First, the good news: Detroit's Big Three carmakers continue to narrow the gap with the Japanese when it comes to how long their factories need to build a car. The bad news is that gains in productivity don't begin to move the three companies into the black as their overseas rivals continue to reap healthy profits.
So says the annual Harbour Report on productivity, which measures factory productivity in labor hours per vehicle, released by Harbour Consulting in Troy, Mich. Toyota Motor's (TM) U.S. factories are the most productive, taking a total of 29.9 hours of labor to build a vehicle, including making engines and transmissions. Nissan (NSANY) was just behind Toyota with 30 hours per car, and Honda Motor (HMC) wasn't far behind that with 31.6 hours.
Productive but Not Profitable
General Motors' (GM) plants take 32.4 hours to build a car, making its factories almost as productive as Honda's, according to the study. Chrysler was close, too, taking just under 33 hours to build a car. Ford Motor (F), however, is the laggard, requiring more than 35 hours per car. "Toyota is still on top," says Harbour Consulting President Ron Harbour, but he added that "it is now a very slim and marginal lead."
But Toyota also saw its productivity drop 1.8% because of the launch of the new Tundra pickup. Nissan dropped even further, down 5.3%, but for the most part productivity improved across the board for the rest of automakers. Chrysler was up 2.4%, GM by 2.5%, and Honda by 2.7%. Even Ford saw productivity improve by 1.9%.
Given the fact that domestically owned car plants are nearly as productive as Japanese plants, the huge disparity in profits underscores how much work the Big Three have ahead of them. Health-care costs, too many workers, and rigid work rules all are obstacles Detroit executives will be targeting this summer when they negotiate a new four-year labor deal with the United Auto Workers. "There still remains a competitive cost gap," says Harbour.
GM continues to wring better productivity out of its factories. The auto giant's improvement on the plant floor "demonstrates we are transforming the company for sustainable, long-term success," said Gary Cowger, GM's group vice-president for global manufacturing and labor relations.
But there is clearly much more work to be done in union negotiations and the vehicles Detroit is selling. In North America last year, GM lost $1,436 a vehicle, Chrysler lost $1,072 per car, and Ford bled a staggering $5,234 per vehicle in red ink, according to Harbour.
Retiree health-care costs remain a huge burden: Paying those benefits for thousands of retired American auto workers amounts to a handicap of at least $1,500 per vehicle.
Sales, Prices, and Capacity
There are other serious problems. A big one, says Harbour, is the fact that Detroit's carmakers just don't sell enough vehicles to keep their plants running at full capacity. When sales fall short of production, the Big Three pay union workers most of the wages and have other fixed costs associated with the factories.
GM uses 93% of its capacity—the same as Honda—and its business in North America is close to breaking even. But Chrysler used only 88% of its capacity last year and Ford 77%. Both lost a lot of money. Toyota uses 103% of its capacity, which means it's running its assembly lines at full speed and uses overtime to build even more cars.
Of the Japanese, only Nissan has trouble using all of its capacity. As sales slumped last year, the company's plants dropped to 77% of capacity and profits took a dive.
Another problem for automakers: American brands generally command lower prices for their vehicles. GM, for example, averages about $21,000 a vehicle, according to the company's recent financial statements. Toyota brings in more than $23,000 a vehicle, giving the company a big advantage.
Winning Concessions from Unions
Another cost issue is nonassembly labor. Harbour says that the Japanese plants in the U.S. use cheaper contract labor for most tasks not related to building a car, such as janitorial maintenance. Even though the domestic manufacturers have gotten the UAW to agree to outsourcing of such work, some jobs are still done with the higher cost of union wages and benefits.
The paid furlough clause, known as the JOBS bank, may be cut significantly. The Big Three will try to limit how long a worker can remain on paid layoff, says one union official who asked not to be named. If Detroit can reduce the JOBS bank benefit, automakers may cut even more jobs and close more factories. Says Harbour: "To be more competitive, the UAW has to accept fewer jobs."
Click here to see a slide show of Ford's recent winners and losers.