Domestic Automakers Improving in Production Efficiency

By: Ally Wahlberg

For the past couple of years, Detroit's automakers have took up 16 labor hours longer than their Asian rivals in building vehicles in North America. And that difference is being reduced to minutes attributed to the shrinking efficiency gap between domestic and Japanese automakers. Last year the gap shrinks to a tremendous level according to a closely watched study of labor productivity.

Although at present there are no domestic automakers that manage to topple down Nissan Motor Co., Toyota Motor Corp., and Honda Motor Co., -- the maker of top-of-the-line --from the top of annual Harbor Report but in fairness to the Detroit's big three they have been posting improvements and that is a good sign, according to people familiar with the report.

Among the domestic automakers it is General Motors Corp. that has improved the most starting from 2005 to 2006 followed by Chrysler Group and finally Ford Motor Co. On the other hand the Asia automakers are headed by Honda that posted the biggest overall improvement while Nissan and Toyota slipped.

The Troy-based Harbor Consulting, which publishes the report, will release the data they have gathered to show how the car companies fared. This report especially the one pertaining to the automotive factory performance is important since it is widely used by automakers as a competitive benchmarking tool. The most significant figure on the report is the average number of labor hours needed to build a car or truck as it travels through an automaker's stamping, engine, and assembly plants.

For that category alone the ranking of the overall productivity is expected to be similar to last year, when the Asian automaker (Nissan, Toyota, and Honda) were at the top followed by Detroit's big three (General Motors, Chrysler, and Ford) in which Ford ranked last for the second consecutive year.

The domestic automakers have made steady gains in efficiency when they started cutting down jobs, idled plants, and negotiated operating agreements with the United Auto Workers Union. Ford has so far been successful with getting favorable deals with more than three dozen of its union locals. On the other hand, General Motors is still pushing for an agreement and have been meeting opposition in the process.

Improvements empowered the Big 3

Foreign carmakers have observed that their average productivity has either stay roughly the same or has slightly increased especially when they started building larger vehicles which are labor intensive.

Meanwhile domestic automakers still need more total labor hours per vehicle than their foreign rivals that is despite reports that they have lessen the gap between them and their Asian rivals.

Factors causing the gap in efficiency

One of the factors seen to be affecting production efficiency are the plants. Foreign automakers have newer plants and are designed to accommodate more flexible manufacturing processes them obviously more efficient explained Rebecca Lindland, a Global Insight analyst in Lexington, Mass. There are also other factors that cause delay in production such as new product launches which adds to the time it takes to build a vehicle.

For the 2005 report, it was Chrysler that recorded the highest level of improvement among the US carmakers with a 5.7 percent gain. GM and Ford has each improved by 2.9 percent that is despite the decline in production volume with Ford declining by 10 percent and GM by 8 percent.

The data also ranks the efficient plants in terms of labor hours per vehicle and the figure is derived by adding up all hours worked for salary and hourly pay together with the overtime, downtime, and paid lunches, and then dividing that by the total number of vehicles produced.

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