Detroit's Big Three versus Japanese Automakers

Published: 04th June 2007
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According to the annual Harbour Report on productivity the Detroit's Big Three carmakers continue to narrow the gap with its Japanese automaker rivals in terms of production efficiency. But sadly despite the gains in productivity the three companies are still lagging behind their overseas rivals and the worst part is as they continuously gain loses their rivals are reaping healthy profits.

The annual Harbour Report measures factory productivity in labor hours per vehicle and basing on the gathered data Toyota Motors US factories are the most productive taking only a total of 29.9 hours of labor to build a vehicle plus engines and transmissions. Nissan on the other hand is only behind Toyota with 30 hours per car while Honda Motor is not also far behind with 31.6 hours.

Meanwhile General Motors' plants take 32.4 hours to build a car, making its factories almost as productive as that of Honda's according to Harbour Report. Chrysler was also reported as close too, taking only 33 hours to build a car unfortunately for Ford Motor the maker of Ford F150 performance parts it lagged with 35 hours per car.

Despite the production efficiency reported by Harbour, Toyota was still able to experience a productivity drop of 1.8 percent due to the launching of the new Tundra pickup. Even Nissan dropped further down by 5.3 percent but overall the productivity has improved across the board for the rest of the automakers. Chrysler the money-losing arm of Daimler was able to record an increase of 2.4 percent, GM with 2.5 percent, Honda with 2.7 percent, and amazingly Ford's productivity has also increased by 1.9 percent.

For the sake of argument assuming that domestically owned car plants are as productive as their Japanese plants counterparts but with the high health care costs, too many workers, and rigid work rules they will remain to lag behind their Japanese automaker rivals. To fix these problems the Detroit executives will try to negotiate a new four-year labor deal with the United Auto Workers.

Health Care Cost a Burden
In addition, GM has still much work to be done in terms of union negotiations and the vehicles that it is selling. Last year alone in North America, GM lost $1,436 a vehicle; Chrysler lost $1,072 per car, while Ford lost a depressing $5,234 per vehicle reported by Harbour. Health care cost has remained to be the huge burden for Detroit's big three and paying the thousands of retired American auto workers could handicap the automakers by approximately $1,500 per vehicle.

Health care cost is not the only problem that the Big Three is facing. There are other serious issues that they have to resolve in order to regain financial health. According to Harbour the biggest problem of the Detroit's automakers volume, they don't sell enough vehicles to keep their plants running at full capacity. And not only that, whenever sales fall short of production, the Big Three pay union workers most of the wages not to mention the other fixed costs that are associated with the factories.

Production Plants Not Running on Full Capacity
GM utilizes 93 percent of its capacity similar to Honda which is good since its business in North America may break even. Last year, Chrysler used only 88 percent of its capacity while Ford utilizes 77 percent unfortunately both lost a lot of money. On the other hand their rival Toyota make use of 103 percent of its capacity in short it is running its assembly lines in full speed and make use of overtime to build even more cars. Among the Japanese automakers only Nissan has trouble using all of its capacity. With the decline in sales last year, the company's plants dropped to 77 percent of capacity which caused its profits to dive.

Another problem for automakers is the fact that American brands generally command lower prices for their vehicles. Take for instance GM with an average of $21,000 a vehicle on the other hand its rival Toyota is getting more at $23,000 a vehicle which gives it the most advantage.

Union Problems
Another big issue that the Detroit's Three have to settle is its union problems especially with regards to non-assembly labor. Harbour says that unlike the US plants, the Japanese plants operating in the US utilized cheaper contract labor for most of their tasks that are not related to the production of cats like for instance janitorial maintenance. Despite the fact that domestic manufacturers have gotten the UAW to agree to outsource such work still some jobs are done with the higher cost of union wages and benefits.

The paid furlough clause commonly known as the JOBS bank may be cut significantly and gives the Big Three with the right to limit the stay of a worker on paid layoff that is according to a union official who requested not to be named. If The Big Three can reduce the JOBS bank benefit, automakers may cut even more jobs and close more factories.

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