In this country, this transformation is important because of the industry’s far-reaching impact. The average auto-manufacturing job contributes more than $300,000 of value to our economy, Department of Commerce figures show, including the sum of labor compensation, profits, rent and interest produced per job. (By comparison, the average manufacturing job in the United States adds only $73,000 of value to the economy.) Our research shows that the economic multiplier that we can apply to a job in the auto industry is 10.4. In other words, for every auto-manufacturing job there are 9.4 jobs generated in related markets, either in auto supplier firms or in the community.

Automakers continue to significantly improve productivity from the plant floor to the engineering offices. At its most basic level, this translates into fewer jobs. In fact, we predict that productivity gains could reduce employment by as much as 15 percent over the next few years. Such a large slip in jobs carries negative connotations; however, we feel this will occur at a particularly fortuitous time. By 2013, more than 76 million baby boomers will retire, with fewer workers available to pick up the slack. In fact, the Bureau of Labor Statistics forecasts a shortage of 10 million skilled workers in the U.S. by 2010. Carmakers face two immense personnel challenges. First, in the near future, essentially every auto-manufacturing job will be skills based, requiring post-secondary education. Second, they must devise plans to retrain existing employees.

Breaking the Cycle
Historically, the rise and fall of the auto industry has been characterized by cycles. High sales years produce high profits and are followed by low volume years with low profitability. Today, however, high sales volumes are coupled with low profitability. This is perhaps the most striking evidence that the old business model is broken and needs to be replaced.

Automakers must move away from traditional models that are slow, bureaucratic and paper-driven. Command and control has been the management style, and product development has relied on physical prototypes.

The new model emphasizes nimbleness. It is anti-bureaucratic; with decision makers trained to do more listening than talking, and thinking of themselves more as coaches, rather than monarchs. Manufacturers are investing in digital technology that enables them to build virtual prototypes rather than expensive physical ones, and rolling out software that allows workers to immediately interact and share knowledge around the world. At the corporate level, competing automakers are learning to cooperate with their rivals. This trend has been dubbed “co-opetition.”

The latest business buzz describes this new model as “lean-agile.” Manufacturers are learning that they must not only be lean, but also able to shift and adapt their operations as business requires. Whatever its name, automakers must adopt it in order to survive. We are already seeing examples of this: Ford and GM are jointly developing a six-speed automatic transmission; Chrysler, Mitsubishi and Hyundai are cooperating to produce a common four-cylinder engine; GM has reduced by nearly two-thirds the cost of major body dies (used in forming fenders, hoods and other parts) by employing mathematical simulations.

Manufacturers are applying this lean-agile approach to every part of their organizations: from engineering and manufacturing to finance. They are finding that risk drops for companies with the most productive plants, the lowest-cost tooling and the most flexible manufacturing systems. By introducing these new tactics, automakers could potentially change body designs every year, clearly delineating old and new product lines.

We anticipate an exciting future for the automotive industry. “Exciting,” of course, depends on one’s circumstances. Making a hole-in-one is very exciting for a golfer, but so is being chased by a mugger. We will see both kinds of excitement.

David Cole is chairman and Sean McAlinden is vice president of research at the Center for Automotive Research in Ann Arbor, Mich.