Toyota sweats U.S. labor costs February 8, 2007 BY JASON ROBERSON FREE PRESS BUSINESS WRITER Toyota Motor Corp. must hold down growth of its U.S. manufacturing wages and benefits, which are among the highest in the auto industry and are growing faster than the company's profit margin, according to a high-level company report obtained by the Free Press. The report from Seiichi Sudo, president of Toyota Engineering & Manufacturing in North America, said Toyota should strive to align hourly wages more closely with prevailing manufacturing pay in the state where each plant is located, "and not tie ourselves so closely to the U.S. auto industry, or other competitors." Sudo's report to top managers said the Japan-based company projected a $900-million increase in U.S. manufacturing compensation by 2011, and human resources officials were working on trimming that by one-third. The drive to hold down costs may boost UAW organizing efforts, if Toyota workers balk at the possibility of smaller raises, reduced benefits or greater demands for productivity gains. But the plan also illustrates that the world's most-profitable automaker is going to keep relentless pressure on Detroit and its signature industry. The Free Press reported last week that at least some nonunion Toyota workers for the first time last year earned more than UAW assembly workers for Detroit's automakers. Auto experts and Toyota's workers say it is ingrained in Toyota's culture to sweat over trying to save $300 million five years down the road even as the company rakes in more than $1 billion a month. "They worry about details. They never stop worrying," said David Cole, chairman of the Center for Automotive Research in Ann Arbor. "They encourage worrying in the company, from the top down." The root of Sudo's worry: Labor costs as a percentage of sales are growing faster than Toyota's profit margin. "This condition is not sustainable in the long term," he said in the report. But Toyota's plans to restructure wages and benefits may also embolden Detroit's struggling automakers, which will seek billions in concessions this summer during contract negotiations with the UAW. A recent Detroit Free Press-Local 4 Michigan Poll found that three-quarters of Michiganders say the UAW will have to make concessions to General Motors Corp., Ford Motor Co. and the Chrysler Group. "The companies in Detroit are going to say, 'Look, we're in dire straits here. We're going to have to follow what they do,' " said Kenny Harper, 48, who has 18 years' seniority at Toyota's flagship complex in Georgetown, Ky. Harper, who wants the UAW to represent Toyota workers, said he disagrees with the company on principle. "Now I can understand if the company is having a hard time," said Harper, who has been off work for 12 weeks while healing from shoulder surgery after an on-the-job injury. "I'm more than willing to work with that company to keep my job. But when they just take it because they want more, I don't agree with it at all." Sudo's 42-page report, which was left unsecured on computers at the Georgetown plant, says, "The U.S. auto industry pays among the highest manufacturing wages in the world. Compared with Japan and France, the U.S. auto industry pays 50% higher wages and over five times more than Mexico's auto manufacturers." The company acknowledged that the documents supplied to the Free Press were authentic. In a memo to workers at the plant after the report was circulated, Toyota noted that workers at Georgetown earned $3 an hour more than the U.S. auto industry standard. The Free Press reported last week the workers averaged $30 an hour, including bonuses. Currently, the median for comparable manufacturing jobs in Kentucky -- half earn more, half earn less -- is $12.64, according to the U.S. Department of Labor. Toyota's strategy resembles what Hyundai Motor Co. uses at its plant in Montgomery, Ala. Assembly workers there make $14 an hour, about half the wages, bonuses and benefits of Toyota, Honda, Nissan and Detroit's automakers. But Hyundai's wages still are considerably higher than for comparable Alabama jobs, which pay $10.79 an hour. "Our challenge will be how to educate team members and managers about our condition, so that they can understand and accept change," Sudo said in the report. Among the changes would be greater use of on-site medical clinics and the introduction of on-site pharmacies to combat rising health care costs. Toyota's language regarding North American health care inflation largely echoes that of Detroit's automakers. The issues and solutions were laid out in a plan that also addressed quality, development of people and suppliers and the 5-year production plan. The idea behind such a so-called hoshin plan is to ensure all employees understand and work toward the same long-term goals. Richard Mason, 45, who works the second shift at Toyota's Georgetown plant, said few of his coworkers seemed concerned about Toyota's plans. "Most people I talk to in the plants say it's no big deal, which saddens me," said Mason, who also wants union representation. "They say, 'Hey, I've got it made now. I don't really care.' " But Harley Shaiken, a professor at the University of California, Berkeley, who specializes in labor issues, said Toyota's effort to hold down labor costs does more than empower Detroit's automakers: It promotes Toyota as the industry's new labor leader. Nonunion automakers, with the exception of Hyundai, followed the UAW's lead to avoid unionization, Shaiken said. "It really represents a shift in direction," Shaiken said. "Up until now the UAW set wages for the industry and the talks in Detroit." In the follow-up memo, Toyota pointed out that workers at Georgetown and at New United Motor Manufacturing Inc. in Fremont, Calif., which Toyota owns with GM, are the highest-paid autoworkers in the United States. UAW Local 2244 President George Nano, who represents members at Fremont, the only plant where Toyota managers must negotiate with the UAW, said Toyota is just being greedy. His members, he said, are struggling to make ends meet in California's expensive Bay area, and he is afraid that cuts are coming. "Right now we're making good money. We have benefits. But you can see that it's coming," Nano said about the anticipated changes. "And I'll be damned if I'm going to let them take it away."