(FORTUNE Magazine) – THIS IS THE new wave of Japanese exports that may in the end have the most profound effect of them all: the car factories that are shaking up small American communities and transforming the workplace culture. Japan's Auto Alley, which cuts through six heartland states, already provides over 15,000 assembly jobs. Mazdas are made in Michigan, Hondas in Ohio, Toyotas in Kentucky, and Nissans in Tennessee. Mitsubishi, in a joint venture with Chrysler, is gearing up in Illinois, while Subaru and Isuzu are building a plant in Indiana. Not by accident, the Japanese are injecting their high-tech equipment into mostly rural areas, far from unions and experienced auto workers who, in the words of President Tetsuo Chino of Honda North America, ''might have some bad habits.'' As outposts of production methods long triumphant in the world market, the factories of Japan's Auto Alley are a tremendous boon for the U.S. Their managers have trained and motivated American workers to turn out cars of a quality comparable to the made-in-Japan original -- a feat with far-reaching implications for the rest of U.S. manufacturing. The achievement, like any of such magnitude, is not without its costs. Tranquil towns where few ever bothered to lock their doors find that a big, new auto factory brings social and fiscal strains as well as paychecks. Jobs at the auto transplants can be grueling: Veteran U.S. operators such as Nissan are having to work at maintaining the initial enthusiasm on the factory floor. To Detroit's Big Three, Japan's Auto Alley represents a huge addition to capacity in an industry that is padlocking surplus plants. If facilities in Canada are included, Japan's automakers will be able to turn out 2.2 million cars and light trucks a year in North America by the early 1990s -- roughly equivalent to Chrysler's sales last year. To win these new payrolls, state and local governments dangled incentives that seem excessive even by the standards of such bidding contests. Kentucky's package of goodies to cash-rich Toyota, including interest on funds the state had to borrow, will cost its citizens more than $280 million over 20 years. The cost of the come-ons per job created, which worked out to $11,000 when Tennessee bagged Nissan in 1980, ballooned to $50,000 in Kentucky. Wallace Wilkinson, who won the governorship after sharply criticizing this largess, has discovered that most of Kentucky's federal funds for job training are committed to Toyota. The transplants profess to be equal opportunity employers, but their location strategy tells another story. Robert E. Cole, a University of Michigan business professor, has spotted keen Japanese interest in the ethnic composition of American communities they select and accuses Japanese automakers of deliberately avoiding blacks. U.S. makers of auto parts claim to see discrimination of another sort. So far, most components of cars built in Japan's Auto Alley are made by Japanese companies, either at home or here. MASAHIRO UCHIDA, executive vice president of Mazda's Michigan operation, finds nothing wrong with this: ''We didn't force our suppliers to come here. Of course, they have worked with us in Japan for a long time, so we have a good relationship and they know how Mazda operates.'' Mazda says the reject rate for U.S. parts from American companies is anywhere from three to five times higher than for those from Japanese-run suppliers. Nissan says the reject rate is twice as high. More often than not, U.S. suppliers are entrusted with such items as seats, & tires, glass, and office supplies. Mike Plumley, chairman of Plumley Companies Inc. of Paris, Tennessee, is proud of persuading Japanese transplants to buy rubber parts after a long effort. ''The opportunity is there for anybody who wants to get it,'' he says, ''but the weak aren't going to make it.'' Neither will ineffectual local governments, hidebound union leaders, or slackers on the assembly line. But while this cross-cultural drama is still unfolding, the evidence to date indicates that the problems are transitional and the benefits can be permanent. Take, for example, Georgetown, Kentucky (pop. 12,500). Huge semitrailers routinely take an illegal shortcut to the Toyota plant by rumbling down tiny Main Street, where farmers from the surrounding Bluegrass Country like to sit on sidewalk benches and chat. ''We're bombarded with trucks,'' complains William L. Hamilton, an insurance broker and president of the chamber of commerce. If the community had known that Toyota was coming, he says, Georgetown could have persuaded the state to build a bypass road along with the four-lane highway it provided the plant. Further dismaying the strait-laced town, the Osaka Health Spa, a massage parlor, opened just a block from city hall while the plant was under construction. An Oriental at the spa, according to her arrest record, dispensed more than massages. ''We busted her for prostitution,'' says Mayor Tom Prather, 37, ''but could not shut down the place.'' The stress of accommodating Toyota prompted Prather's predecessor to resign in September 1986, after only nine months in office. Prather had to persuade Toyota to pay for expanding municipal services. Toyota put its $1.1 billion factory in Scott County, just outside Georgetown's boundaries -- and taxing authority. Prather recalls telling managers of the auto plant: ''If your coming here is going to remain a positive event for Georgetown, we've got to have a revenue stream.'' After four months of negotiations, Toyota agreed to have its plant annexed into Georgetown. Toyota's presence has raised everyone's taxes. To get more revenue, the town imposed a 1% tax on wages and salaries atop an identical county tax Georgetowners already paid. Prather's municipal budget has nearly doubled to $4 million, enabling the city to bolster the police force with more men and vehicles and renovate city hall. Realizing that many local people felt short- changed, Toyota has donated $1 million for a community center, plus ten cars , to the city and county. The automaker also contributes an amount equal to the school taxes it is exempt from paying and voluntarily services the loan for a new sewer plant. A Toyota executive insists that the automaker wants to preserve the quality of life that attracted it to Georgetown. BEFORE NISSAN BUILT its car and truck plant in Smyrna, Tennessee (pop. 14,000), local officials made certain that the company would pay for most of the municipal services it required. The town runs a budget surplus. Honda has brought prosperity without upsetting its host communities in Ohio. The Japanese automaker, which began modestly in Marysville (pop. 8,000) with a motorcycle assembly operation in 1979 and added autos in 1982, got no big tax break. Flat Rock, Michigan, 15 miles south of Detroit, is another story. Initially, Mazda seemed like a life preserver for the small town (pop. 7,000), which was economically devastated by the loss of a Ford Motor foundry in 1982. Lured by handsome incentives, Mazda decided to put a $550 million factory on the abandoned Ford site two years later. State and local concessions, however, included a 100% property tax abatement for Mazda's improvements at the old Ford site. Thus, Flat Rock was deprived of revenues to handle the added demands on public services. Says Mayor Richard C. Jones, 43, a CPA born and raised locally: ''Mazda should have realized that it was coming into a town close to receivership.'' JONES, a political independent who was elected mayor in 1985, has staved off municipal bankruptcy by coaxing Mazda to make a $100,000 annual contribution and pressuring the state for assistance. Faced with a $4 million debt for a sewer system built to serve Mazda, Jones forced the automaker to assume more of the burden by raising sewer rates and other taxes. As a result, the mayor says, Mazda's presence is now a financial wash for Flat Rock, ''but not what it should be.''

The Japanese plants are an overwhelming plus, however, when it comes to advancing the manufacturing art. Along with installing some of the latest machinery, Japan's automakers are inculcating American workers with radically different attitudes. Shunning narrow job classifications, the factories give production workers common broad titles -- ''technicians'' at Nissan, ''associates'' at Honda, and ''team members'' at Mazda and Toyota. Whatever they are called, employees work in small groups. Those on the line have primary responsibility both for assuring the quality of their work and for improving the production process. Even the newest hires are made to feel important. They participate in decisions that American plants usually leave to management, such as scheduling overtime or rotating jobs. Many seem almost like converts to a new religion. As one American associate in Honda's body-stamping shop puts it, ''For once in my life, I've got something to believe in.'' An egalitarian atmosphere reinforces cooperation between line workers and management. Even senior executives in most of these factories share large, open offices with none of the usual trappings of status. No one has a reserved parking space. The brass lunch in the same cafeteria as the workers. Both wear identical uniforms, usually with their names embroidered on them. Jerry Benefield, 48, president of Nissan in Smyrna and formerly a Ford manager for 18 years, sees a big payoff in breaking down barriers to communication. ''If I go out to the plant in a $400 suit and a tie,'' he says, ''people don't talk to me so freely.'' PRODUCING CAMRY model cars in Kentucky is a special challenge for Toyota, whose senior executives in Japan have long been nervous about handling individualistic Americans. The automaker relies heavily on U.S. managers. Alex M. Warren Jr., 48, senior vice president for administration and the ranking American at the plant, says that Toyota's production system motivates employees ''to think about the next person on the line as a customer who expects a perfect car.'' Toyota, he claims, is more conscientious than most U.S. companies about sharing information with employees. Says Warren, who has worked in personnel for Leaseway Transportation, U.S. Steel, and Rockwell International: ''We put a higher value on people here.'' Like other Japanese transplants, Toyota also shrewdly recruits young Americans who can be trained to do things its way. Flooded with over 50,000 applications for 3,000 factory jobs, Toyota devised what Samuel D. Heltman, general manager for human resources, describes as ''probably the most extensive selection system that I've seen anywhere for hiring production people.'' Toyota can afford to be choosy because the state picks up much of the bill. Landing a production job at Toyota takes at least 18 hours. Once prospective employees complete a general knowledge exam and a test of their attitudes toward work, Toyota gives the top 30% the sort of scrutiny that American companies use only for hiring managers. First, the promising candidates go in groups of 12 to an ''interpersonal skills assessment center,'' run by Kentucky State University, for a session of problem solving. The prospects are told, say, that a lawn mower manufacturer has production problems. The winners ask the right questions and work together to find solutions. Candidates also go through a manufacturing exercise, following instructions to assemble an array of plastic pipes and then improving on the method they were taught. That encourages anyone who dislikes the repetition of factory work to drop out. Less than 10% of the applicants survive to the final stages of a probing interview and a physical exam. The resulting Toyota team members are a spirited elite who comfortably use such terms as muda, Japanese for waste, and kaizen, continuous improvement. Says Will Allen, 41, a training specialist who joined Toyota after spending ten years as a line supervisor at Volkswagen in New Stanton, Pennsylvania: ''The main difference at Toyota is training. You are allowed to err. You don't see fear on people's faces.'' Newcomers to manufacturing are equally upbeat. Jeanie Hughes, 35, a hairdresser for nine years, likens getting a job at Toyota to winning a lottery. ''The odds were tremendous, but I would have swept floors,'' she says. Impressed with her eagerness and manual dexterity, Toyota sent Hughes to Japan for four weeks of training, which she says ''gave me extra adrenaline to really push myself.'' Leading a Kentucky team that installs such small parts as outside mirrors and chrome trim, Hughes insists, is not radically different from the beauty shop. ''You work fast with your hands, have an eye for quality, and three people can need something at once,'' she says. There's just one big difference: ''I never got up at 4:30 a.m. before, but I love this job.'' Her hourly pay: $12.39, or 50% more than in the old job. TOYOTA, OF COURSE, does a lot of cheerleading and morale building among its Kentucky employees. Team leaders, who get the same Japanese training tour as Jeanie Hughes, return as missionaries. Hearing them talk at debriefing sessions, one manager says, is ''like going to church.'' To bolster harmony among American team members as well as with some 250 Japanese trainers in Kentucky, Toyota subsidizes a ''personal touch program'' of after-hours socializing. The big test for Toyota's togetherness lies ahead. The Kentucky plant is training a second shift and has gradually stepped up the pace of production, doubling output since October to its targeted 400 cars a day on the first shift. Says Fujio Cho, executive vice president in charge of the plant: ''I feel more problems will be likely from now on. We're not just sitting down being all happy about how things are going.'' Adds Heltman, the human resources manager: ''The honeymoon eventually ends.'' Maintaining the team spirit is already a struggle at Nissan after 5 1/2 years in Tennessee. An intense organizing drive by the United Auto Workers is under way. Nissan's local executives, all Americans, share the antipathy of many Japanese transplants toward unions. Jerry Benefield, the Ford veteran who is president of the plant, says, ''We've demonstrated that management and workers really can work together without fighting each other all the time.'' Nissan, for instance, boasts of having achieved the best attendance record in the U.S. auto industry without time clocks. It helps that Nissan employees work in teams of about 20, where absentees are easily noticed. SOME NISSAN line employees complain that the production pace is practically burning them out. In cars per hour, Japanese lines don't necessarily move faster than Detroit's, but workers juggle more tasks, in addition to monitoring quality. ''At the rate we work,'' says one assembler made available by the company for a private interview, ''most people here wonder if they can do this job for 20 years.'' Capitalizing on such discontent, the UAW distributes leaflets and a video program in which individual Nissan employees contend that production speed is contributing to injuries and that favoritism influences promotion. Even Benefield acknowledges that ''things aren't perfect.'' Still, employee turnover is a low 2% a year. Nissan's experience shows that the Japanese production system is hardly magical and that it requires strenuous effort. Says Harvey Shaiken, a former auto worker who is now professor of work and technology at the University of California in San Diego: ''There are two faces to the Japanese system. One is increased efficiency, better quality, and consulting with the workers. But the other is increased pressure, stress, and tightly strung manufacturing.'' Japanese plants, for instance, purposely do without cadres of relief workers: Team members are expected to take up the slack for employees who are ill. Nissan's U.S. managers have adjusted some Japanese-style practices to placate American employees. Everyone is issued a uniform, but wearing it is strictly optional. Morning warm-up exercises, which are standard in most transplants, have faded away at Nissan. Says Benefield: ''It's not an American tradition to go to work and do exercises, so they just stopped.'' The only Japanese transplants that readily accept U.S. unions are those affiliated with American companies. Ford owns 25% of Mazda, which builds the Ford Probe as well as a similar model of its own in Flat Rock, Michigan. Japanese executives run the plant in a partnership of sorts with the UAW. The union has accepted a single job classification for all production employees and participates actively in management. Bill Judson, who serves in the Mazda personnel department with the title ''team leader, union relations,'' is also president of the local UAW unit. If there's a problem in the plant, a team of union and management representatives tries to settle it on the spot. The only other Japanese auto plant with a U.S. affiliate, the new Diamond-Star facility built by Mitsubishi and Chrysler, has already agreed to recognize the UAW. Honda has demonstrated that, with extraordinary effort by management, the Japanese production system can endure in America. Founded by an engineer, Honda believes the expert on any task is the person who does it every day on the production line. Most of the company's American managers start there, endlessly trained in everything from quality control leadership to dealing with stress. Japanese managers in Ohio effectively spread Honda's culture by example -- constantly moving around the plant floor and pitching in to help when needed. In offices, no one drinks coffee while working at a desk because production workers are not allowed to do so on the line. TO KEEP ENTHUSIASM at a high pitch, the company gives employees a share of its worldwide earnings. Honda also has a unique way of rewarding employees who make the best suggestions and improvements. Every two months, the company's two ranking executives in Ohio, both Japanese, take a 15-hour walking tour of the Marysville auto plant to thank the winners and hear their ideas. That night, the winners are honored with a banquet. The executives spend another two days repeating the ritual in Honda's nearby engine and motorcycle factories. Says Toshikata Amino, executive vice president: ''If you really want teamwork and good communications, it's time consuming.''

Americans have so thoroughly adopted Honda's egalitarian spirit that they even clash with Japanese associates who dare to pull rank. John L. Michel, 28, a Marysville native who joined Honda six years ago, recalls proposing a standardized form for monitoring quality control -- and running into resistance from a Japanese department manager who had just created his own form. The manager asked, ''Who are you? What's your title?'' Michel replied, ''I'm the person who wants to fix this, so my title doesn't matter.'' Nonplussed, the hierarchical Japanese let out a long sigh. Michel, now in a department called associate development that trains and encourages workers, seems to personify the Honda spirit. He previously worked in a department that puts every car through quality tests, where he won an award for suggesting that the team rotate jobs every two hours instead of daily. The change not only relieved boredom, but gave everyone a fair share of the easier tasks. When Honda customers complained of dashboard rattles, a group of employees in Michel's department persuaded the company to build a much rougher test track. Furthest along in ''Japanizing'' U.S. worker attitudes, Honda also leads in Americanizing the content of its cars. U.S. suppliers are preferred, and Honda helps bring them up to its standards. Says Garry Berryman, a Honda purchasing manager: ''The supplier's attitude is more important than anything else.'' After Inland Steel improved the corrosion resistance of its steel to suit Honda, the company switched to using only American steel in Ohio. The automaker has also created new U.S. suppliers. About three years ago Honda asked Kevin Kern, who ran a business with his father testing lawn seed near the Japanese auto plant, to take on subassembly work. He set up a little workshop that has grown into Kern & Kern, one of Honda's most efficient suppliers. Its 20 employees mount hi-fi speakers into plastic moldings and deliver them to Honda three times daily. So far, the experience in the U.S. must be counted a success. The carmakers have kept the kind of efficiency they enjoy at home, and no one appreciates their competitive edge more than the workers of Japan's Auto Alley. Michel of Honda takes colleagues on plant tours of competitors. On the bus back from a Big Three facility, he says, ''Some of our associates wondered how they stay in business with guys sitting around on the line watching TV sets. That never happens here.'' The transplants do have their downside, including the . wrenching social changes and all those giveaways by taxpayers. But nobody ever said globalizaton would be easy for America.

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