Nissan – The OM Blog by Heizer, Render, & Munson

OM in the News: America’s Car Capital Will Soon Be… Mexico

By 2020, Nissan plans to produce a million cars a year in Mexico

“Seemingly overnight,” writes Forbes (Sept. 8, 2014), “Mexico’s automotive output has soared, bolstered by a flood of investment from foreign-based carmakers, including Nissan, Honda, VW and Mazda.” With $19 billion in new investment, production has doubled in the past 5 years to an estimated 3.2 million vehicles. The reason is simple: Mexico has some of the most liberal free trade arrangements in the world. It has agreements with 44 countries, making it an ideal export base for automakers from Europe, China, Japan and America. (The U.S. has agreements with only 20 countries.) The result: 80% of the cars built in Mexico are exported to other countries..

In recent weeks Infiniti, Mercedes and BMW have all detailed plans to build cars in Mexico, with Hyundai-Kia just around the corner. Audi is midway through construction of a $1.3 billion factory that will build luxury SUVs starting in 2016. Currently the world’s 8th-largest auto producer, Mexico is on pace to surpass Brazil this year. By 2020 Mexico should behind only China, the U.S., Japan, India and Germany, with an annual production of 4.7 million vehicles. Automakers like the young (average age: 24) and comparatively cheap (about $40 per day) Mexican workforce. But there are plenty of other reasons. European carmakers say Mexico’s dollar-dominated currency gives them a natural hedge against fluctuating exchange rates.

Nissan has led the way with its massive new 21-million-square-foot factory. It took just 19 months for the $2 billion plant, one of the largest industrial investments ever made in Mexico, to get up and running, a record for Nissan. Production of the Sentra began last November and was quickly ramped up to full capacity of 175,000 vehicles a year, operating 23 hours a day, 6 days a week. Some 3,000 jobs were created, and another 9,000 at supplier companies. The boom in Mexican production is already rattling the North American auto industry. Today 40% of all auto-sector jobs are in Mexico, up from 27% in 2000. Canada and the Midwest have taken the brunt of the job losses.

Classroom discussion questions:
1. Why Mexico?

2. What are the supply chain implications?

OM in the News: Outsourcing Auto Workers at Nissan

Nissan's truck line in Tennessee — Nissan’s truck line in Tennessee

Nissan, the first of many foreign automakers to set up shop in Tennessee, is leading a trend, writes The Washington Post (March 9, 2014). Companies from Amazon to Asurion to Dell have outsourced their warehouses and call centers to the hundreds of staffing agencies that have cropped up in the region. Tennessee went from having 51,867 temporary workers in 2009 to 80,990 in 2012, while median wages have stayed flat. Temps make up 3.1% of all jobs in the state.

Tennessee holds its low unemployment rate up as a shining example of success in the global economy — the return of American manufacturing after decades of decline, and the future of work for those left jobless by globalization and technological change. Nissan was Tennessee’s first major investment by a foreign automaker, and has since attracted a constellation of suppliers that support thousands more jobs. Since the plant opened in 1983, the town of Smyrna has grown from 8,000 to 41,000. In the plant’s first 2 decades, getting a Nissan job was like winning the lottery.

But Nissan’s brush with bankruptcy in 2001 and a turnaround plan that involved new models and much lower production costs led to using temps into front-office functions. In 2007-2008, Nissan reduced its permanent workforce by 1/3. As demand returned, it started to backfill production jobs with contractors, too — first on the “pick line,” where workers run parts up to assembly, and then throughout the plant. Now a majority of its 7,000-person workforce is supplied by staffing agencies.

Many work for Yates Services, an in-house contractor that’s hired thousands of people over the past few years to ramp up production. Yates is like a company within a company, with separate bulletin boards, rules and procedures. The bona fide Nissan employees are easily recognizable through their logoed shirts, which Yates workers don’t receive. Yates pays between $10 and $18 an hour, which is about half what Nissan employees make. The gap in benefits is equally wide.

Classroom discussion questions:
1. Will Nissan’s outsourcing lead to a plant unionization?

2. What are the advantages and disadvantages of this move by Nissan?

OM in the News: Mississippi’s “Right-to-Work” vs. the UAW

“The United Automobile Workers, desperate to make inroads in the anti-union South where Toyota, Volkswagen and other foreign automakers have assembly plants — has never tried a unionization drive quite like the one at the Nissan plant here in Canton, Miss.,” writes The New York Times (Oct. 7, 2013). It has enlisted thousands of union members in Brazil to picket Nissan dealerships there and sent a team of Mississippi ministers and workers to South Africa, where Nissan has an assembly plant, to try to embarrass the company with accusations that it violates workers’ rights at the Canton plant.

At a time when the U.A.W. has fewer than 1/3 of the 1.5 million workers it had in 1979, its organizing push in the South has taken on urgency and is being watched closely by labor leaders across the country. “It’s a life-and-death matter for the U.A.W. to succeed in the South,” says a U. of California prof. “If the U.A.W. fails to win at the foreign companies’ plants in the South,” adds an industry expert, “they will pull down wages at General Motors, Ford and Chrysler.” The union faces rough going in Mississippi, considering the embarrassing loss it suffered in 2001 when workers at Nissan’s plant in Tennessee voted two to one against joining the U.A.W.

“We’re a right-to-work state,” says a Canton businessman. “Back in the Industrial Revolution I could see why unions were needed, but we’re now in 2013, and I don’t see the need.” For Mississippi, landing Nissan was a coup. The 10-year-old auto plant was the state’s first, and its work force has climbed to 5,200, making Nissan the state’s second-largest private employer. Nissan has invested $2 billion in its state-of-the-art plant, which uses 1,200 robots. The base wage for most of the plant’s workers is $23.22 an hour, making them the envy of many blue-collar workers in Mississippi.

Classroom discussion questions:

1. Justify the positions of the union, of Nissan, and of the state.

2. Why is this a “life or death matter” for the UAW?

OM in the News: If the Japanese Can Make Cars in the U.S., Why Can’t Apple Make an iPad?

As you are preparing for the 1st week of Fall classes, you may want to read the New York Times (August 5, 2012) lead article, which basically asks the question in our blog title. The story opens in 1983 with Smyrna, Tennessee farmland paved over so Nissan could build its first American assembly plant. Eighty miles to the south, a Nissan engine factory was added, and across Tennessee about 100 Nissan suppliers now dot the landscape, making steel in Murfreesboro, air conditioning units in Lewisburg, transmission parts in Portland. Nissan broke with conventional wisdom that Japanese automakers would not build many cars anywhere but Japan, where supply chains were in place, costs were tightly controlled and the reputation for quality was unparalleled. (Nissan’s U.S. quality is now so high that it exports engines to Japan).

Today, high-tech executives continue to argue that the U.S. cannot compete in making electronic devices. Apple, Dell and HP, which rely on huge Asian factories, assert that manufacturing would be too costly and inefficient in America. Only overseas, they claim, can they find an abundance of educated engineers, low-wage workers and at-the-ready suppliers. But the migration of Japanese auto manufacturing to the U.S. offers a case study in how the transformations can unfold. We today remain one of the top auto manufacturers and employers in the world. Japanese and other foreign companies account for more than 40% of cars built here, employing hundreds of thousands.

When Apple CEO Tim Cook was asked if his company — which once made computers in America, but now locates most assembly in China — would ever build another product in the U.S., he replied: “I hope so. One day.” That day, interestingly, came recently for Brazil instead, which cajoled Apple and Foxconn with a combination of financial incentives and import penalties to make iPads and iPhones there.

Discussion questions:

1. Why did Brazil land iPad manufacturing, when the U.S. did not?

2. What is the answer to the question posed in the blog title?

OM in the News: Japan, Inc. Faces Offshoring Dilemma

If you think offshoring of jobs and production is a problem unique to the US, Nissan and Toyota would disagree. The Wall Street Journal (Feb.1, 2011) just reported that Japanese auto makers will be holding production steady in Japan (for now), but opening new plants overseas over the next 5 years to meet increased demand. This move to offshoring ( a topic in Supp.11) comes as the yen hovers near record highs against the dollar. Nissan, Toyota and the other auto firms are having trouble making money on exports when the dollar is at 90 yen or weaker. (It sits at 82 this week).

Nissan “will significantly reduce the number of models it exports from Japan over the next 3 years, while boosting production …overseas”, says the company. It turns out that a move in the dollar by one yen in either direction is equivalent to $219 million in operating profit annually at Nissan.

For political and union reasons, Nissan promises to keep making 1 million cars in Japan, while Toyota vows to stay at 3 million per year. But Nissan just shifted production of its Micra model from Tokyo to Thailand. And the Rogue SUV will begin production at a Smyrna, Tenn., plant in 2013–departing its current Kyushu, Japan location.

The additional good news for other countries wanting the jobs: Nissan will shift the outsourcing of many parts to cheaper production sites outside Japan.

Discussion questions:

1. Why are major Japanese auto makers attracted to the US, and other countries, for production?

2. Is offshoring a political decision in Japan?

OM in the News: Japan’s Offshoring is Restructuring Its Economy

If you think outsourcing (transferring in-house processes to another company) and offshoring (which we define in Chapter 2 as moving business processes to another country, but retaining control) are a problem only in the US, think twice. Today’s Wall Street Journal (Oct.25,2010) reports that more and more Japanese companies are transferring their manufacturing abroad, creating a major restructuring of that country’s economy.

The reasons: too strong a yen and high wages, both of which make their goods more costly and less competitive in the global economy.

Toyota, for example, will make 57% of its cars abroad this year, including its flagship hybrid, the Prius, which it starts producing at a Bangkok plant. Nissan will hit 71% offshoring this year. And Sony is skyrocketing from 20% abroad in 2010 to 50% in the next fiscal year.

As Nissan CEO Carlos Ghosn recently stated: “sourcing more and more products outside Japan–there is no other way to compete”. Only 10.3 million Japanese now work in manufacturing, down from over 12 million in 2002.

Discussion questions:

1. Although controversial, why is Japan not fighting outsourcing/offshoring as much as the US does? (See our blog of Oct. 12th for some background on the battle against outsourcing in the US).

2. Why is Japan finding it necessary to go abroad?

3. Japanese are consumers are reluctant to spend. Why?