Lean Improvements, Worker Buyouts Bring Detroit Three Productivity Closer to Asian...

Lean Improvements, Worker Buyouts Bring Detroit Three Productivity Closer to
Asian Rivals, says Oliver Wyman's Harbour Report(TM) 2008
DETROIT, June 5 /PRNewswire/ --

- Gap between the most and least productive companies shrunk to 3.50 labor
hours per vehicle.

- Toyota and Chrysler led the six largest multi-plant North American
automakers in total manufacturing productivity (assembly, stamping,
engine and transmission), each averaged 30.37 labor hours to manufacture
a vehicle.

- New UAW contracts will further reduce the total labor cost gap between
Detroit Three and competitors over the next three years.

- Hyundai's Alabama plant posted a very competitive 20.62 assembly hours
per vehicle in its first year participating in The Harbour Report(TM).

2008 Best Plant Awards for Labor Productivity

Vehicle Assembly -- Chrysler Toledo South
Stamping -- Toyota Georgetown
Engine -- Global Engine Manufacturing Alliance (GEMA)
Transmission -- General Motors Toledo

Driven by more consistent, leaner processes and buyouts of tens of
thousands workers, the Detroit Three automakers in 2007 nearly erased the
productivity deficit against their Japanese-based competitors, despite
declining production and shrinking market share.
The difference among the Big Six from the most to least productive in
terms of total manufacturing labor (Assembly, Stamping, Engine and
Transmission) has dropped to 3.50 hours per vehicle (or about $260 per
vehicle), down from 10.51 hours (or $790 per vehicle) in 2003.
Chrysler showed the biggest improvement, cutting its total manufacturing
labor hours per vehicle by 7.7% to 30.37, the same number recorded by Toyota,
according to Oliver Wyman's The Harbour Report(TM) North America 2008, the
annual study released today. Oliver Wyman acquired the report in January 2008.
It is worth noting that Toyota fabricates and assembles a greater
percentage of its vehicle parts with its own employees, while the Detroit
Three purchase many modules and subassemblies from suppliers, thus saving
labor. Toyota also has retained nearly all its employees even in plants that
experienced lower production. In contrast, GM, Ford and Chrysler have used
buyouts and layoffs to reduce labor costs.
General Motors brought its total manufacturing productivity performance to
32.29 hours per vehicle, its 15th consecutive year of improvement. Ford
reduced its labor hours per vehicle by 3.7% to 33.88, despite producing 6%
fewer vehicles than it did in 2006.
"Improving productivity in the face of lower production is a huge
accomplishment, especially with the pressures created by rising gas prices,"
said Ron Harbour, partner in Oliver Wyman's North American automotive
practice. "Toyota remains the industry benchmark through its renewed
commitment to lean production. Chrysler made substantial progress with the
support of suppliers. GM deserves credit for the growing maturity of its
Global Manufacturing System, and Ford is demonstrating that focusing on
quality will lead to better productivity."
Despite the convergence of productivity numbers, Toyota proved most
impressive during Harbour's visits to their plants. Its productivity
improvements, in some cases, were offset by a broader mix of vehicles,
including the Tundra pickup and Sequoia SUV, more V8 engines and higher volume
of the Camry hybrid. In addition, Toyota showed the most improvement in energy
conservation, opening more floor space, reducing manufacturing time and line
length, and increasing capital efficiency.
Unfortunately, the profitability gap between Detroit-based and Japan-based
automakers remains wide. Chrysler, Ford and GM are suffering even more with
falling sales of profitable full-size pickup trucks and SUVs as consumers
demand much better fuel economy. Honda and Nissan led the six largest North
American automakers, each earning a pretax profit of $1,641 per vehicle on
their North American sales, followed by Toyota at $922 per vehicle. Chrysler
lost $412 per vehicle for the first nine months of 2007, while GM and Ford
lost $729 and $1,467, respectively, per vehicle for the full year. This
reflects that the Detroit Three still pay more for health care, pensions and
sales incentives. They also support more dealers relative to their respective
market shares, than either Toyota, Honda or Nissan.
"There is no doubt, based on our visits to more than 20 plants over the
last year that continuous improvement in manufacturing processes are taking
hold in just about every company," said Michelle Hill, vice president of
Oliver Wyman and director of The Harbour Report(TM) North America. "Everyone
is focused on reducing waste and building quality into their processes more
than ever."
Harbour noted that despite the focus on low labor costs in Mexico, the
plants in that region are very lean and competitive with high quality even
with less automation.
The innovative agreements the United Auto Workers reached with the three
domestic companies likely will enhance their competitive position in the
future.
First, the union agreed to a lower-tier wage -- about $14.20 an hour --
for new hires. GM can hire these new workers to perform "non-core" work such
as delivering parts to the assembly line, custodial services, and most work
that doesn't involve putting a part on the body of a car or truck. Ford and
Chrysler can hire the lower-wage people for any hourly position as long as
they don't exceed 20% of their U.S. hourly workforce.
The lower-tier wage may lead Chrysler, Ford and GM to consider bringing
the production of certain components and modules back into their assembly
plants that have been out-sourced to suppliers who have paid their workers
considerably less. How soon and how far any of the three bring work back
in-house will depend on the number of high-seniority workers accept buyouts in
the coming months.
In its first year in The Harbour Report(TM) North America, Hyundai Motor
Manufacturing Alabama posted a very strong 20.62 assembly labor hours per
vehicle at its Montgomery, Ala., plant that produces the Hyundai Sonata sedan
and Santa Fe crossover. The plant's productivity on the Santa Fe (22.58 labor
hours per vehicle) was best for plants building midsize crossover vehicles.
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 2007. Neither Honda nor Nissan participated in this
year's report. The report does include assembly, engine and total
manufacturing estimates for both companies based on publicly available data.
Among vehicle assembly plants, Chrysler's new Toledo plant, which
assembles the Jeep Wrangler, set the individual plant benchmark for labor
productivity with a measure of 13.57 hours per vehicle, followed by GM's
Oshawa #1 plant that produces the Chevrolet Impala. Oshawa #1 posted a 15.18
HPV performance.
Chrysler's Toledo South plant features an innovative collaboration with
three suppliers. Kuka Group manages the body shop. Magna Steyr manages the
paint shop, and Hyundai Mobis handles chassis assembly for the Jeep Wrangler.
The Harbour Report(TM), the auto industry authority on manufacturing
efficiency first published in 1989, measures assembly, stamping and powertrain
productivity performances -- plant by plant, and company by company -- for
North American automotive manufacturers. The labor hours per vehicle measure
calculates the total salary and hourly labor content required to produce one
vehicle.
By comparison, automakers in North America, on balance, have become very
competitive globally, only slightly behind Japan, but ahead of most other
regions. Although labor costs remain high, the weak dollar and new labor
agreements have made North America a more attractive region for manufacturing.
Despite their continuous improvement in plant-floor productivity,
Chrysler, Ford and General Motors still use significantly less of their
assembly capacity than Toyota and Honda. For example, Chrysler and GM each
assembled 88% of the potential number of vehicles they could produce on two
16-hour shifts for 235 days a year. Ford's assembly capacity utilization was
84%, up from 77% in 2006, but well below Toyota's 100% and Honda's 97%. The
domestic manufacturers also have a wider range between their least and most
utilized plants. Toyota had no plant running at less than 92% of capacity and
none running at more than 107%. By contrast, GM's North American assembly
plants ranged from 44% to 137%. Ford's were between 47% and 129%, while
Chrysler's spanned from 46% to 126%.
Other highlights from this year's Assembly, Stamping and Powertrain
chapters include:
Vehicle Assembly
CAMI Automotive, which produces the Chevrolet Equinox, Pontiac Torrent and
Suzuki XL-7 in Ingersoll, Ontario, achieved a 17.59 HPV and the New United
Motors Manufacturing Inc. (NUMMI) plant in Fremont, Calif., posted an
impressive 18.96 HPV. These two companies lead all companies in North
America.
Chrysler had four of the 10 most productive assembly plants: Toledo South
(13.57 HPV for Jeep Wrangler); Belvidere (17.09 HPV for Dodge Caliber, Jeep
Compass and Jeep Patriot); Jefferson North (18.68 HPV for Jeep Grand Cherokee
and Jeep Commander), and Brampton (18.78 HPV for Chrysler 300, Dodge Charger
and Dodge Magnum).
GM's Oshawa #1 and #2 plants finished second and third, respectively at
15.18 and 16.17 HPV). GM makes the Chevrolet Impala in Oshawa #1 and the Buick
LaCrosse and Allure (for the Canadian market) in Oshawa #2. GM's Lordstown,
Ohio, plant (Chevrolet Cobalt, Pontiac G5) finished seventh at 18.12 HPV.
Toyota averaged 22.35 labor hours per vehicle across the five North
American assembly plants included in this year's report, compared with 22.05
hours per vehicle in 2006.
GM led in 11 of the 20 vehicle segments in which it competes: midsize
non-premium conventional car (Buick LaCrosse and Pontiac Grand Prix/Oshawa),
midsize non-premium sports car (Chevrolet Monte Carlo/Oshawa #1), midsize
non-premium van (Chevrolet Uplander, Pontiac Montana SV6, Saturn Relay and
Buick Terraza/Doraville, Ga.), midsize premium conventional (Cadillac
STS/Lansing Grand River); midsize premium sports car (Chevrolet Corvette,
Cadillac XLR/Bowling Green, Ky.); midsize premium utility (Saab 9-7X/Moraine,
Ohio); large non-premium conventional (Chevrolet Impala/Oshawa #1) large
non-premium utility (Chevrolet Tahoe, Suburban, GMC Yukon and Yukon
XL/Arlington, Tex.); large non-premium van (Chevrolet Express, GMC
Savana/Wentzville), large premium conventional (Cadillac DTS/
Detroit-Hamtramck); large premium SUV (Cadillac Escalade/Arlington, Texas).
Ford led in five of 15 segments in which it competes: compact premium
conventional car (Lincoln MKZ/Hermosillo, Mex.), mid-size non-premium pickup
truck (Ford Ranger/Twin Cities), midsize premium CUV (Lincoln MKX/Oakville);
large non-premium pickup (Ford F-150/Norfolk), large premium pickup (Lincoln
Mark LT/Dearborn), premium van (Chevrolet Express, GMC Savana/Wentzville),
large premium conventional (Cadillac DTS/Detroit-Hamtramck); large premium SUV
(Cadillac Escalade/Arlington, Texas).
Chrysler led in four of 12 segments in which it competes: compact
non-premium conventional car (Dodge Caliber/Belvidere), compact non-premium
CUV (Jeep Compass, Jeep Patriot/Belvidere); compact non-premium utility (Jeep
Wrangler/Toledo South), and mid-size non-premium SUV (Jeep Grand
Cherokee/Jefferson North).
Harbour estimates show Honda remains very competitive. However, Nissan's
performance suffered due to a drop in truck and minivan production at its
Canton, Miss., plant.
Stamping
Harbour uses a stamping index that weighs several labor and equipment
measures to create a composite score of stamping productivity. On that basis,
Toyota's Georgetown, Ky., press shop ranked first, followed by Toyota
Cambridge, Ont. and Chrysler Belvidere. Of the 10 best stamping plants, Toyota
had three; Chrysler and General Motors, two; and Ford, Hyundai and NUMMI, one
each.
"In 2007 Toyota was the best stamper, on balance, in the industry," said
Harbour. "It is not a matter of spending more than competitors. It reflects
regular kaizen improvement activities and the flexibility that comes with well
coordinated engineering and manufacturing."
Powertrain
Four of the six largest companies improved engine productivity when
comparing plants that were included in last year's report. Toyota still led
the field at 3.13 HPE. Chrysler finished second at 3.35 HPE while GM was a
close third at 3.44 HPE.
Chrysler's Global Engine Manufacturing Alliance plant in Dundee, Mich.,
turned in the best performance by an engine plant at 1.84 hours per engine,
beating GM's Spring Hill, Tenn. plant (2.53 HPE).
Toyota's Georgetown, Ky. Engine plant finished a respectable third with
2.60 hours per engine, and its Buffalo, W.Va., plant was fourth at 2.66 HPE.
GM had five engine plants in the top 10.
Chrysler maintained the lead it assumed last year over GM and Ford in
transmission productivity, improving to 3.36 HPT from 3.39, while Ford came in
at 3.62 and GM came in at 3.68 HPT. For the third time in the last five years
GM's Toledo plant led all plants producing rear-wheel drive transmissions
(2.37 hours per transmission) and was the No. 1 plant overall. Chrysler Kokomo
had the best productivity measure among producers of front-wheel-drive
transmissions (A604 line) at 3.51 HPT.
Overall
More than just year-over-year performance, Oliver Wyman's Harbour
Report(TM) looks at several years of results to determine which companies are
developing systems and processes related to quality, lean manufacturing,
continuous improvement, worker involvement, technology, level of product
complexity, process design and layout.
"Lean manufacturing and continuous improvement efforts do not always
produce immediate improvements, nor are they immediately recognizable," said
Ron Harbour. "But as shown in The Harbour Report(TM) 2008 results, companies
that are producing consistent, sustainable improvements to their manufacturing
operations are providing automakers with a cost advantage over their rivals."
More information and performance results can be found in The Harbour
Report(TM) North America 2008, the annual study created and published by
Oliver Wyman, a global consulting firm. Oliver Wyman acquired Harbour
Consulting and The Harbour Report(TM) in January, 2008. The Harbour
Report(TM) is considered the authoritative guide to automotive manufacturing
in North America, and is a leading competitive analysis tool used by OEMs and
suppliers to benchmark performance, develop strategies and improve operations.
Copies of The Harbour Report(TM) North America 2008 can be ordered through the
company's website at http://www.oliverwyman.com , or by calling 248-649-4490
or toll-free at 800-208-1353. The report is $595 and payment by credit card is
accepted. More information about the report and Oliver Wyman is available on
the company's website. A copy of the slide presentation to support this news
release can be downloaded at: http://www.oliverwyman.com/ow/media.htm .
SOURCE Oliver Wyman

Greg Gardner, +1-248-649-4490, Greg.Gardner@oliverwyman.com, or Michelle Hill,
+1-248-219-4344, Michelle.Hill@oliverwyman.com, both of Oliver Wyman