How Nissan Laps Detroit
Jonathan Gates slaps a wide slab of tan-colored, hard foam rubber on his workbench. He fastens a numbered tag in one corner and some black foam insulation at the edges. As soon as he puts a number on the piece of foam, which will become the top of a dashboard for a Nissan Quest minivan, the vehicle has an identity. All of the parts for a big chunk of the minivan's interior, decked out with the customer's choice of colors, fabrics, and options, will come together in the next 42 minutes.
Gates and his co-workers fill a crucial role at Nissan Motor Co.'s (NSANY ) new Canton (Miss.) assembly plant: Almost everything a driver touches inside a new Quest, Titan pickup, or Armada sport-utility vehicle is put together in a single module, starting at Gates's workbench. "This is the most important job," he says. And yet, amazingly, Gates doesn't even work for Nissan. He works for Lextron/Visteon Automotive Systems, a parts supplier that also builds the center console between the front seats and a subassembly of the car's front end. The finished modules pass over a wall to be bolted into a car or truck body rolling down the assembly line. Lextron/Visteon does the work faster than Nissan could and pays $3 an hour less than the carmaker pays assembly workers. Nissan is using a similar strategy for its vehicle frames, seats, electrical systems, and completed doors.
It's a level of efficiency that Detroit auto makers are only beginning to attempt. Along with other features in Nissan's eight-month-old, $1.4 billion factory, the wholesale integration of outside suppliers is another reason why General Motors (GM ), Ford (F ), and Chrysler (DCX ) are still playing catch-up with Japanese car manufacturers. The Big Three have made great strides in productivity in recent years: General Motors Corp.'s best plants now actually beat Toyota's (TM ) factories. But overall, every time Detroit gets close, the competition seems to get a little better. "The Japanese are continually improving," says Michael Robinet, vice-president of CSM Worldwide, an industry consultant.
Nissan has been the best example of that in North America for years. The Canton plant was designed with the same flexibility, shop-floor smarts, and management-dominated work rules that made Nissan's 20-year-old plant in Smyrna, Tenn., the most productive factory in North America year after year, according to Harbour & Associates. The Smyrna plant builds a car in just under 16 labor hours -- 6 fewer than the average Honda or Toyota plant, 8 fewer than GM, and 10 fewer than Ford. Its profit per vehicle of $2,069 is the best in North America.
The Canton plant, which opened in May, will almost certainly top that. Nissan's secret? Sure, its plants use cheaper, nonunion labor. Besides lower wages, the Smyrna workers get about $3 an hour less in benefits than Big Three assemblers represented by the United Auto Workers. But there's more to it. Outsourcing offers huge savings, whereas the Big Three must negotiate the outsourcing of subassembly work with the union. And Nissan's plants are far more flexible in adjusting to market twists and turns. Canton can send a minivan, pickup truck, and sport-utility vehicle down the same assembly line, one after the other, without interruption.
The payoff: Nissan plans to build an impressive five different models in the Canton plant. And, like Toyota and Honda, Nissan will have more financial room to maneuver as it pushes aggressively into segments like pickups and SUVs. That is already putting pressure on Detroit's few remaining areas of dominance. When it launched the new Titan pickup this November, Nissan set the price at $22,000, undercutting the Ford F-150 by at least $2,000 while still maintaining a healthy profit margin.
At first glance, a Nissan factory does not look much different than one you would see in Detroit or St. Louis. But talk to the workers, and it soon becomes clear how relentlessly the company squeezes mere seconds out of the assembly process. "There's no silver bullet," says Emil E. Hassan, Nissan's senior vice-president of manufacturing. "It's really just following up every day with improvements."
On the Smyrna passenger-car line, for instance, a worker stands on a moving platform, called a lineside limo, that inches along the body of an Xterra SUV. The limo carries all the tools and parts he needs. The assembler grabs a seat belt from a bin next to him, bolts it in, then moves along and installs the rear struts -- all without having to make what used to be a 20-foot walk back and forth, three times per car. Nissan started installing lineside limos 13 years ago at the suggestion of a line worker; GM and other auto makers also use these limos, but not as extensively. "We don't have to do a lot of walking," says Smyrna Vice-President of Manufacturing Gregory Daniels.
Still, there are some big differences between domestic and foreign plants in the U.S. The United Auto Workers is slowly allowing more outsourcing. But the UAW wants to outsource work only to union-friendly suppliers. And even then it has to be negotiated. Nissan, meanwhile, has free rein to outsource jobs. Two of Smyrna's vehicles -- the Maxima and Altima sedans -- were engineered to be built using modules built by suppliers. Every vehicle built in Canton was designed that way. All together, buying modules saves 15% to 30% on the total cost of that section of the car, according to the Center for Automotive Research (CAR) in Ann Arbor, Mich. And the Big Three? GM is the most "modular" of the domestic manufacturers, but only a few of its plants have been designed to build cars using many big modules.
One of the biggest advantages the Japanese have is that they can keep their plants busy pretty much no matter how the market shifts. In Nissan's case, if demand for the Titan surges it could cut production of, say, slower-moving Altima sedans. That means its workers are rarely idle and the company doesn't need rebates to keep its plants busy. This flexibility means that Nissan, Toyota, and Honda all run their plants at 100% capacity or higher, once overtime is figured in. GM, Ford, and Chrysler, on the other hand, use about 85%. "The key to making money in this business is running plants at 100% capacity," says Sean McAlinden, chief economist with CAR.
Toyota is probably the most flexible auto maker in North America, according to Prudential Securities Inc. (PRU ), with five of its seven North American assembly lines building more than one vehicle. When Canton starts building the Altima, three of Nissan's four lines will be fully flexible. What that means on the factory floor is that Canton's body shop can weld any of four vehicles -- two SUVs, a pickup, and a minivan -- on the same line. Robotic arms can be quickly programmed to weld in the spots needed for different vehicles.
Detroit is slowly making headway. Prudential says half of GM's 35 North American assembly lines can make multiple vehicles. GM's two-year-old Cadillac pant in Lansing, Mich., will make three luxury vehicles: the CTS and STS sedans and SRX SUV. It has also been designed to get some large, preassembled modules from suppliers. GM is using the Cadillac plant as a model for upgrading other plants. "We're getting much more flexible," says Gary L. Cowger, president of GM North America.
But it's much easier to design a new factory to be flexible from the ground up than to refurbish those built 30 or more years ago. And with so much excess capacity, the Big Three have no room to build new plants. Even if they could match the Japanese in productivity, they would have to account for the costs of laid-off workers, whose contracts entitle them to 75% of their pay.
By contrast, Nissan runs a tight ship and works its employees harder. During the UAW's failed attempt to organize Smyrna in 2001, workers told the union that line speeds were too fast and people were getting injured, says Bob King, the UAW's vice-president of organizing. The union says that in 2001, Nissan reported 31 injuries per 1,000 workers -- twice the average at Big Three plants -- according to logs reported to the Occupational Safety & Health Administration.
SQUEAKS AND RATTLES
Nissan does not dispute the OSHA figures, but it denies its assembly lines are any less safe than Detroit's. Although the company won't release current numbers, executives do say that they have taken steps to reduce injuries. For instance, the company has workers do four different jobs during a typical eight-hour shift, to try to cut down on repetitive-motion injuries. Nissan claims that injury rates have fallen 60% in the past two years.
As for the finished product, the real test is still to come for Nissan. The company has yet to prove that the popularity of its Altima and G35 Infiniti sedans can carry over to minivans, big pickups, and big SUVs. The company's quality rating is below average, and critics say the Quest has squeaks and rattles that need to be worked out at the factory. Trucks are Detroit's last bastion of dominance, and it will fight to maintain an edge. But at least in terms of efficiency, each new Nissan is rolling off the line with a huge headstart.
By David Welch in Canton, Miss.