According to a recent study by Harbour-Felax Group, the Big Three automakers, while having made improvements in manufacturing performance, are still behind major Japanese automakers Toyota, Honda and Nissan.
In 2005, Toyota had a $2,985 profit-per-vehicle advantage over GM in North America, and $2,165 and $1,570 over Ford and Chrysler, respectively. North American revenue per vehicle that year was $24,289 for the Japanese firms, and $21,597 for the domestic firms, the study said.
As a source for the disparity, the report points to the Detroit group’s dependence on discounted sales, particularly those to car rental agencies, as a means to boost factory output, straining revenue.
In terms of labor, Detroit firms provide more paid time off than the Japanese firms, resulting in a loss of $138 per vehicle. Restrictive work rules that define what each worker can and cannot do means more workers are needed to produce each vehicle. Programs that pay workers who have lost their jobs have cost between $99 to $197 for the Detroit automakers. In addition, health care benefits for active and retired workers are further reducing profits, the report notes.
According to the study, the Detroit firms are behind the Japanese firms when it comes to manufacturing flexibility. Few plants can build more than one vehicle platform in the same body shop. That missing assembly flexibility is a problem for the Detroit automakers, which have historically based product development on unique platforms. Toyota has had an estimated $8 billion in savings over the last five years by using standardized commodity components.
Based on the results of the study, most of the impact of changes from Detroit will fall to the suppliers. Some will succeed and obtain longer contracts, but with lower prices per unit. Others will face bankruptcy. Those that will be successful will have strong leadership, as well as strong manufacturing options and program management to rely on. While depreciation of the yen in 2006 will give $5.8 billion to the Japanese groups for product development and expansion, pressure on suppliers is expected to intensify as the Detroit firms struggle to regain their advantage.