Forget kicking the tires. You have to look a little closer to spot what makes a car well-built these days. Consider the gap between the bumper and the body panel on Honda Motor Co.'s redesigned 2001 Civic: It will be about the width of a sharpened pencil point. On a comparable domestic-made subcompact, you could slip a hefty magic marker into the same seam.
The width of a pencil point is also the measure of Honda's lead in manufacturing prowess--small but significant. In a market where manufacturing advantages are increasingly short-lived, the company has managed to avoid a takeover, in part by making better cars more cheaply than its big competitors. The new Civic, for example, is the culmination of Honda's efforts to introduce flexible manufacturing systems and to roll out the model simultaneously across 12 factory sites around the globe. Taken together, Honda expects these changes will shave $1 billion off its bottom line.
A takeover may seem unthinkable for such a profitable, well-regarded company. But while the $57 billion auto maker's 4% profit margin is par for the industry, Honda often has to justify its independence to analysts. The five largest--and most acquisitive--auto makers all top $100 billion in sales, with General Motors Corp. hitting $187 billion in 1999 and Ford not far behind. At just 2.3 million units a year, Honda ranks 9th by output--an ominous spot, since many analysts expect consolidation to leave just six to eight major producers standing.
Honda's long-term independence may depend on the results of a one-two punch, aimed at knocking down manufacturing costs and the time it takes to roll out new models. The jab: a coordinated global product-development program. And the uppercut: a new flexible manufacturing system.
Honda's earliest efforts to streamline the introduction of the 2001 Civic started years ago, at the Honda New Model Center (HNMC) in Takanezawa, Japan. Starting in 1997, more than 200 personnel from the 12 plants that build the Civic worldwide began to meet regularly to ensure that the process that works in high-tech facilities in Japan and the U.S. would also work in low-tech sites in Taiwan or Brazil.
The effort represents a leap from past, piecemeal practices. Before, new systems would be built and operated in Japan before being broken down and adapted to outlying factories. That meant costly delays in transferring equipment to far-flung sites, says Chris Poland, engineering project leader for the 2001 Civic at Honda's plant in East Liberty, Ohio. It also meant expensive modifications to translate complex, large-market processes into the realities of smaller markets.
MAKING TIME. It wasn't easy. In many cases the engineers had to rely on translators at all stages of the collaboration. But the rewards are already promising. The HNMC study resulted in less complex welding processes and caught early manufacturing bottlenecks. More important, it will enable Honda's fastest-ever global production launch for a new vehicle. In 1996, when Honda last redesigned the Civic, it was six months before the major plants outside Japan were all building the new model. This time it took two.
Flexible systems are the second element of Honda's push to boost quality. They promise not only to speed up future product launches but to improve the company's ability to make different vehicles on a single production line--the two Holy Grails of the auto trade.
The old way was expensive. In traditional auto plants, parts are welded and assembled on a model-specific template, or "jig." Parts are placed on the jigs and welded to other panels to form the primary auto body. Typically, these expensive jigs are discarded with each new model. And if a line is used to make more than one model, jigs are switched in and out accordingly.
For the 2001 Civic, Honda simply eliminated the jigs in favor of robot attachments that can be reprogrammed quickly and cheaply to perform welds for each model. "It's about reteaching, not retooling," explains Koki Hirashima, president of Honda Manufacturing of America. Also, the Honda-designed robot servo heads, which grasp parts and apply welds, are more nimble. So machines--not workers--can place parts in the welding bays more accurately than ever.
Indeed, the flexibility of the new system made it possible for workers to install some of the machines several months before the model changeover. Ultimately, the auto maker shut the line overnight to switch tooling for the 2001 model. U.S. carmakers typically shut down for two weeks. Even for Honda, renowned for its smooth model changeovers, the speedy changeover was unprecedented, says Poland. The company won't say how much it spent to retool the East Liberty plant with new flexible welding robots. But executives brag that the manufacturing development costs were 40% cheaper than similar, previous efforts.
SMALL BUT SCARY. The upshot is that Honda's relentless investment in new technology is emerging as its surest defense against takeover. Ron Harbour, an author of The Harbour Report, which tracks auto plant efficiency, contends that Honda's technical edge is hard for anyone to beat. In North America, only Nissan uses fewer man-hours to make a car. Globally, Honda is second only to DaimlerChrysler in terms of profits per vehicle (chart). Says Harbour: "Honda is already a leader in flexibility, and now they're going to get more flexible? That has to be scary to the competition."
It probably is. Relative to Nissan and Toyota, the earliest adopters of flexible systems, Honda is deploying the technology later in the game. Even so, Honda has been competitive without flexibility, says East Liberty Plant Manager Tom Shoupe. "The new system will take an already efficient system and make it better," he says. Honda officials estimate that, once completed, the global rollout and the new flexible line technologies will save the company $1 billion per year.
FASTER, FASTER. For this reason, James P. Womack, author of The Machine That Changed the World and an expert in lean manufacturing, believes that Honda still has room to improve. "Toyota plans its dull heart out--they have a standard process for everything," he says. "Honda is the work-around guy. It pulls the rabbit out of the hat at the end of the day."
Better yet, flexible factory lines mean Honda can make and sell a more diverse line of products. Where the likes of GM, Ford, and Toyota plan and produce models over years, sometimes missing market trends in the process, Honda has been able to fire off new models into niche markets relatively quickly, says Womack. Honda scored big with its small SUV, the CR-V, long before the majors recognized the appeal of a smaller variation on the land tank. It has also quickly established a following with its hot-selling Odyssey minivan, soon to be followed with a larger, Odyssey-based SUV.
Of course, its rivals aren't sleeping on the job. Toyota is adding several new truck models in the next six months, and DaimlerChrysler's U.S. unit has matched Honda's success at quickly launching new models into niche markets. Witness the lightning success of Chrysler's PT Cruiser. And as the quality gap narrows, Honda will have to be every bit as nimble to stay in the hunt. Already, some analysts wonder if the look of Honda's cars suffers because of the company's slavish devotion to engineering quality. Some question, for instance, if the look of the new Civic is a big enough departure from the model it replaces. "It's more evolutionary than revolutionary," says Wes Brown, auto analyst for Nextrend, a Thousand Oaks (Calif.)-based consumer trends consultancy. But Honda insists the quality improvements along with a larger interior on a slightly smaller wheelbase will be popular with Civic buyers.
Honda, in short, may need to keep finding new rabbits in its hat. A key measure of Honda in coming years will be how much money the auto maker saves the next time it adds a new model. By 2003 the entire Honda system should be moving under the new rules. "The key is how quickly we can get new product to the customer," Shoupe says. That's especially important if they want to keep going it alone. Because while Honda is narrowing the gap between its body panels, other manufacturers are spending big to narrow the manufacturing gap.