Harbour: Toyota Most Productive -- By a Hair

By Michelle Krebs May 31, 2007

The North American auto industry received its first important grade on its Toyota_assembly_200 2006 report card today when Harbour Consulting revealed the outcome of its annual manufacturing productivity study.

Top scorers among the six major automakers evaluated (General Motors, Ford, Chrysler, Toyota, Nissan, Honda) are:

Toyota - first in total manufacturing productivity, which includes final car assembly as well as also stamping, engine and transmission production.

Honda - first in vehicle assembly productivity.

General Motors – first to win three of the four plant awards. No. 1 were GM Oshawa #2 for vehicle assembly; GM Spring Hill, engine assembly; GM Toledo, transmission production. Honda Marysville stamping took the fourth plant award.

“Toyota was the overall leader but with a slim and marginal lead,” said Ron Harbour, president of the Michigan-based Harbour Consulting.

The productivity gap among the six manufacturers was the closest in the nearly two-decade history of the study. That gap is so close, Harbour said, “There’s no telling who will be on top next year.”

Productivity gap narrows

The Harbour Report measures productivity in the number of labor hours it takes to build a car and produce a car’s most substantial components – the engine, the transmission and the metal stampings. The report measures the total number of labor hours for all four categories as well as number of labor hours by component. Harbour emphasized the report does not measure the time it takes to build a vehicle but the total number of labor hours – from the labor hours of the plant manager to those of the custodian.

Combining the four categories, Toyota took the least number of labor hours to build a vehicle, at 29.93 hours, supplanting Nissan as last year's leader by a hair. Toyota and Nissan have gone back and forth in productivity leadership in recent years.

This year, Nissan was the only automaker that would not provide Harbour Consulting with actual data, but Harbour estimates Nissan captured second place with 29.97 hours. Honda, GM, DaimlerChrysler and Ford, respectively, rounded out the ranks.

Two significant factors jump out of the data: the gap among the six is narrowing – the narrowest margin since the study began in 1989; and the domestics, albeit they had the most improvement required, have made dramatic progress.

The gap in 2007 is a scant five labor hours, roughly, from No. 6 Ford to No. 1 Toyota. Harbour said that amounts to no more than a $250 to $300 per vehicle cost disadvantage to the domestics.

That’s in stark contrast to 2002 when the gap from No. 1 – then Nissan –  to No. 6 Chrysler was a difference of more than 11 labor hours and a cost disadvantage to the domestics compared with the Japanese manufacturers of $800 to 900 a vehicle, Harbour said.

Harbour credits the narrowed gap to quality advances and more flexible labor agreements.

                         2007 Total Labor Hours      2002 Total Labor Hours

Toyota               29.93                                  31.22
Nissan               29.97 (est.)                         29.37
Honda                31.63                                  34.54
GM                    32.36                                   37.14
DCX                   32.90                                   40.60
Ford                  35.10                                   29.95

Domestic accomplishment, challenge

Harbour praised GM, Ford and Chrysler for vastly improving productivity as their volumes decrease. Their productivity will win a boost from the massive number of jobs they eliminated late last year and this year.

"General Motors essentially caught Toyota in vehicle assembly productivity," Harbour said. "Considering that they will be building vehicles in 2007 with dramatically fewer hourly employees in the U.S., GM, Ford and Chrysler likely will reduce their hours per vehicle significantly."

He added: "Improving productivity in the face of lower production is a huge accomplishment, but none of the domestic manufacturers can afford to let up."

At the same time, however, Harbour noted the labor hours do not take into account the domestics’ higher incentive costs and legacy costs in terms of pensions and health care for retirees. Added to that is the domestics’ slow response to shift to vehicles that consumers want to buy and pay nearly full price for without incentives or discounts.

These factors create the high cost disadvantage of the domestics versus their Japanese counterparts more than any difference on the factory floor, which is negligible. Harbour agrees with Detroit automakers that say their cost disadvantage is about $1,500 a vehicle.

Harbour says the domestic automakers and the UAW must go even further to overcome their persistent health care and pension cost disadvantages. Otherwise the very survival of certain automakers is in jeopardy.

Ford was the biggest loser by a long shot as it lost $5,234 on every vehicle it built in North America last year. Ford’s loss per vehicle was nearly eight times what it was in 2005.

The profit gap

While the productivity gap has closed, the profit gap is gaping because of health care and pension costs, lower average revenue and higher incentive costs, the report illustrates.

GM improved its profit per vehicle by 43% but still was in a loss position at $1,436 lost per vehicle.

DaimlerChrysler, the most profitable of the domestics only two years ago, loses less than Ford and GM per vehicle -- $1,072. But that was nearly six times lower than 2005.

In contrast, the Japanese made per vehicle about as much as the domestics lost. Nissan, despite its sales drop in 2006, is the most profitable of the six major companies building cars in North America, earning $1,575 per vehicle. Honda made $1,368; Toyota earned $1,266.

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