Saturday, November 04, 2006

Car study: Japan has $2,400 edge per sale

Tuesday, October 03, 2006
Car study: Japan has $2,400 edge per sale
Bryce G. Hoffman / The Detroit News

In a dramatic example of the competitive gulf between Japanese and American automakers, Japan's Big Three make on average $2,400 more on each vehicle they sell in North America compared with their Detroit counterparts, according to a study released Monday.

The disparity largely can be blamed on U.S. automakers' higher labor costs, lower revenues per vehicle and less efficient design and engineering processes, the study found.

The study by the Harbour-Felax Group, a Royal Oak consulting firm, comes as General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group struggle to rein in costs.

GM and Ford are trying to restore profits after losing money in the first half of the year, while Chrysler has said it expects to report a third-quarter loss of $1.5 billion. Most of their troubles are tied to slumping sales as consumers continue to switch to import cars and trucks, especially as high gas prices drive demand for more fuel-efficient models.

Detroit's Big Three are being criticized for their lack of compelling products, and the issues raised by the study are robbing them of profits that could be invested in new vehicles.

"It isn't about quality and productivity anymore," Laurie Harbour-Felax, co-author of the study and president of the Harbour-Felax group, said Monday. "It's still about product, but right now, they really don't have the money to invest in product."

Discounts dominate disparity

According to the report, the average domestic vehicle sold for $21,597 in 2005 after the cost of rebates and other incentives was subtracted. That was 11 percent less than the Japanese automakers' average of $24,289.

Most of that discrepancy was attributed to the deep discounts offered by American automakers in the form of rebates, employee pricing and other incentives, as well as the diluting effect of lower-priced fleet and rental car sales. About 25 percent of all cars and trucks sold by GM, Ford and Chrysler in North America are sold to these markets, usually at substantial discounts.

Harbour-Felax also said the domestic manufacturers are far behind the Japanese when it comes to the use of common platforms and common parts.

By building several different products on the same underlying architecture and using as many of the same components as possible, Japanese car companies are saving billions of dollars -- money they can plow back into the development of new vehicles and new vehicle technologies.

Harbour-Felax estimates Toyota Motor Corp. has saved $1,000 a vehicle over the past five years by using many of the same parts and components in different models.

Commonization also helps improve quality and reduces warranty costs. Toyota's warranty costs average just $348 per vehicle, compared to $512 at GM, $585 at Ford and $595 at Chrysler.

Labor costs contrasted

Labor costs have long been a competitive disadvantage for Detroit, particularly when it comes to health care and restrictive work rules. Toyota's competitive advantage on health care is as much as $1,400 per vehicle, the study found.

Other labor issues also are undermining the bottom line at GM, Ford and Chrysler. Uncontrolled absenteeism at American car companies costs up to $70 per vehicle, according to the study. And workers at American-owned factories get 46 minutes of break time each day, compared with just 30 minutes at the typical Japanese plant. The extra 16 minutes adds up to another $70 per vehicle.

These labor-related competitive disadvantages are likely to be on the table next year during critical contract negotiations between Detroit automakers and the United Auto Workers.

"It's time for the Detroit Three and the UAW to get together and resolve these problems," Jim Harbour, who co-authored the study, said in a statement.

The UAW declined to comment on the report.

GM gains, Ford slips in '06

Out of the Big Three, GM spent an average of $2,985 more on every car and truck it produced than its Japanese rivals. Ford spent $2,165 per vehicle than the Japanese carmakers, while Chrysler spent $1,570 more.

"The (report) reaffirms our marketplace reality," said GM spokesman Dan Flores. "While we made substantial improvements across the board in North America, we still face significant challenges that must be addressed to position GM for long-term sustained profitability and growth."

Harbour-Felax found that substantial improvements in the first six months of this year cut GM's competitive disadvantage by $846 per vehicle. But Ford lost ground in the first half of the year, increasing its competitive disadvantage by $599 per vehicle.

"That really fluctuates based on the mix of the products you are selling, and also based on that selling environment," said Ford spokesman Oscar Suris. "We know as a company that we want to decrease our over-reliance on pickups and on full-size sport utility vehicles, because we recognize that is where the market is going. These are issues that are clearly on our radar and that we're working aggressively to make further progress on."

He noted that Ford recently outlined a plan to cut its North American operating costs by $5 billion over the next couple of years and said the company has been moving toward a new global product development model that emphasizes common architecture and common components.

Chrysler also acknowledged it has more work to do.

"Of course DaimlerChrysler is not satisfied with the profitability gap," said Chrysler spokeswoman Michele Tinson. "We're committed to addressing the areas of significant impact that were highlighted in the" report.

Harbour-Felax said she is happy American automakers are taking her findings seriously.

"Our focus with this is to challenge the industry to look at these issues in a little more detail," she said. "The bottom line is that they're all making progress. The biggest issue right now is speed. They don't have another 25 years to get traction on this stuff."

You can reach Bryce Hoffman at (313) 222-2443 or

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