The Talent Drain

How the U.S. auto industry can overcome a troublesome talent void.
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Student Jay Uh works on a clay model
Student Jay Uh works on a clay model. Photograph courtesy of the College for Creative Studies

Since this country’s founding, no single invention has had a more profound effect on daily life in America than the automobile. And through the efforts of pioneers such as Henry Ford, David Buick, Ransom E. Olds, Louis Chevrolet, John and Horace Dodge, Walter P. Chrysler and many others, Detroit has been proudly carrying the torch as the Motor City for more than 100 years.

But since the glory days of 1908, when Ford’s first Model T was assembled on Piquette Avenue and people flocked to Detroit for employment, the industry has undergone tumultuous change. And today, the domestic auto industry is in its darkest days ever. Aggressive competition from abroad, skyrocketing commodity prices, eroding supplier relationships, and a floundering U.S. economy have led to a reversal in fortunes, contributing to massive layoffs and buyouts, declining sales growth, and mounting questions about the industry’s long-term viability.

Much of the scrutiny on the automotive industry has focused on these problems, but one critical issue has remained dormant: the talent drain. With baby boomers fast approaching retirement age, a mass exodus of skilled engineers, designers, and managers will follow. Though quietly acknowledged in some circles, the stark reality is that Detroit is in store for a major talent shortfall.

What started as an industry with numerous players has been reduced to three principal U.S. automakers, and the Detroit Three — General Motors, Ford, and Chrysler — are struggling to maintain nearly half of the market share of U.S. new vehicle sales. As with any other industry, the strength of its workforce will play a crucial role in shaping its future success.

“Anyone can buy facilities or technology,” says Nancy A. Rae, Chrysler’s executive vice president of human resources and communications. “The real competitive advantage is your people.” Rae believes the current industry hardship has presented strategic opportunities for external recruitment. In addition, recent studies, including a year-long analysis by Mc- Kinsey & Co. called “The War for Talent,” consistently reveal that securing talent — smart, sophisticated, globally astute workers — will become one of the most important corporate resources over the next several years.

In 2011, the first of the nearly 77 million baby boomers (those born from 1946 through 1964), which represent 42 percent of the current U.S. workforce, will hit the prime retirement age of 65, although many will exit long before that. Their attrition could signal trouble for automotive companies in filling their chairs with enough qualified, talented employees. According to data compiled by Gantz Wiley Research, a global firm that develops employee and client opinion surveys, the manufacturing industry will be among the hardest hit because of baby-boomer retirements.

Currently, baby boomers fill many of the auto industry’s most skilled and senior jobs, and possess the greatest institutional knowledge. Thanks to near-workaholic habits, they are among the most aggressive, creative, and demanding workers in the industry. As automotive companies try to account for the anticipated talent shortage, they will confront external pressures of globalization, demographic trends, and competition from other industries, adding a level of strain in their recruitment and retention efforts not previously experienced.

The continual need to reduce internal company costs is compounding matters for the auto industry’s human-resources professionals, according to Paul Czamanske, president and CEO of Compass Group Ltd., an executive search and consulting firm in Birmingham. “They’re concerned because of the buyouts and cost reductions that are being mandated,” he says, “and they’re losing valuable talent in the process.”

Although demographic trends indicate a talent void on the horizon, only some automotive companies are taking note. A recent study by Spencer Stuart, a leading global executive search and consulting firm, suggests that attracting new talent may be a relatively low priority for the industry at this time. Of the 350 global automotive executives surveyed, only 15 percent indicated “attracting top talent” was one of their company’s top three strategic priorities. And while more than half of new hires come from within the automotive industry, three-quarters of the survey respondents believe it will be important for automotive companies to recruit from outside the industry.

Ford design director of trucks, Pat Schiavone, works with Milton Ruiz
Ford design director of trucks, Pat Schiavone, works with Milton Ruiz. Photograph courtesy of the College for Creative Studies

Francois Castaing, a former Chrysler senior executive and current chairman of the board at the Detroit Science Center, thinks the issue of talent retention has taken a back seat because of more urgent problems confronting management, such as liquidity concerns, restructuring of business operations, controlling health-care costs, dealing with troubled suppliers, and meeting the obligations of the 2007 labor contracts with the United Auto Workers.

The negative sentiment surrounding the industry is also certainly hampering recruitment efforts. “We first need to get a more stable setting and then re-establish the reputation of the industry,” Castaing says. “And people need to start talking about this issue very seriously.”

Although the industry turmoil of recent years has been the dominant topic in the executive ranks, the issue of talent retention hasn’t left the radar screen of some, including Philip Martens, president of light-vehicle systems at ArvinMeritor Inc. in Troy. “It’s one of my top concerns at all levels,” Martens says, “and you have to actively manage it all the time.”

Accounting for the expected demographic shift in the workplace also appears to be lacking. “The preparations that are being made for knowledge, experience, and ‘culture transfer’ from the baby boomer generation to the next is abysmal at almost every company in the world,” says Wayne Brockbank, clinical professor of business at the University of Michigan’s Stephen M. Ross School of Business, whose research focuses on human-resource strategies and management. “I have not seen the mechanisms in place to make that transition happen.”

Even so, Brockbank says the issue isn’t going unnoticed. “A number of companies are working [rigorously] to identify the culture that they’ve had in the past to make them successful, and the culture that they’ll need to have in the future.” Brockbank thinks the best-managed companies are trying aggressively to understand that the new organizational form will require greater involvement, contribution, and empowerment of people throughout the company, including new hires.

That approach appears to be underway at Chrysler, where an intensified employee-review process has been developed to identify emerging talent within the organization. The company has a six-month-long program during which employees provide self-assessments, discuss strategic initiatives, and gain cross-functional exposure within the company.

The talent vacuum that will result in the coming years will be filled with a young, technologically savvy workforce composed of members of Generation X and Generation Y, who see and value things differently than their predecessors. Unlike baby boomers, who typically place a high priority on career, today’s youngest workers are more interested in making their jobs accommodate their family and personal lives. They want jobs that afford flexibility, such as telecommuting options, virtual offices, and the ability to temporarily leave the workforce when children enter the picture.

Similar to Gen X (those born from 1965 through 1976), who are known for their independent thinking and frequent job changes, members of Gen Y (those born after 1977) want immediate responsibility and the ability to make an impact in a short period of time. Gen Y workers also tend to be goal-oriented, with a high self-worth. This group of multi-taskers, who are prone to boredom if they work on a single assignment for too long, have high expectations of their employers, and seek fair and direct managers who are highly engaged in their professional development.

Considering the product- and team-oriented nature of the auto industry, it might not readily lend itself — like other industries, such as consulting or marketing — to accommodating the changing attributes of a younger workforce. “The younger generation isn’t necessarily afraid to work a lot,” says Michelle Collins, U.S. Automotive Sector leader for Deloitte & Touche USA. “But they want to work differently than the baby boomers did. They want more flexibility in where they work and when they work. And they want to be trusted.”

Historically, the industry has been regarded as very competitive in terms of pay and benefits. “People joined the automobile industry because the compensation levels were high, the benefits were strong, and they had a good pension plan,” Czamanske says. But, he concedes, much of that is gone now, “while other industries have not been similarly [affected].”

According to Michigan Future Inc., 46 percent of Michigan’s 2007 college graduates left the state, and 35 percent of those who chose to leave had received full-time job offers from companies in Michigan. Another factor, Martens explains, is that the downbeat reports surrounding the industry compel young people to ask themselves, “Do I really want to invest in an industry that seems to be in a perpetual state of restructuring, that’s unstable, and that has bankruptcies?”

For the industry to attract top talent in an increasingly competitive marketplace, a more flexible, responsive approach will have to be adopted. “Companies need to develop programs that allow individuals to experience a number of different parts of the organization,” Collins says. At the same time, it will need to recognize the tendencies of young workers and develop an acute understanding of what they value and what motivates them. The industry must also begin to reshape its tarnished image. Doing so won’t be easy, but it will be vital to attract a workforce with the proper training. Shortages of highly skilled workers — namely, engineers — will only compound the problem.

According to Manpower Inc.’s 2008 Talent Shortage Survey, engineering positions are the most difficult jobs to fill for U.S. employers. Among the 2,000 U.S. firms responding to the survey, 22 percent indicated difficulty in filling positions. Engineers, machinists/machine operators, and skilled manual trades were ranked, respectively, as the top three toughest positions to fill.

CCS student Filip Bosevski’s interpretation of a modern-day Ford Model T.
CCS student Filip Bosevski’s interpretation of a modern-day Ford Model T. Photograph courtesy of the College for Creative Studies

Compounding the problem for automakers is the declining number of engineers in the talent pool. According to the Washington, D.C.-based National Center for Education Statistics, only 81,610 U.S. engineering and technology degrees were awarded in 2006. That’s down 16 percent from its peak of 97,122 degrees in 1986. Unfilled cubicles add strain to the existing workforce, as projects remain understaffed or become delayed. “There’s a great deal of frustration in the technical community,” Castaing says, “because they simply don’t have the people.”

In spite of the declining U.S. manufacturing industry, the job prospects for those with technical backgrounds appear bright. According to the U.S. Bureau of Labor Statistics, industrial engineering employment is expected to grow 20 percent over the next eight to 10 years, almost double the rate of the average for engineering professions and other occupations. Also, for those who do join the auto industry, the void created by the attrition of baby boomers will open doors to management positions faster than before. “The automotive landscape,” Martens says, “offers a tremendous amount of challenge and a tremendous amount of opportunity for the next generation of leaders.”

Companies are also realizing that extracting novel ideas from employees, regardless of experience or position, is paramount. “The old logic that you have to be around for 30 years in order to have a good idea certainly has no place in the competitive private sector,” Brockbank says. And examples of that sentiment can be seen in the industry today.

Consider Bryan Nesbitt, 39, vice president of North America Design for GM, who oversees a staff of about 200 creative designers. Nesbitt believes the industry has begun to understand what motivates young people and what they’re seeking from an employer. “Designers, in particular, want ownership of their work and they want to develop in an environment that respects that discipline,” he says.

That sentiment is also evident at Daimler Financial Services Americas in Farmington Hills, where Jeremy D. Gump, 35, is vice president of human resources and administrative services. According to Gump, the availability of top talent in the region is one of the primary reasons Daimler elected to maintain a sizable presence in metro Detroit, even after its separation from Chrysler last April. “We have an incredible advantage,” he says, citing the cachet of the Mercedes-Benz brand and the positive press surrounding the Smart car and redesigned Mercedes C-Class launch. “People see some stability in working for Daimler versus what they’ve seen from the rest of the industry.”

In addition to the expected demographic shift that will open opportunities for young talent within the industry, the exploding demand for renewable and alternative sources of energy will yield unique change.

Skyrocketing fuel prices and rigid government regulations will compel radical shifts in vehicle architecture and powertrain generation, creating myriad entrepreneurial openings for companies to capitalize on. “There’s an unprecedented opportunity now to move ahead,” Martens says, “and it needs to be taken advantage of. With the right recruiting, we can bring back the engineering and the human interest in being involved with this industry.”

Considering the mobility of today’s youth and the desire to make an immediate impact, keeping top talent fully engaged becomes critical to employee retention. Younger employees want to be intellectually challenged — with little administrative oversight or preset work definitions — and have a career path unconstrained by a traditional, hierarchal approach.

For an industry that’s been plagued with one black eye after another, it’s easy to harp on the negatives. But that approach won’t help restore its once-mighty reputation. And changing its image, say many in the industry, needs to start with communicating the compelling attributes held by few other industries: a global scope, an innovative and technologically advanced environment, a tremendous opportunity for advancement, and continually developing an exciting product seen and used in virtually every corner of the world. And, says Rae, the industry “will have to change one step faster than the external world.”

A recent visit to Daimler Financial Services Americas provides clear signs of recruitment success. “The youth of our organization is prevalent,” Gump says. “If we can begin to publicize how good the jobs really are in the industry and provide some sense of security, then people will come.” With the industry undergoing significant change and daunting challenges, some consider this an opportune time to gravitate toward the field. “Transportation is a growing need on a global scope,” Nesbitt says, “and we need creative people to solve those problems.”

Throughout history, companies have used trying circumstances to their advantage. And there’s no reason to believe that the adversity now confronting Detroit’s automakers and suppliers cannot similarly be leveraged to propel the industry to new heights, especially in a market used to change.

For a town known for its resilience and grit, a comeback is possible. But for the Motor City to renew the vigor and stature it once held, its talent problem will need a timely solution. With the stakes greater than ever before, the opportunity is ripe to shore up the roster and attract the brightest and most creative minds to Detroit. It happened once before. It can happen again.

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