Is Detroit Gearing Up?

Car sales are tanking, credit is tight, the Fed is bailing out investment banks, gas prices are rising, auto workers are striking, Detroit is downsizing. These, it would seem, are the worst of times in the Motor City. And yet America's automakers are about to go on a hiring spree, adding 77,000 new workers to the payroll by 2016, according to a new study by a highly respected Ann Arbor, Mich., automotive research firm. Find that hard to believe? So did Sean McAlinden, one of the authors of the study. Even he began having second thoughts after his firm, the Center for Automotive Research (CAR), published it last month. "We were having doubts ourselves about whether they would begin hiring in 2008," admits McAlinden. So he called General Motors, which, along with Ford and Chrysler, participated in the study. "They told me they expect to see production worker shortages that are so severe," he says, "they'll have to begin hiring this fall."

You might wonder what they're smoking in Ann Arbor. But there is logic to CAR's prediction. Here's how it goes: Detroit is on an unprecedented buyout binge. At GM alone, 34,000 workers have walked out the door in the last 10 months (20,000 left in one day, on Jan. 2, 2007). GM, Ford and Chrysler are now offering virtually all of their 166,575 blue-collar workers buyouts of up to $140,000 or lucrative early retirement packages. Deadlines to decide are coming soon, and before it's all over, another 34,000 workers will head for the exits. At some factories more than half the staff is expected to take the buyout. That will leave too few workers behind to keep the cars rolling down the assembly lines. "They'll have to replace hundreds of workers in these plants, or lines will go down," says McAlinden.

Why would the automakers hollow out their factories? Because last fall the Detroit Three cut a deal with the United Auto Workers union to allow them to pay some new hires half the wages of, and far fewer benefits than, current workers. These new hires will make as little as $14 an hour, compared with the $28 an hour earned by the workers the automakers are attempting to cashier. What's more, the outgoing workers have generous pensions and retiree health care benefits. The incoming workers will have 401K plans and no traditional pension or retiree medical benefits paid for by the company. Add it all up and the workers that are leaving cost the automakers $78.21 an hour, including benefits, while those who replace them will cost an average of $25.65 an hour. That downshift will save Detroit billions, which it desperately needs to get back in the black.

So that's why hiring 77,000 new cheaper workers over the next eight years—while eliminating 115,000 high-wage earners—makes sense. GM, which has the oldest workers, is expected to be the first to hang the "Now Hiring" sign. More than 46,000 of GM's hourly employees—60 percent of its U.S. workforce—are eligible for early retirement in this latest round of buyouts. That means thousands of workers could be off the payroll by the Fourth of July. "We certainly anticipate that we will need to do some hiring this year," says GM spokesman Dan Flores.

Ford and Chrysler, whose workers are younger, might have a harder time coaxing employees to leave. Indeed, a UAW official said last week that Chrysler will fall short of its goal of jettisoning 10,000 workers. "With the economy the way it is," UAW vice president General Holiefield told reporters, "people are trying to hang on to what they have." Still, a Ford official said the company could begin hiring new workers as early as next year. The CAR study predicts the Detroit Three will hire 56,673 workers by 2011—the vast majority hourly factory workers. (There will also be 18,282 white-collar hires by then, of which one-third will be engineers).

GM, Ford and Chrysler will not be the only automakers hiring. Toyota and Honda, which also participated in CAR's study, are also staffing up. Foreign automakers are expected to take on 38,500 new U.S. workers over the next eight years. And that number could rise if VW goes ahead with plans to expand in America by opening a U.S. factory.