The Harbour Report: Some Progress for Detroit

The Detroit automakers are doing better, but still have a long way to go.

            That’s my reading of this year’s Harbour Report, which was just released. The annual report from Harbour Consulting measures manufacturing productivity at North American plants.

            Not surprisingly, Toyota still leads in total manufacturing productivity (assembly, stamping, engine and transmission) with 29.93 labor hours per vehicle. Honda leads in assembly productivity, at 21.13 hours.

            But General Motors won three of the report’s four Best Plant awards (Honda took the fourth).

            More broadly, the gap among the six major North American automakers continues to narrow.

            For example, the difference between the most and least productive in total manufacturing productivity was 5.17 hours, or about $300, per vehicle. However, that is down from 7.33 hours per vehicle in 2005, and less than one-third of the gap in 1998.

            Profitability is still a huge problem for Detroit. Toyota and Honda each earned a pre-tax margin of more than $1,200 on every vehicle sold in North America, the report says, while Chrysler, GM and Ford lost $1,072, $1,436 and $5,234, respectively, per vehicle.

            A Harbour news release says 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 release credits the automotive unions for working harder in 2006 to create for flexible labor agreements, but says they “must go further to overcome their persistent health care and pension cost disadvantage vs. Honda, Nissan and Toyota. Restrictive labor agreements that create cost disadvantages still exist and could jeopardize the survival of certain automakers.”

            However, the improvement in productivity is still significant.

            '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.'

            Will the Detroit Three every make it back to profitability? What do you think?