Harbour Report On Plant Efficiency
From the Detroit Free Press:
HARBOUR REPORT ON PLANT EFFICIENCY: U.S. carmakers close in on Asian counterparts
GM stays on top; Chrysler's gain is biggest
June 11, 2004
BY JEFFREY McCRACKEN and JOCELYN PARKER
FREE PRESS BUSINESS WRITERS
Detroit's three automakers continue to get better at making new cars and trucks with fewer workers, narrowing the labor gap with their more-efficient Asian rivals, a bellwether study of auto manufacturing shows. For the second straight year, all of Detroit's automakers cut the labor hours needed to build a vehicle.
General Motors Corp. continued to be the most-efficient domestic automaker, reducing the number of hours it takes to build a new vehicle to 35.2 hours, compared to 28-32 hours at Asian companies like Nissan Motor Co., Toyota Motor Corp. and Honda Motor Co. By comparison, two years ago GM needed 39.3 hours to make a new car or truck, while the Asian automakers ranged 29-31 hours.
The Chrysler Group showed the largest efficiency gains among all automakers - foreign or domestic - shaving three hours, or 7.8 percent, off the time it takes to build a vehicle, according to the Harbour Report. Chrysler needs 37.4 hours to build a new vehicle, which includes the time spent stamping a part, building a transmission or engine and then assembling the finished car or truck.
Chrysler passed Ford in labor efficiency for the first time in the 15-year history of the Harbour report, which tracks labor hours at nearly all of the auto assembly, stamping, transmission and engine plants across North America. Just three years ago, Ford was far and away the most efficient Detroit automaker by this annual report, which is closely watched within the industry and by Wall Street.
Ron Harbour, president of Harbour Consulting (formerly Harbour and Associates), the Troy firm that compiles the report, said Chrysler has benefited from putting in common systems at all its plants so they run the same no matter who the worker or plant manager is. He partially credited Chrysler Chief Operating Officer Tom LaSorda, who came over from GM four years ago to run Chrysler's manufacturing operations.
"Chrysler has put in a process that can be sustained, even if LaSorda or the current managers are gone. That's what GM does. That way it doesn't matter who the boss is. Each plant isn't re-inventing the wheel with each new boss, and I think the unions like that," said Harbour.
This ability to reduce workers' labor hours per vehicle is crucial because labor accounts for 12-17 percent of a vehicle's cost, said Harbour. The flip side of this productivity, noted Harbour, is that "all of the automakers will continue to employ less and less people. There's no doubt about that."
Going back to the late 1990s, GM has been the best Detroit automaker at cutting labor hours. Since 1997 it has reduced the number of workers hours needed to build a vehicle by more than 11 hours. GM estimates a labor hour costs $78 including wages and benefits.
Foreign automakers, meanwhile, are slowing in their improvements or even going backward because they are adding more plants and now building pickup trucks and SUVs, which are more complex to assemble and take more hours to build than cars.
"There is a challenge in opening a new plant, hiring a new workforce and then trying to keep the best people. I think people underestimate how hard it is to do," said Harbour.
Nissan, Honda and Toyota in general still rank higher than the Detroit automakers, but because they don't report the results of all their North American plants, for the second year, Harbour didn't count them in its final study.
The star of the report was Chrysler, which for the second year in a row posted the fastest improvement among all automakers. Two years ago it ranked last among all automakers.
Nevertheless, the company said it isn't satisfied, and it plans to make further productivity gains in the coming years. LaSorda told reporters Thursday he expects the Chrysler Group to reduce the number of hours it takes to build a new vehicle to 30 hours by late 2007.
To get there, the company plans to reduce the number of parts it takes to design certain vehicles, which enables the company to build the vehicles faster, he said. He added the improvements this past year were due to worker attrition and higher-quality products.
"We expect to make further improvements in every single plant each year until we're done making cars and trucks," LaSorda said.
Roman Krygier, Ford's group vice president of manufacturing and quality, said Ford hasn't been improving its efficiency as fast as its domestic counterparts largely because it is still recovering from the setbacks it had in its productivity in the last several years. He said there were too many hours being put into designing products, at times making them more complex to build.
While this is the second year Ford has posted an improvement in its efficiency, the company had five years of deteriorating productivity prior to the two years of gains.
"We had to make adjustments to how we approached quality," said Krygier. "We had to improve the design of our manufacturing process to not add hours."
Despite Ford's fall to last place among the Detroit automakers, Krygier said he expects it to make a bigger percentage improvement in its productivity this year. He's unsure whether Ford will surpass Chrysler and Ford.
"It's very difficult to see what the others are doing," he said, adding that Ford's ranking could depend on where sales end up.
Among individual assembly plants, Nissan's Smyrna, Tenn., plant that builds the Altima ranked as the most efficient. It was followed by four GM car plants, two in Oshawa, Ontario, and two in Lansing. GM's Lansing Grand River plant, home of the Cadillac CTS and SRX, was the most efficient luxury-car plant. (In April, that plant also ranked No. 1 in another key study, the J.D. Power and Associates Initial Quality Survey, which outlines which vehicles get the fewest customer complaints in the first three months of ownership.)
Richard Hilgert, an auto analyst with Oppenheimer & Co., said productivity is an important measure for the automakers because the savings from efficiency gains can be reinvested into the products they sell. Car companies can also use the savings to help pay for the profit-eating incentives that have been hobbling the Detroit automakers for the past several years, he said.
He also added that Ford could very well improve its ranking in the report next year, especially given the turnaround and the new models it will launch in the coming months. Nevertheless, Ford could face difficulties passing its rivals because the other car companies will make improvements, too.
"They're moving against moving targets," Hilgert said.