June 1, 2007

GM, Ford, Chrysler must overcome health care and pension disadvantages – Harbour Report

Detroit, Michigan – The manufacturing productivity gap among North American automotive manufacturers continued to narrow as quality advances and more flexible labour agreements drove major improvements, according to The Harbour Report North America 2007, the annual study released by Harbour Consulting.

The larger gap in financial performances of the Detroit-based and Japan- based automakers reflect domestic companies’ higher incentive costs, legacy costs and their slower response to shifts in consumer choices more than any large competitive disadvantage on their factory floors.

“Improving productivity in the face of lower production is a huge accomplishment, but none of the domestic manufacturers can afford to let up,” said Ron Harbour, president of Harbour Consulting. “General Motors essentially caught Toyota in vehicle assembly productivity. 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.”

The UAW and CAW were more proactive in 2006 than ever before in creating a more competitive environment among the companies whose hourly workers they represent. Chrysler, General Motors and, especially Ford, negotiated more flexible local labour agreements prior to this summer’s pivotal national talks with the UAW. However, they must go further to overcome their persistent health care and pension cost disadvantage vs.Honda, Nissan and Toyota. Restrictive labour agreements that create cost disadvantages still exist and could jeopardize the survival of certain automakers.

The difference between the most and least productive in terms of total (Assembly, Stamping and Powertrain) labor hours was 5.17 hours per vehicle (or about $300 per vehicle), down from 7.33 hours per vehicle in 2005, and less than one-third the 17.17 HPV gap in 1998.

This year, Honda’s showed the biggest improvement (2.7%) across this combined assembly, stamping and powertrain measure. In overall productivity, four of the six companies with assembly, stamping and powertrain operations in North America — GM, Honda, Chrysler and Ford — showed improvement in 2006. Toyota’s total manufacturing hours per vehicle, while leading the way among the participating companies at 29.93 HPV, was not as strong as its 2005 performance of 29.40. Honda was second at 31.63 HPV. Nissan Motor Co. did not participate in this year’s report.

Toyota and Honda each earned a pre-tax margin of more than $1,200 on every vehicle they sold in North America. In contrast, Chrysler Group lost $1,072, while General Motors lost
$1,436 and Ford lost $5,234 on each vehicle sold in 2006. This reflects a variety of factors, including the large difference in health care and pension costs, lower average revenue, as well as higher costs of rebates and low-interest rate financing required to trim inventories.

The Harbour Report, first published in 1989, measures assembly, stamping and powertrain productivity performances — plant by plant, and company by company — for North American automotive manufacturers. The labour hours per vehicle measure calculates the total salary and hourly labour content required to produce one vehicle.

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