Harbour Releases Productivity Report
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Harbour Consulting in Troy, Michigan released its yearly productivity report in which most auto makers are implying improvements. The Harbour Consulting annual productivity report gauges factory productivity in labor hours per vehicle.
Based on the report, three of America’s big car makers continue to trim the broad the gap with the Japanese when it comes to how long their plants need to build a car. However, productivity gains do not begin to uplift the three companies as their overseas competitors continue to gain higher profits.
Utilizing a total of just 29.9 hours of labor to build a vehicle, the Toyota Motor's (TM) U.S. factories are named the most productive. These labor hours already include engines and transmissions production. Following shortly was Nissan (NSANY) with 30 hours per car and Honda Motor (HMC) consuming 31.6 hours. General Motors (GM) laborers take 32.4 hours to make a car. Followed too close was Chrysler, consuming just under 33 hours to build a car. However, Ford Motor Company, maker of quality Ford performance parts, requires more than 35 hours accomplishing a vehicle.
Harbour Consulting President Ron Harbour said that Toyota is still the leader but there is now a very thin margin between the company and Nissan.
But because of the release of the new Tundra pickup, Toyota has also dropped its productivity by 1.8 percent. Nissan dropped even further with a 5.3 percent decline. Nonetheless, for most auto makers, productivity improved across the board. Examples are the Chrysler which was up by 2.4 percent, GM by 2.5 percent, and Honda by 2.7 percent. And despite its low productivity, Ford improved by 1.9 percent.
The report clearly shows that domestically owned car factories are almost as productive as Japanese factories. Now the big difference emphasizes much work GM, Chrysler and Ford have ahead of them. The obstacles to the success of the 3 plants’ operations are health-care costs, too many workers, and strict work rules which their respective officials will be targeting to resolve this season. These will be resolved through their negotiation of a new four-year labor deal with the United Auto Workers.
Harbour said what still remains are competitive cost gaps.
Gary Cowger, GM's group vice-president for global manufacturing and labor relations said that out of its factories, GM continues to squeeze better productivity. He added that the transformation of the company for sustainable, long-term success is exuded in the auto maker’s improvement on the plant floor.
However, there are still lot works to be done as regards Detroit’s vehicles. Harbour said that GM lost $1,436 for each vehicle, Chrysler lost $1,072 per auto mobile, and Ford lost a worth pitying figure of $5,234 per vehicle.
A huge obstacle is the retiree health-care costs. At least $1,500 per vehicle is paid to those benefits for thousands of retired American car workers.
Aside from this, another serious obstacle is the fact that Detroit car makers just do not sell enough vehicles in order to keep their plants operating at full capacity.
GM, Ford and Chrysler pay union workers most of the wages and have other fixed costs associated with the plants. This happens when production cost gets higher than revenue costs.
GM utilizes 93 percent of its capacity—the same as Honda—and its business in North America almost results to break even (meaning there is neither loss nor gain).
However, last year, Ford and Chrysler only used 77 and 88 percent, respectively, of its capacity. In effect, both companies lost a lot of money.
Toyota utilizes 103 percent of its capacity. That means it is running its plants at the optimum level. In other words, it is utilizing its assembly lines at full speed and uses overtime to build even more number of cars.
Meanwhile, only Nissan among the Japanese car manufacturers are in trouble regarding the use of its plant capacity. Along with its sales decline last year, the company's factories tremendously declined to 77 percent of capacity. Its profits also tremendously declined.
Another hindrance to the Detroit auto makers is that they generally give lower prices for their vehicles. According to GM’s financial statement, the company averages to about $21,000 per vehicle, as compared to Toyota which prices higher than $23,000 per vehicle. This, in effect, gives the latter company higher returns.
The non-assembly labor is another problem to the Detroit car makers. Harbour said that the Japanese plants in the U.S. use contract labor of lesser cost for majority of its tasks that are not related to making a car. An example is the janitorial maintenance. Some jobs are still paid with the higher cost of union wages plus benefits, even though the American car makers have gotten the UAW to agree to the outsourcing of such work.
In response to this problem, GM, Ford and Chrysler will try to limit the length a worker can remain on paid layoff. If Detroit can minimize the JOBS bank benefit (paid vacation), car makers may trim even more jobs and close more of their plants. Harbour said that the UAW has to accept fewer jobs to be more emulous.
About the Author
Evander Klum is a Business Administration graduate who hails from Alabama. He enjoys extreme sports and he is also a car racing fanatic. At present, he works as a marketing manager at an advertising agency in Cleveland.
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