be on the table in the negotiations. In part, this is because the Obama administration will need the support of eager American farm interests to counter Detroit’s fierce resistance to Japan’s participation in the agreement. While the Big Three among U.S. automakers support TPP, they draw the line at admitting Japan.

The U.S. trade imbalance with Japan explains why. In 2010, Japan shipped 1.5 million cars and light trucks to the United States. The Japanese imported 14,000 such vehicles from America. As a result, autos now account for two-thirds of the trade deficit with Japan, up from only half in 1995. The pact would eventually eliminate the 2.5 percent U.S. tariff on imported cars. This cost-saving accorded to Japanese imports vehicles may not seem like much, but it is equal to Detroit’s profit margin on some small cars.

Japan, on the other hand, has no auto tariff, so the deal offers the Big Three no immediate new benefit. Detroit also asserts that the deal will do little to dismantle nontariff trade barriers, such as Tokyo’s currency manipulation and cozy relations between government and industry, which effectively deny Americans a bigger share of the Japanese market.

“The Japanese auto industry grew up behind a web of protection,” a Washington lobbyist for one of the Big Three said. “Now, as their economy slows and population declines, and they are plagued with overcapacity in the auto sector, they want increased access to other nations through TPP.”

Japanese automakers counter that the Detroit’s lack of success in Japan stems from lack of effort. They note that between 1996 and 2011, the number of American auto dealerships in Japan fell from 620 to 160, while the number of European dealerships rose from 755 to 1,302. This explains, the Japanese say, why European automakers have 4.6 percent of the Japanese market and U.S. automakers have only 0.3 percent.

Washington and Tokyo have dueled over these numbers for decades. Neither side is likely to convince the other. Nevertheless, the Big Three were able to hold up approval of the South Korea Free Trade Agreement for years. Thus, Japan may need to make some accommodation on autos if the accord is to ultimately get through Congress.


While Japan ponders, negotiations among the current nine members continue. The next session is in Melbourne, Australia, in the first week of March. The window of opportunity for Japan to come aboard is rapidly closing. “From our point of view,” the senior Japanese government official said, “it is important to join TPP before there is substantial agreement. We want to join in the rule-making process.”

But Japan’s participation is hostage to calendars in Tokyo and Washington that may be out of sync.

The ruling Democratic Party of Japan is locked in a battle with the opposition Liberal Democratic Party over a proposed increase in the domestic-consumption tax that may force a new election by June. “If the government stumbles on the consumption tax,” said Yoichi Funabashi, the former editor of the Asahi Shimbun, one of Japan’s leading newspapers, “we will see one to two more years of political confusion.” If Japan has not formally joined the TPP deliberations before that point, its participation could be in limbo indefinitely.

On the U.S. side, the calendar is further complicated because the administration needs to give Congress a 90-day notice before formally including Japan in the TPP process. The U.S. Trade Representative’s Office is still consulting with business and labor to scope out support and opposition. Yet if the White House starts that clock and a Japanese election is called before the 90 days are up, some in Congress may want to delay engaging with Japan until Tokyo sorts out its politics.

“From the beginning, we really wanted Japan in,” said Susan Schwab, who launched the trans-Pacific effort as U.S. trade representative under President George W. Bush, “But the Japanese are the only ones who can make that decision.”

Bruce Stokes

>>> View more: Trade warrior

Slowdown in luxury land

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Judy Cosman, 35, is a successful Toronto executive who says that, a short time ago, she could easily have been called a power shopper. As co-owner of a thriving Toronto-based public relations firm, Strategic Objectives Inc., she rewarded herself with some of life’s expensive luxuries, ranging from imported designer clothes to a $35,000 BMW 325. But Cosman now says that, because of the rapidly changing economy, she has changed her shopping habits, even to the point of recycling last year’s costly fashions. She adds: “It’s true I’ve spent a lot of money on clothes. But I’m still wearing some of the expensive suits I bought three years ago. Now, I’m more likely to spend money on fashions for the home.”

She is not alone. Thousands of upper-income Canadians who enjoyed the high life and conspicuous consumption of the 1980s are tightening their belts as they enter the 1990s. In the process, they have plunged the high end of the market into recession. And the rest of the retail sector appears likely to follow, except for the elite millionaire class — the richest of the rich.

Retailers selling such big-ticket items as $60,000-and-up luxury cars and homes in the million-dollar range say that sales this year have collapsed. Statistics Canada reports that retail sales of all kinds fell three per cent — before accounting for retail price inflation of about four per cent — over the first five months of 1990. And while there are no specific statistics on the sale of luxury items, the anecdotal evidence that a recession is washing over the upscale end of the market is overwhelming. James Hedrich, for one, vice-president and general manager of Hazelton Lanes, a Toronto retailing complex that bills itself as the largest collection of exclusive merchandise under one roof in Canada, says that times are now tougher for many retailers than they were even during the 1981-1982 recession. He added: “I cannot recall another time when the high end was hit first. It’s usually the middle that feels it first.”


But middle-class consumers will probably follow the more affluent consumers to the sidelines. According to analyst Anthony Stokan, a retail marketing expert with Toronto-based Anthony Russell and Associates Infopreneurs, the overall retail sector has weakened over the past three months and appears set to fall even further. In May alone, Statistics Canada, which put the value of the trade at $17.47 billion for the month, reported that the sector had grown by just 0.1 per cent. When inflation is factored into the equation, retailers suffered an actual four-per-cent drop in business. And according to Alasdair McKichan, president of the Retail Council of Canada, total retail sales figures for June, which will be released later this month, will be just as bad.

Indeed, retail sales in department stores have fallen dramatically. According to Statistics Canada, department-store sales figures totalled $1.17 billion in June, up only two per cent from the same month the year before. But once retail price inflation is taken into account, the big stores experienced a real decline in earnings. It was the third dismal month in a row for department stores, which had sales increases of only 1.9 per cent in April and a decline of 1.4 per cent in May, even before adjusting for inflation.

One of the most glittering symbols of financial success, the luxury automobile, in the $40,000 to $100,000 range, is no longer in strong demand by the aspiring and near rich. And according to Statistics Canada, the national sales of imported luxury cars fell to 73,246 units in 1989, compared with 87,742 units for the same period a year earlier. And sales for the first six months of this year continued the declining trend.

But in Toronto, Brent Bertrand, chief executive officer of the central Jaguar & Rolls-Royce dealership on Bay Street, said that there is increased interest in leasing imported luxury cars–an arrangement that he said people often make when they are unsure if they can afford to buy one. Bertrand added that sales of the British-made Jaguars, which sell for $60,000 to $88,000, are down, although he declined to give exact figures.

During the 1980s, retailers of luxury power-boats and yachts worth more than $100,000 also enjoyed an unprecedented boom. But like the midrange luxury car market, that sector is also in trouble. Paul MacPhee, of MacPhee Yachts in Halifax, says that although he has sold more boats in total than during the same period last year, the average selling price of powerboats and sailboats he has sold this year is down. Added Ernest Hamilton, president of Saint John, N.B.-based Maritime Ship and Yacht Brokerage Ltd.: “This is the worst year in 10 years.”

At the same time, expensive homes are no longer the sure investment that they once were. In the elite Mount Royal district on the edge of downtown Calgary, there are 42 large homes for sale. “They want to get out,” says real estate agent Sigrid Ricketts, of the city’s Ram Realty Ltd. “But they are putting unrealistic prices on their homes. High interest rates are not helping. Many of them do not like what they see ahead in the economy.” A number of those selling believe that housing prices are going to fall. And others are looking to move into less costly condominiums, real estate experts say.

In Toronto, the most recent statistics from the Toronto Real Estate Board show that seven houses in the $1-million to $1.5-million range sold in July, compared with 16 in the same month the year before and 115 in July, 1988. In the $1.5-million-plus range, two Toronto houses sold last month, compared with five in July, 1989.

The slumping housing market is also causing a decline in the big-ticket furniture and appliance industry. In the first four months of the year, shipments of household furniture fell to $583 million–a drop of 14.6 per cent compared with the same period in 1989. The dollar value of major appliance shipments has already fallen by 11.7 per cent to $386 million in the first three months of this year, compared with that period in 1989, and the Canadian Appliance Manufacturers Association expects the decline to continue through 1990. Indeed, sales of microwave ovens alone are down 20 per cent, said Chuck Miller, a vice-president of Mississauga, Ont.-based Camco Inc., which makes General Electric and Hotpoint appliances, among others.

The clearest sign, however, of a slowdown among six-figure-income households is in the retail sector, especially retail clothing. Hedrich said that Hazelton Lanes expanded its building last August, but so far it has leased only 95 of a possible 123 store locations. Store owner Arthur Pelliccione, who carries the men’s and women’s lines of exclusive Milan designer Nicola Trussardi, says that business is bad because even wealthy shoppers have decided to get more wear out of their existing clothing. “For them,” he adds, “it’s a challenge to see if they can accent last year’s clothes with a new belt or jewelry.”

Analyst Stokan said that many of the upscale retail problems are the result of too many stores chasing the business of the top one per cent of the population. He added, “The rich will shop in low-end stores, but other shops are too intimidating to attract the mid-price shoppers who remain the backbone of the market.”

As well, Brian King, owner of the Toronto-based catering firm Catering a la Carte Inc., said that some well-off clients now consider it inappropriate to entertain lavishly when friends are going through tougher times. “People are not being as extravagant,” said King. “The lobster people are ordering chicken, the chicken people are ordering sandwiches, and the sandwich people are not ordering anything at all.”

Richard Hayter, owner of the exclusive Toronto florist Sissinghurst Ltd., where a single stem of rare Dutch Casablanca lilies costs up to $30, also says that his usually free-spending clients have grown very conservative. In fact, some clients have asked him to prepare flower arrangements that look as though the host and hostess had designed their own displays. “It’s becoming distasteful to be showy,” said Hayter. “One woman recently told me, `Don’t make it look like you were here.'”


Still, the country’s thin crust of elite millionaires continues to spend heavily. “There is no sign that these wealthy people are spending less,” says Michael Robichaud, owner of Vancouver-based Cruise Ship Centre, which organizes cruise tours that cost up to $100,000 per person. In Toronto, Catherine Hill, owner of the well-established upscale fashion boutique Chez Catherine, which carries seven exclusive fashion lines that are not available elsewhere in Canada, said that she has seen no sign of a recession among her customers, who often spend up to $15,000 on a shopping spree. Indeed, her rich clients often fly in from Vancouver and the United States to purchase such exclusive European designers as Valentino, Versace, Gianfranco Ferre and Karl Lagerfeld. “The average customer is not on a budget,” says Hill. “If they have four parties, they will buy four dresses.”

Bertrand says that sales of Rolls-Royces, which cost from $188,000 to $296,000, have remained relatively constant, while the sale of lesser-priced cars, such as Swedish-made Saabs, which cost $20,000 to $52,000, have fallen off dramatically. In fact, Bertrand has so much faith in the flamboyant spending habits of Canada’s millionaires that he said that, in several months, his dealership will import three of the only 350 Aston Martins that will be made in England this year. The hand-built cars will sell for about $300,000 each. Clearly, while middle-class consumers may be about to follow more affluent Canadians out of the retail market, Canada’s elite will continue to spend.

PHOTO : Cosman Bertrand: `lobster people are ordering chicken, chicken people are ordering

PHOTO : sandwiches’

>>> View more: Automotive shake-out

Off the rails


Canadian rail workers, concerned about management’s call for job security givebacks, walked out on Mar 18, 1995. Parliament is expected to pass a bill to force the strikers back to work. Unionized employees at CP Rail have been working without a collective bargaining agreement since Jan 1994.

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Canada’s railways have a long and celebrated history–so much so, in fact, that the construction of a transcontinental railway in the 1880s has been elevated to the status of a national dream. But for the executives who currently run CP Rail, CN Rail and Via Rail, that dream has become a costly nightmare. Because so many of the conditions built into railway labor contracts are mired in the past, company managers contend that their ability to compete has been critically compromised. They point out, for example, that they are required to maintain separate crews for the repair of wooden and concrete bridges. Under the same rules, three skilled tradesmen are required to change a windshield wiper on a locomotive. And those contractual terms, along with an employment security clause that gives rail workers a full salary until retirement age if they lose their jobs under certain circumstances, are at the heart of a union-management dispute that shut down most of the country’s rail system beginning on March 18. “We need to operate more efficiently,” said CP Rail president Robert Ritchie. “We need to reduce the number of employees we have.”

While the two sides in the rail strike remained at loggerheads last week, the government moved quickly to end the dispute. But as the cost of the strike mounted and as thousands of railway commuters in Montreal and Toronto spent the week using alternate means of transportation, the Opposition Bloc Quebecois, backed by New Democrat MPs, used procedural rules to delay the passage of back-to-work legislation. That prompted the government to schedule a rare weekend sitting of Parliament–only the fourth in the past 25 years–to pass the legislation. MPs were poised to give the legislation final reading on Sunday, with the Senate to follow by Sunday night. As a result, the strikers were expected to be back on the job as early as Monday, with trains to start running again by midweek. Liberal and Reform MPs combined against Bloc members to limit debate and speed the bill through. “They don’t give a damn about Canada,” Transport Minister Douglas Young said about the Bloc MPs. “They hate Canada.”

Debate also was spirited about the cost of the strike to the Canadian economy. Some economists estimated that the weekly bill would hit $3 billion, while others argued that the costs would be minimal. Said Robert Fairholm, an economic forecaster with the consulting company DRI Canada: “Two months from now, it will look like it never occurred.” Most agreed, however, that a strike that lasted more than seven to 10 days would do serious damage to the economy, particularly if it began to disrupt exports of manufactured goods, which have led the current economic recovery.


But whatever the ultimate cost of the service disruption, its impact was felt immediately from coast to coast. Activity at ports in Vancouver and Halifax slowed sharply. Shipments of grain from Prairie elevators virtually stopped. Auto plants in Central Canada were left scrambling for supplies. And in a few cases, workers were sent home because their employers could not continue operating without regular rail deliveries. The most prominent case was Ford Motor Co. of Canada Ltd., which closed its assembly plant in St. Thomas, Ont., for several days, and switched to half-day shifts at two other Ontario assembly plants.

The shutdown also touched off a messy spat among union leaders. Basil (Buzz) Hargrove, president of the Canadian Auto Workers (CAW), which represents about 20,000 workers at CN, CP Rail and Via, contends that the unions had agreed among themselves that they would restrict any work stoppages to CP Rail–and that no action would be taken until March 15. He added that the agreement began to unravel on March 8 when the Brotherhood of Maintenance of Way Employees (BMWE), whose members are responsible for maintaining the tracks, began a series of one-day rotating strikes against CP Rail. The company responded by locking out the BMWE. Then, on March 18, the BMWE announced a strike against CN; that afternoon two other unions walked out. The dispute quickly crippled the entire rail system.

Union politics aside, for most of the 35,000 unionized employees at the three companies, the negotiations have been both frustrating and fruitless. Although several small unions have settled with CP Rail, a large majority of the railway workers have been without contracts since their previous two-year agreements expired on Dec. 31, 1993. Although negotiations have dragged on since the fall of 1993, many union leaders complain that the companies have refused to bargain and were simply trying to impose a settlement.

The Liberals’ back-to-work legislation provides for three-member commissions to oversee negotiations between each company and its unions. The commissions will comprise a government-named chairman as well as representatives selected by the companies and the unions. Initially, they will act as mediators, but they have the power to impose settlements if the participants cannot reach agreements within 70 days. “Going to arbitration is an automatic loss for us,” says Hargrove. “These issues are too complex to have someone from outside make the decision for us.”

The principal issue dividing labor and management is employment security, which the railways granted to their workers in 1985. In exchange, the workers reduced their demands for salary increases and changes in workplace rules. The provision protects employees with at least eight years’ service whose positions are abolished because of technological, operational or organizational changes introduced by the company. Under those circumstances, they are entitled to full wages and benefits until they are eligible to collect their pensions, although they must be willing to accept other work with the company within specified geographical areas. Union leaders insist that the companies are exaggerating the cost of employment security, and they point out that the railways have collectively reduced their workforces by about 30,000 employees–mostly through attrition, early retirements and buyouts–since employment security was first negotiated.

The unions say that very few of their members are actually sitting around collecting employment security benefits. Bill Roberts, a 30-year-old CN worker from Belleville, Ont., was protected by the clause when his position disappeared last July. A member of the BMWE, he joined the company 12 years ago and had worked as a repairman in the Rideau district, which stretches from Cornwall to Oshawa. But after his position disappeared, the company offered him another job in Toronto; if he had refused, he might have lost his benefits. Roberts, who has two children aged 4 and 8, now works at a CN yard in Toronto five days a week, staying with family members, and returns home on weekends. “If I lose my employment security, I don’t have a job, period,” says Roberts. “I’d be sitting at home hoping to God I could get a seasonal job with the railway.”

On the other hand, senior railway executives insist that they need significant modifications to the contentious clause as part of an ongoing effort to reduce their operating costs. Terry Lineker, CN Rail’s assistant vice-president of labor relations, says that 600 employees will collect a total of about $25 million in employment security benefits this year. For his part, CP Rail’s Ritchie notes that the company is providing such benefits to about 300 workers in Montreal alone–some of whom have exercised their right to refuse jobs with CP in Alberta. “We have to hire and train mechanics in Calgary while people sit at home doing nothing in Montreal,” says Ritchie. “This clause never should have been put in place.”

According to Ritchie, it was Ottawa’s ownership of CN that originally led to the clause’s introduction. The Crown corporation, he said, was the first employer in the industry to settle with its workers in 1985, and created a precedent by giving in to the unions’ demands for employment security. Ritchie said that CP Rail had little choice but to grant its unions the same protection. If it had refused, he added, the company would have faced a national strike, followed by back-to-work legislation and, possibly, an arbitrated settlement that included employment security.

The other critical issue on the agenda–at least for railway managers–is workplace flexibility. Senior executives argue that many of the rules dictating which trades can perform which jobs date back to the days of steam locomotives. As a result, simple tasks that could be performed by one journeyman mechanic frequently require several skilled tradesmen. Lineker notes that in CN repair shops the thickness of a piece of metal determines which trade handles it: a sheet-metal worker is required if the metal is as thick as a dime, a carman takes over if it is equivalent to a quarter and a boilermaker steps in if the metal is as thick as a loonie. “We want to get rid of these antiquated rules,” declared Ritchie.


While CP’s rail operations have generated strong profits in eight of the past 10 years, CN’s record has been much less consistent. Nevertheless, both companies are trying to reduce their costs because they face much stronger competition from deregulated American railways and trucking companies. In addition, in his February budget Finance Minister Paul Martin announced that Ottawa intends to privatize CN. “Canadian National quite clearly needs to decrease costs very substantially before it can become a candidate for privatization,” says John Heads, director of the University of Manitoba’s Transport Institute.

Heads adds that if Canadian railways fail to bring their costs into line with competing U.S. companies, they will suffer a decline in freight volume: imported cars and consumer goods from Asia, for example, could be transported from the West Coast to Central and Eastern Canada on U.S. lines. As it stands, he says, rail workers in Canada are substantially less productive than their American counterparts, partly because they serve fewer customers spread over a wider area. And, Heads notes, Canadian railways pay higher taxes than their U.S. competitors, amounting to a difference of about $5 for every $100 of expense incurred. Those factors help to explain why operating expenses for Canadian railways total about 90 per cent of revenues, compared with about 80 per cent for the most profitable U.S. lines. Says Heads: “The railways’ complaint that they’re poor compared with the U.S. railways is absolutely true.” No matter what type of settlement emerges from arbitration, running a railway in Canada is likely to seem anything but a national dream–for the foreseeable future at least.

>>> View more: Slowdown in luxury land

Trade warrior


Kantar levied 100% tariffs on 13 Japanese luxury-car models, in retaliation for Japan’s tight import policies and as an answer to critics who had considered him all talk and no action. The sanctions may receive censure from the WTO and countermeasures from Japan, but they mean the US is serious.

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WARNINGS, THREATS, HEAD-lines, concessions: that monotonous pattern has marked a decade of nonstop trade disputes between the United States and Japan. Last week the familiar diplomatic tango degenerated into a dancehall brawl–with U.S. Trade Representative Mickey Kantor in the middle. First he all but shut off imports of Japanese luxury cars. Then he took on the European Union, which rushed to protest the U.S. sanctions. “Our European friends are always willing to hold our coats while we get our nose bloodied,” he gibed. But while Kantor’s high-stakes move conveyed a message to Tokyo, it sent an even stronger signal back home. When it comes to trade policy, at least, Bill Clinton can back up his tough talk with action.

Give the credit to Kantor, the president’s much-maligned trade czar. After two years as chief U.S. trade negotiator, Clinton’s former campaign manager has finally hit his stride. The overblown rhetoric of his early months, when Kantor’s constant attacks on alleged foreign unfairness won him a reputation for empty threats, has calmed. Kantor has managed to reposition himself as a decisive strategist, not just a big talker. In February he signed an unprecedented pact with China to counter illegal copying of U.S. movies, music and software. Now he has taken an unusually hard–and potentially risky–line with Japan. “His ideas really haven’t changed since he got there,” says a top aide. “He’s just grown more comfortable dealing with trade.”


As far as actual imports and exports go, that may not make much difference. But Kantor’s offensive leaves Clinton in precisely the right position, visibly committed to economic openness–he has stood up for free trade with Mexico and for last year’s global-trade pact–while at the same time standing ready to man the barricades against foreign unfairness. Sanctioning Japan, says Washington pollster Mark Mellman, “helps fill out the image of a president who stands up for what he believes in.”

Kantor, a Los Angeles lawyer, was a novice when he became trade representative in 1993. The post itself was a consolation prize; he had wanted to be White House chief of staff, but was blocked by Clinton aides who felt Kantor had slighted them during the campaign. Knowing little of the niceties of trade policy, Kantor was convinced that a tougher, more “realistic” approach to negotiations would fix problems his predecessors couldn’t solve. It didn’t. His seeming insistence on winning every bargaining point antagonized trading partners, and bad political calls turned the U.S.-Mexico-Canada free-trade pact from a sure thing into a near casualty. Two years of experience may not have mellowed Kantor, but they have shown him the limits of trade policy–and how to wield it to best effect.

The auto sanctions offer a taste of the new Kantor style. Cars and car parts account for most of the huge U.S. trade deficit with Japan. Years of bargaining have slowly pushed back Japan’s barriers to foreign cars. But although Detroit’s Big Three now have showrooms in Japan and companies like Nissan and Toyota are buying more American-made parts, the U.S. share of Japan’s market has remained tiny. That’s not a front-burner issue for the U.S. industry, which has bigger fish to fry in emerging markets like China and Indonesia. But Kantor sensed that Japan is uniquely vulnerable on the car front: at 87 yen to the dollar, it’s hard for Tokyo to argue that American mufflers aren’t dirt-cheap. Washington wants not only looser regulations but also a commitment to more imports. The Japanese offered to ease up on the inspections of imported cars, but rejected import targets. Kantor threatened sanctions–only this time he acted. After weighing such unorthodox options as a tit-for-tat inspection of every incoming Japanese car, Kantor slapped 100 percent tariffs on 13 luxury models, shocking importers by making the higher tariffs effective right away.

Low cost: As usual, there’s less to the sanctions than meets the eye. Although Toyota’s Lexus and Nissan’s Infiniti would become impossibly expensive, the strong yen has already crimped sales of most of the cars Washington is targeting. One of the two Hondas on the list, the Acura 3.2 TL, isn’t even on the U.S. market–and its readily available sister car, the Acura 2.5 TL, isn’t affected by the sanctions. But by picking targets carefully, Kantor may have found a way of punishing Japan’s carmakers at little cost to the United States. The standard economic analysis–higher tariffs lead to higher prices–may not apply, because competition from Europe could keep U.S. manufacturers from hiking prices. “Most of the consumers who are turned off by tariffs on luxury cars are going to gravitate to European cars,” predicts auto-market analyst Susan Jacobs. “I don’t think the Big Three are going to notice much of an effect.”

Kantor’s aggressive move is not without risks. Japan, sources say, has hinted that it will retaliate by encouraging its airlines to favor the European Airbus over Boeing’s American-made jets. More broadly, U.S. diplomats worry that too much pressure on trade will make Japan less willing to support U.S. initiatives with China and North Korea. And the backwash from the auto case threatens to swamp the fledgling World Trade Organization. Already, Japan has complained that the U.S. actions flout WTO rules, and Washington will fire back with a complaint against Japan’s carimport restraints. Neither side wants to be censured, and the WTO is desperate to avoid antagonizing its two largest members. But if the United States and Japan don’t settle, trade experts say, it’s likely that the WTO will condemn the U.S. sanctions. Even if Washington were to win its case against Japan’s import barriers, the Japanese could claim victory, too. “I would have waited on sanctions,” says veteran U.S. negotiator Julius Katz. “I’d like to have a conviction before there’s an execution.” Agrees Michael Smith, a top Bush administration trade official, “It’s clear that the sanctions they’re imposing are just illegal.”

How will the impasse end? In the past, U.S. threats have spurred Japanese politicians to demand that their powerful bureaucrats change course. The same calculation is at work here: Japanese Prime Minister Tomiichi Murayama may want a deal before the June 15 summit of wealthy nations in Canada. But Murayama, who is openly despised by Japanese trade negotiators, may be too weak to force a settlement on his own government. Trade and Industry Minister Ryutaro Hashimoto, Kantor’s negotiating partner, is on the short-list of potential successors. With an election looming later this year, Hashimoto may find suing for peace unattractive. Says Brookings Institution political scientis Michael Mochizuki, “There’s very little incentive for Mr. Hashimoto to intervene in such a fashion, because it’s become politically very attractive to say no to the U.S.” That leaves Washington hoping that Japan’s carmakers will scream loud enough to change Hashimoto’s mind. And if they don’t? Now that Kantor has thrown a few punches on the dance-hall floor, he may be in no hurry to go back to the tango.


RELATED ARTICLE: Talk About Sticker Shock

Sanctions against Tokyo would increase significantly the price of some Japanese luxury cars in the U.S. market. Here are some of the American and European models that stand to profit from the trade dispute.


LOSER Lexus LS400 $51,680 [right arrow] $88,000

WINNER BMW 740i $57,900

Buyers looking for the prestige of top luxury models will turn to European cars like the BMW and Mercedes.

LOSER Nissan Infiniti Q45 $52,850 [right arrow] $89,000

WINNER Jaguar XJ6 $53,450

Jaguar’s XJ6, whose sales were up 19 percent in 1994 under new owner Ford, may gain even more momentum.

LOSER Lexus SC300 $41,380 [right arrow] $70,000

WINNER Cadillac Seville $41,935

Technology-loaded models like the Seville may get a boost in sales without the competing Lexus.

LOSER Lexus ES300 $31,980 [right arrow] $54,000

WINNER Lincoln Mark VIII $38,800

Lexus’s cheapest and best-selling model would be undercut by American-made luxury cars like the Mark VIII.

LOSER Acura Legend $37,000 [right arrow] $62,900

WINNER Oldsmobile Aurora $31,370

The Legend is among the top sellers on the list of 13. Sports-sedan buyers may turn to models like the Aurora.

LOSER Mazda Millenia $26,435 [right arrow] $45,000

WINNER Buick Riviera $27,632

Mazda’s new hit Millenia, with 24,000 cars sold in ’94, could be fatally hurt before its second birthday.

>>> Click here: Off the rails