Nissan says high labor costs threaten its US truck plant
Just as Nissan is about to begin building its first American-made, Japanese-designed trucks in Smyrna, Tenn., next month, company officials say high labor costs and other factors are hurting the potential profitability of Nissan's costly American venture.
''We are having a very difficult time getting our costs down to the level where it is profitable to be in the United States,'' said Marvin T. Runyon, president and chief executive officer of Nissan USA, the American subsidiary of the Tokyo-based Nissan Motor Company Ltd.
Mr. Runyon said the Smyrna plant is encountering those problems even though Nissan's domestically produced trucks are able to avoid high US tariffs. The 25 percent tariff raises the delivery cost of Japanese-made trucks Nissan exports to the US by about $800, according to the company.
Runyon, a former vice-president at Ford Motor Company, is at the wheel of an experiment that employs Japanese manufacturing and management methods to build Japanese-engineered trucks with American workers. And he contends he can successfully forge those diverse elements to produce ''the best-quality truck sold in North America,'' enabling Nissan USA to make a profit in the hotly competitive US light-truck market against such giants as General Motors Corporation, Toyota Motor Corporation, and Ford.
But the executive, during a recent visit to Washington, acknowledged that the Smyrna operation's balance sheet is squeezed by Nissan's initial $660 million investment - one of the largest ever by a Japanese company in the US - and by wages paid to US auto workers which are nearly double those paid to auto workers in Japan. Nissan, Runyon said, is also deeply concerned about domestic-content legislation now before Congress, which, if passed, would force the Smyrna operation to switch from using mostly Japanese-made parts to more costly ones produced in the US.
Nissan's Smyrna plant obtains 62 percent of its parts - mainly engines and transmissions - from Japan. Runyon said domestic-content requirements would cause operating costs to rise so much ''that they would be significantly out of line with those of our competitors.''
In addition, industry observers note, Nissan faces a tough battle against the United Automobile Workers, which has pledged to organize the Smyrna workers, expected to number 2,000 by mid-1984. The UAW and auto industry executives in the US and Japan will be watching closely to see if independent-minded American workers can be taught consensus-oriented, cooperative labor-management attitudes that are ingrained in Japanese labor.
David Eisenberg, an auto industry securities analyst with Sanford C. Bernstein & Co., a New York brokerage firm, calls Nissan's American venture ''a gutsy strategy, not without risk,'' designed both to get around import barriers and defuse protectionist sentiment by creating American jobs.
But Mr. Eisenberg observes that Nissan has burdened itself financially by promising to pay Smyrna plant employees wages that are comparable to those paid to other American auto workers. Jobs performed by workers at Japanese-managed auto plants vary from those of US auto workers, making pay levels difficult to compare. But Runyon cited the $21-an-hour wage and benefits package paid to Ford workers under their UAW contract as typical of the package received by Smyrna employees.
Eisenberg and other analysts said that, at $21 an hour, Smyrna's productivity levels would have to be twice those of Japanese plants and that Nissan would have to sell almost all of the 156,000 units it expects to produce at Smyrna annually in order to be profitable. But Eisenberg and David Healy, an auto analyst at Drexel Burnham Lambert Inc., another New York broker- age, said those prospects are unlikely. Nissan sold 108,000 light trucks in the US last year, one-fifth its US vehicle sales.
Runyon agrees that productivity is the key to the Smyrna operation's success, and he said Nissan would offset high labor costs by using well-trained workers to operate a state-of-the-art plant that Nissan calls ''one of the most technologically advanced facilities in the world.''
Following Japanese management practices, Nissan has spent considerable time and money - $63 million - on pretraining, including sending 375 workers to Nissan's Japanese plants for one to four months to learn Japanese management and production methods.
And, to create the Japanese family-style work environment, Runyon has reduced the typical 12 layers of management to 5; created worker-involvement circles, in which management solicits ideas from employees on how to increase productivity; and given hourly workers the title of ''technician.'' Employees are also cross-trained to perform a broader range of functions than American auto workers.
While emphasizing that Nissan is not anti-union, Runyon says the kind of employee he desires must be ''capable of a high level of cooperation and teamwork.'' Given the 120,000 applications for Smyrna jobs, Nissan can be selective about making sure employment prospects fill those requirements.
But industry observers, including Eisenberg, believe the UAW could interfere with productivity, both during the unionizing effort and if the UAW won representation.
UAW officials and Ichiro Shioji, head of Nissan's Japanese auto workers, met at the UAW-CIO convention in Dallas earlier this month, and they plan to visit the Smyrna plant in a few months, according to Martin Gerber, a vice-president in the UAW's Detroit office.
Mr. Gerber said that at Smyrna the UAW anticipates a struggle similar to the one that took place when Henry Ford resisted union efforts to organize his plants in the late 1930s. Ford workers were organized within a few years, Gerber said. While a unionized Smyrna doesn't mean an end to cooperation, noted Eisenberg at Sanford C. Bernstein, there is ''no question that there is probably more ability to improve productivity in the absence of a union.''
Runyon contended that the organizing effort would have no effect on the Smyrna plants' productivity, but he declined to comment whether a unionized operation would render Nissan unable to make a profit.
Company officials say Nissan plans to make up its investment by 1987, when a total of $1 billion will have been committed to the project.