Does America Still Work?

Interview with Chrysler Chairman Robert J. Eaton.

He believes the economy is strong and the American dream is alive and well.

photo of Robert Eaton

Q: Mr. Eaton, you weren't here at Chrysler during the 1980's, but let's try and retrace some of the history of the Kenosha plant [which Chrysler acquired from American Motors]. Why, after closing the stamp and assembly operations there, did Chrysler begin reinvesting in Kenosha in the late 1980s?

Eaton: The initial investment was basically to start to expand the engine plant. And in the late eighties we were in the process of bringing on additional capacity for jeeps and trucks that used those engines. We have actually increased the work force as well as the output of that plant in the last few years with existing engines. That investment was primarily for a new Jeep Grand Cherokee that, for example, used the engine built at Kenosha.

Q: Did that reinvestment coincide with the change in managerial methods, the advent of quality improvement teams, and so forth?

Eaton: It was all part of the same thing. There was an effort that started really in 1987-88 to completely rejuvenate the product line-up within the Chrysler Corporation, and at the same time try to bring the work force in as a partner in working to improve cost and quality.

Q: How did that work? Were some ideas borrowed from Japanese firms or consultants brought in? Where did these ideas come from? Were they in the air? Was everybody doing them?

Eaton: No. No. There was an awful lot of work in what we call 'benchmarking' then. We spent a lot of time trying to understand Japanese production methods, as well as their process for developing products. Through the eighties there's no question about the fact that the auto industry in the United States was not very competitive, either from the time it took to make a product, the amount of investment it took, the cost to build it or the quality. And the industry went through a very substantial change-over domestically. It recognized that to survive it had to become competitive on a world-wide basis, and in Chrysler's case the major thrust of that really started in the '86-'87-'88 time frame.

Q: What led the way at Kenosha? Was it the fact that the jeep product itself was pretty popular and you just needed these engines?

Eaton: Well, we invested a lot of money when we did the Jeep Grand Cherokee. And so it was an all-new product, and we needed the engines from Kenosha to do that.

Q: When people talk about investing, in very general terms, let's try and make it specific so the viewers understand what it means. When you invest, what kind of machine do you buy or what do you do with that money?

Eaton: Well, a good example is the new engine that we're going to make in Kenosha where we'll start production a little over a year from now. We're investing three hundred and fifty million dollars in that plant, and with that we will build a building that's about a quarter of a million square feet. We will buy machinery and equipment to completely facilitize that plant. And then outside of the three hundred and fifty million, we will put a lot of money into training our employees and launching that new product. So investment is really basically in buildings to a small degree, and machinery and equipment to a great degree. And then on the human side, be it training or whatever.

Q: How important was job training -- is job training -- to the success at Kenosha?

Eaton: It's extremely important. You know, this industry as well as every other industry in this country is becoming much more technical. The kind of machines that will go into this union plant, every one of them will be computer controlled. We'll have all kinds of high-tech electronics in that plant. The work force has to be comfortable with that. The skilled trades have to be able to repair them. Therefore, there is a tremendous amount of training throughout the entire work force. And we also train in non-technical things. In being able to work in teams. To be able to solve problems, things that we didn't put a high priority on before. And people went through high school, or whatever, without any training in those areas at all.

Q: Do you find workers inadequately trained when they come in? Are you worried about that?

Eaton: Well, now we're spending a great deal of time and effort in really assessing our employees. We put them through about three days of assessment before they're hired. And that includes, obviously those simple things like reading and writing and arithmetic. But as I said, also things like their ability to solve problems, to reason things out, to work in teams, -- and that's fairly new. That's only been going on for the past three, four, four, five years. If you look at some of our older work force, which may not have even finished the sixth grade if you go back far enough, clearly there's been a lot of fundamental training there. In fact, you know, we had basic reading, basic writing. We had employees that couldn't read or write, but we're doing a very good job of sourcing the new work force, and then we continue to train. There really isn't any end to training.

Q: The team approach is one of these things people talk about all the time. What is the advantage of it? Is it a sharing of information from all levels?

Eaton: Well, if you think about it, in the old days the thought was that a supervisor would tell you what to do. In that case, you're not using the employee's problem solving skills. You're not using his own initiative or creativity. The ultimate way to run an office or a plant or anything else is to have a team of people that understands what their job is, that can measure their own results, that can share the work in the best way to complement the skills and personalities of members of the team, and to actually be self-supervised. You know, we hire better and better people. They don't need supervision. They've got the motivation -- and providing you've given them adequate training and adequate tools, [they] do a better job than somebody acting in the old classical mode of a supervisor literally telling people what to do. The ultimate would be to have an entire plant organized in teams of ten, where they had a certain segment of the plant, and they really had the responsibility and the authority, the training and the tools to handle that area of the plant. And the traditional supervisor would then be a facilitator to help them accomplish things that they needed outside of their work area to make their work better.

Q: Who would be on a typical team? What kinds of workers?

Eaton: In an assembly plant it would be literally the line workers, the people working on the line; the people that were supplying parts to that line; and the skilled trades that were taking care of the equipment in that area.

Q: So everybody is involved in the decision making power?

Eaton: Absolutely. Absolutely. They know their job better than anybody else. There isn't any question that the supervisor cannot know an individual's job as well as he or she does. They spend a lot of time there, and what you really want to do is to release the creativity that those people have and to try to constantly improve both the quality and the productivity of that job, as opposed to simply being hands and arms to accomplish some objective.

Q: I know it's a hard thing to measure -- but how much of these methods have contributed to improved productivity in Kenosha, to better quality and to the bottom line?

Eaton: There's no question. We approach this through what we call PQI [Product Quality Improvement] and that whole effort of working collectively to improve the product from both the cost and quality. From a functional perspective, this has been the biggest turn-around that's happened in the American auto industry. We've got a long way to go, but we've made tremendous progress and we're working better together as a team than we ever have.

Q: How do you describe the success of Kenosha? How many more workers are there now than there were at the low point?

Eaton: I'm going to say about three or four hundred. And, of course, that's before we bring on the new plant that is under construction right now.

Q: Is productivity up?

Eaton: Oh, no question. Productivity is up significantly. The quality is up significantly, which is even more important.

Q: Do these same methods work elsewhere in Chrysler?

Eaton: Oh, that's our objective throughout the entire company. We're changing the culture that was in place for an awfully long time. And in Kenosha, as a good example, the work force there has an average seniority of something in the order of twenty, twenty-five years, and it takes -- it takes some time to change that. I don't think there's any doubt, though, that eventually you'll have the entire company working in what I call a continuous improvement mode, where the majority of the work is accomplished by teams which are self-supervised, self-directed.

Q: Is Kenosha now the best example of that at Chrysler?

Eaton: No, I don't think it's really out of the ordinary -- I mean, with respect to our other plants. It's not lagging, nor is it necessarily leading by a long ways.

Q: Is there a place for government to help you accomplish these goals, do you think, through incentives, tax breaks, rules and regulations?

Eaton: Well, there isn't any question that there's a lot of things that would help. Basically with respect to changing the culture, the company, we have to do that ourselves. In some cases there are training funds made available -- basically from states, but they're relatively minor compared with the total investments that are necessary.

Q: You got something like five million dollars for retraining from the State of Wisconsin. How critical was that in Kenosha?

Eaton: Well, it is very, very significant. It's not only the money but it's also the commitment from the community and the recognition that this is a partnership with the community. So Kenosha, the city, and the state have been tremendous to work with.

Q: If you were to generalize this across America, are there things the government can be doing? After all, Chrysler's the best example of government helping business.

Eaton: Yes.

Q: What should government be doing?

Eaton: Fundamentally a lot less than they already do with respect to regulations and things that really hamper all business and makes us less competitive in the world market. On the other hand, the things that I'd like to see them focusing on are public safety, crime, and all those kinds of things. And there's a big job to be done in this country in education. I firmly believe that we really need results-based education and that people literally must take tests to determine progression. And, as I said, unquestionably, there are some regulations necessary. Nobody would argue with that. But on the other hand, we have far, far too many regulations in this country.

Q: But what about things like more money for job retraining at federal, state, and local levels?

Eaton: I don't think there's any question that you do need the state involved in training. That's another level of education, as a matter of fact. There's also a big role within companies to continually train their work force, but when people are out of work, which unfortunately will occur, I think to have the government there with some training programs is very, very helpful.

Q: Are they doing enough? Is government doing enough now, or nearly enough?

Eaton: Yes, I think they are. I don't see any major problem there. I see the biggest gap, quite frankly, in the public education system, kindergarten through the 12th grade. That's still a problem.

Q: And that shows up in your hiring?

Eaton: Yes it does and, you know, we talked about the number of people that go through the assessment process. We don't require any kind of degree or even completing high school. We're really after the fundamental ability of that person to react in a work environment and to have the fundamental skills. But we find an awful lot of people who complete high school and literally can't do sample math problems or can't really read and understand directions. And I think that's just absolutely unacceptable.

Q: Going back to the new Kenosha 2.7 liter engine that you're going to start building. You used to contract it out or buy it from Mitsubishi. Why did you decide to build that engine now in America, at Kenosha?

Eaton: Because we have become competitive. If you go back just a few years, the '89-'90 time frame that you were talking about earlier, we were importing 250,000 vehicles coming out Mitsubishi. And at the high point, something like 500,000 engines. By our getting competitive, getting outstanding products out there, making a tremendous improvement in our quality and our cost, we're able now to bring those jobs back to the United States, in Kenosha, in Detroit, throughout our plants. By the 1998-'99 time frame, we don't expect to be buying any major components or vehicles from Japan. And that really is kind of the bottom line of the success story of Chrysler. We are now competitive. We can produce vehicles, we can produce engines and transmissions cheaper than they can be produced in Japan.

Q: Are you dedicated to doing the more sophisticated products at Chrysler and buying the less sophisticated components from other producers?

Eaton: Well, no question about that. We clearly want to control our design, control our assembly, control building bodies and engines and transmissions. The major big sections of the car.

Q: Obviously Chrysler is well-known for contracting out a lot of its operations. How do you decide which parts? How do you decide which products to buy from others and what you do in-house.

Eaton: Okay, we determine whether to buy inside or outside based on fundamentally three things. Number one is do we have the technology available and the experience to design that product? Number two is do we have the plant and facility that would be competitive and do we have the trained work force?

Q: Many critics say a lot of these companies are contracting out to find cheap labor. Isn't that part of the equation?

Eaton: You've got to be competitive. There's no question about that. I mean, if we brought things inside the company to build and were not competitive, it would make us less competitive in the world market, and we would ultimately lose jobs. So far, we're very fortunate. We have been adding jobs. Over the past four or five years, we've added 15,000 hourly employees. We've added a fair number of salaried employees as well, so we're growing. We are not shrinking. We are bringing jobs back into the country from Japan and other places. This is the reverse of outsourcing.

Q: But you do an awful lot of outsourcing.

Eaton: No question. We have to be competitive. That is fundamental. That's to the benefit of our work force, that's to the benefit of the communities that we do business in. If we are not competitive, you'll see the things that happened in this industry in the early eighties repeated -- when tremendous numbers of people lost jobs.

Q: Do you anticipate a time when Chrysler might reverse or at least reduce the ratio of outsourcing as you become more competitive in-house?

Eaton: We're doing that now. The vehicles that we're bringing in from Japan and the engines and the investment we're making in Kenosha and Detroit. That's all bringing things in that were outside. So, yes, we're doing that now.

Q: Isn't Kenosha more or less proof that American corporations can -- with sophisticated managerial methods, with serious reinvestment and determination -- pay a higher wage to workers if they're well-trained?

Eaton: I don't think there's any question about that. It really takes the right product, the right technology, a good working relationship and a well-trained and motivated, empowered work force. Sure, we can be competitive. The proof of that is that the United States is the cheapest place to build cars and trucks in the world today.

Q: On the other hand, we pay -- at least in current currency terms -- the lowest average wages to auto workers.

Eaton: No, I don't believe that's correct. If you look at actual wages between Europe and the U.S. and Japan in the OEMs (the original equipment manufacturers) themselves, they're not all that different. If you go down further into the tiers of suppliers, you'll find that suppliers are paid more here than for example in Japan. So when you look at wages in Japan in the auto business, you have to factor in the lower supplier pay scale. And let me point out, wages are not the fundamental thing here. For example, in China and India, nobody is building a vehicle in those countries that will be as cheap as we can build a vehicle in the United States. The technology isn't there. The infrastructure isn't there, and yet wages are extremely cheap -- a small fraction, five percent of the wages here, for example. So that's not the dominant factor in determining competitiveness.

Q: Is what you learned at Chrysler -- and what other manufacturers are learning -- is that applicable to the rest of corporate America? And is the rest of corporate America doing enough to implement those kinds of things.

Eaton: I think the competitiveness of this country in almost every industry that I can think of has improved dramatically. Steel, you know, almost went overseas completely. Now it's coming back very, very strong. Any industry you can think of is becoming much, much more competitive. In the '60's and '70's and into the early '80's, there is no question about the fact that I think the rest of the world caught up and in some cases passed America. No doubt about that. We didn't have the focus on productivity, on quality that we should have had in that period. Ten to fifteen years ago, there was a renewed drive to become competitive in the world, recognizing that we had to do that to survive, and I think by and large we've done a reasonably good job at it. It's not over. It's something that will never be over because every morning when they wake up in Japan or Europe or Brazil, they're trying to become more effective and more productive, so that they can become better in the world market. If we don't do the same thing, they'll run right over us.

Q: Let me just stay on this point a little longer. What you seem to be saying is that it's got to eventually show up in the American paycheck. But so far, at least average wages are not going up in America. Incomes are unusually unequal in America. I think almost every economist now agrees that they are the most unequal in the advanced world. There still seems to be a mountain to climb.

Eaton: Oh,I don't agree with that at all. I don't know if you read the paper this morning, but in the first quarter, we had the biggest rise in incomes that we have had in the last five years. Also the people that were in the lower quartile of incomes, they don't stay there in this country. They push and they move up. They become middle class. Middle class may become upper middle class and so forth. There's a tremendous opportunity in this country that isn't available in under-developed countries. So I think the American Dream is alive and well. I don't see any problem with it at all. I think that, in fact, it's an awful lot better than it was in the eighties when we weren't competitive.

Q: I won't argue with the numbers but I think I can make a pretty good argument that what I said remains true. If it is true, are we on the path towards solving the problem?

Eaton: I don't think that there's any question about the fact that the only long-term way to make a better life for all of our citizens is through being able to compete more aggressively in world markets. The government has to make sure that we have the same equal access to other markets as they have to ours. And I think we're making some progress there as well.


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