Here's your chance to predict the future
By Sidney Hill, Jr., executive editor -- Manufacturing Business Technology, 11/1/2005 12:00:00 AM
It's no secret that the U.S. auto industry is in the midst of a major transition. It's also difficult to tell sometimes whether it's actually on the road to recovery or merely delaying an inevitable fall into a bottomless pit.
To understand my point, consider two recent developments:
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The Ford Motor Company unveiled its second gas-electric hybrid vehicle, a Mercury Mariner SUV. This means Ford now has the same number of hybrids on the market as Honda and Toyota, the Japanese automakers credited with pioneering hybrid technology.
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General Motors announced an agreement with the United Autoworkers (UAW) that calls for large cuts in retiree health-care benefits, which have long been cited as a major reason why U.S. automakers have been unable to lower their fundamental cost structures.
Chrysler and GM also have hybrids in the pipeline, and both are expected to wrangle substantial benefits concessions from the UAW in the near future. These are clear signs that the U.S. car manufacturers—as well as the industry's largest union—understand their future is based on more fuel-efficient cars built in more cost-efficient plants.
Still, there are major hurdles to conquer on the way to this future, and real reason to wonder if some of them are insurmountable.
Ford already faces a potential snag in its hybrid program. The primary supplier of a critical hybrid component—a transaxle that combines an electric motor with a computer-controlled transmission—is part of Toyota's supplier group. Recently, that supplier got a large order for transaxles from Toyota, making it difficult to fill requests from anyone else.
Ford probably can solve this problem. In fact, Mary Ann Wright, director of Ford's hybrid programs, recently told The Wall Street Journal that Ford engineers worked with Toyota's supplier to develop transaxles for the Ford Escape hybrid, "So we understand how to do it." The challenge, she said, would be training Ford suppliers to manufacture the parts.
That challenge needs to be met quickly because Toyota, which remains the world's most profitable automaker, has several other hybrids in the works—and a direct line to a transaxle supplier.
But the hybrid parts problem pales in comparison to the issue of production costs. When Delphi, the auto industry's largest parts supplier, declared bankruptcy recently, it cited labor cost as its primary problem. But what's most frightening about Delphi's situation is the discrepancy between what it pays workers in the U.S. and those in China. The former figure is roughly $65 an hour, including benefits, while the latter, also including benefits, is $3.
Those numbers explain why Delphi's Asian division is profitable and not part of the company's bankruptcy filing. Those numbers also raise a question: can the auto industry continue operating in the U.S. over the long term?
Delphi reportedly wants to push its hourly labor costs down to $25 per hour. The question is, will that be enough to stop jobs from flowing to China?
Here at Manufacturing Business Technology, we like to think that shrewd use of information technology—particularly the type that enables B2B collaboration—can make any supply chain efficient enough to close that cost gap. But I'd like to know what you think. Not just about the future of the auto industry, but manufacturing in general. Send your opinions to shill@reedbusiness.com. Eventually, I'll share the best ones with the class.
