| The following is an essay I wrote regarding the unprecedented joint venture between Toyota and GM which brought North Americans vehicles such as the Chevy Nova, Toyota Corolla FX-16, Geo Prizm, Pontiac Vibe, Toyota Corolla, and others. |
Individual Report: The importance of the NUMMI venture
Chris Migallo
Global Automotive Economics
Mr. Morrone
Canadian Automotive Institute
April 6, 2005
The importance of the NUMMI venture
The opening of the New United Motor Manufacturing Inc. (NUMMI) plant in Fremont California heralded GM’s first joint venture with a Japanese auto manufacturer, and the first time Toyota was to build vehicles on US soil. 21 years later, the NUMMI facility is respected today as one of the most efficient and reputable automobile factories in the industry. The purpose of this report will be to examine the influence the NUMMI venture has had on both the local and the North American economy and to explore the benefits experienced by GM and Toyota thanks to this unlikely “east meets west” partnership.
Toyota looks west
In the late 1970’s, it became apparent to Toyota executives that if they wanted their company to grow and prosper in the competitive North American market, a compromise would have to be made in order to hurdle the increasingly stringent barriers to entry. These barriers had been established by the government of the United States to protect its economy. As the company had grown over the years leading up to that time, it was apparent to many that Toyota and other import vehicles produced by manufacturers such as Datsun (soon to be Nissan) and Honda were not only becoming increasingly popular choices for American consumers, but as a result of their increased market share, US dollars were being sent by the shipload out of the country and straight to Japanese banks. In an effort to slow this frightening trend, the US government made it increasingly difficult for these manufacturers to import their vehicles without suffering hefty taxes and duty fees, actions aimed at increasing their final selling prices and making them less desirable to consumers.
Toyota recognized the need to evolve in order to remain competitive, but keeping in tune with their conservative and safe business model, they felt it would be prudent to seek a partnership with an established US vehicle manufacturer, instead of trying to forge into the unknown by themselves. It made perfect sense after all; GM had all the resources already needed to facilitate not only vehicle production, but the infrastructure that would be required to source suppliers, bring in materials, and transport finished vehicles among others. Toyota probably could have managed all of these resources itself, but this would have meant years of delay, and no doubt an astronomical price that the company was not willing to pay…just yet.
An old plant, with a new hope
In 1963, Fremont, CA. became one of many sites for GM’s manufacturing facilities. As years passed the future of the plant became uncertain as it was plagued with problems. Absenteeism, low employee morale, and low efficiency were just some of the reasons blamed for the plant’s closure in 1982. When its doors finally shut, over 4000 GM employees lost their jobs, not to mention countless others who worked for businesses directly linked to the plant’s operations. It was a sad story in GM’s history, but there was a light at the end of the tunnel.
Toyota and GM eyed the plant with great speculation. If their venture was to come to fruition the location of the plant as well as other crucial factors would all have to come into play and work together to meet specific requirements. Not only was the plant located on mainland US soil closest to Japan, but all the instruments needed to produce vehicles at the Fremont plant were sitting idle, simply waiting to be used. On top of everything else, California was chosen due to its large population. Vehicles produced could be sold directly to the local market to avoid transportation costs, and this wouldn’t be a problem considering the increasing demand for affordable economical cars in that state. After much discussion and litigation, and much to the discontent of Ford and Chrysler, the first of a new generation of Chevrolet Nova’s (essentially an American-made Corolla) was produced at the newly named NUMMI plant. The year was 1984, and the future was brighter than anyone had imagined.
A welcomed partnership
The historical joint venture between the largest American and Japanese auto manufacturers could not have come at a better time. GM’s past attempts to create a small affordable economy car failed one after another as it seemed they were incapable of matching the vehicles offered to the market by the import nameplates. The company was losing market share for that increasingly popular segment of vehicle and they desperately needed to start offering something consumers would buy. Not only were the products they offered failing, but it became increasingly evident that production practices were not up to par with those of their Japanese competition. Like Toyota, it was time for GM, and the American way of vehicle production, to evolve. If it failed to do so, sales would decrease, production would decline, workers would be laid off, and as the ripples continued on, the economy would continue to suffer. General Motors may not have been as concerned for the economy as they were with the direct consequences related to their business, but the US government certainly recognized the issue, and as such had little problem signing the documents which allowed the venture to move ahead as planned.
To anyone keeping current with automotive trends, the news that Toyota was looking into production of vehicles on US soil probably came as no surprise. That surprise however, may have been more evident when talks of a joint venture with GM began. Toyota had already proven the effectiveness of its production practices in Japan, and countless times at that, but the company wanted to test the water before diving into the pool of North American auto production. The joint venture with GM would mean shared profits, but more importantly, shared costs. This second point would be even more important should the proposed project fail, as the shared cost of failure wouldn’t leave either manufacturer fatally wounded.
Toyota needed to see if its business practices could be adapted and applied in the American culture before moving onward with it’s “build where you sell” philosophy. This meant it would have to sleep with the enemy and essentially reveal many of the practices which allowed for such great success in the industry, but the benefits of the partnership outweighed those costs and plans for the venture moved ahead.
Influence on the local economy
Although Fremont had begun to attract a great deal of businesses from the tech sector to establish head offices within it’s borders during the 80’s, this may have never happened without the automotive plant that has been a solid source of jobs and subsequent revenue since it’s opening in 1963. This would have been even more apparent had NUMMI not been established, and the plant not reopened with such renewed life and purpose. Such an income drastically improved the quality of life for most and contributed a great deal to the growth and prosperity of Fremont, giving it the revenue it needed to build the infrastructure to attract those businesses from California’s bay area. Out of Fremont’s population of approximately 205,000 people, over 5000 have jobs at or directly associated with the NUMMI plant, and each of those people put their earnings back into the local economy by spending it.
For those citizens in the lower to middle class, the plant provided a stable income usually reserved for individuals who had graduated from post-secondary institutions. To the over 4000 employees that were laid off as a result of the Fremont plant’s closure in 1982, the news of a joint venture between Toyota and GM, and consequent planned reopening was no doubt a prayer come true. Not only were over 5000 applications sent to former plant workers and others who may be interested in work, but business ties with suppliers all over California were also reestablished. These parts suppliers also eagerly accepted the rebirth of the plant. In an enduring effort to improve not only the efficiency of the NUMMI, but of the businesses that supplied the materials needed for production, the Golden State Automotive Manufacturer’s Association (GAMA) was formed in 1993. This act essentially brought together the bulk of parts suppliers in the hope of unifying their efforts to improve efficiency and the overall productivity of their business, and likewise the productivity of the NUMMI facility. These efforts to keep the lines of communication open, and ability to recognize and understand how working together will benefit the majority is a cause led by NUMMI and its unique business culture and beliefs. With regular meetings, and goals set forth to improve identified weaknesses within business practices of the group, they are able to keep their competitive advantage in the auto industry, and maintain the likelihood of a prosperous future, thus continuing their strong contribution to the economy.
The forming of GAMA offers the unique opportunity to examine the impact that one automotive manufacturing plant can have on a given region and its businesses. Currently, GAMA constitutes 25 individual companies which do business with the plant, many of which rely on NUMMI as their main business partner and source of revenue.
In terms of actual monetary contribution to the economy, NUMMI proves once again to play an incredible role. To consider the substantial influx of money it provides in regards to wages alone, one need only to execute some simple math. In the case of direct plant workers, 5000 employees being paid at a rate of $16/hr who work 40 hours a week would constitute over $3 million in paid wages per week. Considering the amount which is paid to workers of the 25+ companies that do business with NUMMI, the overall tally of wages alone is nothing short of astounding. If the total flow of money were ever calculated, it could probably be argued that NUMMI would be able to sustain a small country by means of vehicle production alone!
NUMMI currently produces over 350,000 vehicles per year, and in 2001, had a cumulative production output of over 3,000,000 units.
Effects on the North American economy
To say the benefits of the successful implementation of the NUMMI venture are widespread would be an understatement. Because of its unprecedented success, and the amount of lessons it taught to both GM and Toyota alike, North Americans and their economy have proven to be the real benefactors of the partnership. The sheer amount of jobs alone related to not only production, but research and development, technological advances, logistics, education, business, and many others brought forth by the successful endeavours of these two unlikely partners is nothing short of amazing.
Because GM was able to learn first hand how to implement Toyota’s process of lean manufacturing, and observe the practices of Kaizen and other famous Toyota principles of work and business culture, it has adopted and spread many such methods of production to its other plants in Canada and the United States, and no doubt to others in the world as well. NUMMI gave GM, the largest auto manufacturer in the world, the ideas it needed to restructure, reorganize, and rethink its entire production practices. Currently GM may be suffering regarding its profitability in the auto industry, but one can only imagine how much worse off the company would be today had the venture with Toyota never taken place. It could be argued that although NUMMI helped GM, it may have come too late.
For Toyota, the proof shown by NUMMI that their approach to building vehicles and conducting business could be taken up side by side with North American culture, paved the way for several automotive production facilities to be built in both Canada and the United States in the years following the plant’s opening. Toyota is now a major manufacturer in North America, so much so that their distinction between domestic and import vehicle manufacturer is growing increasingly vague with every new vehicle that is produced for North Americans, by North Americans. Its healthy business on this continent, has allowed Toyota to continue to grow in other parts of the world, and as such, make an impact on those economies as well.
Conclusion
The New United Motor Manufacturing Inc. plant was not only a tool used to produce vehicles; it laid the foundation for two automotive giants from different cultures to build into the future with more certainty and understanding than ever before. If large organizations the world over were so willing to compromise and work together, essentially taking notice and learning from the NUMMI venture, there’s little doubt of the benefits that would result, would be on a global scale.
Sources
All information for this report was retrieved using ideas and facts from the following online web pages:
http://www.autointell.net/nao_companies/general_motors/gmnummi.htm
http://www.findarticles.com/p/articles/mi_m3165/is_n1_v24/ai_6188578
http://www.arb.ca.gov/ch/presentations/nummi.pdf
http://www.law.harvard.edu/academics/registrar/exams_00-01/html/bainbridge3.html
http://company.monster.com/motor/
http://www.nummi.com/gama/index.html
http://www.detnews.com/2005/autosinsider/0503/27/A01-130344.htm
http://www.toyota.co.jp/en/news/02/0729.html