Harbour Report: U.S. Automakers Improve, But Are Still Behind

The latest Harbour Report is out, showing gains in productivity by the U.S. automakers and a narrowing of the gap in productivity between U.S. and Japanese car companies.

But the report also suggests that, in some respects, those gains are not entirely meaningful.

For those of you not familiar with it, the report – now called Oliver Wyman’s The Harbour Report – is put together by a consulting firm and is a widely known independent measure of productivity at auto plants in North America. It was first published in 1989.

According to the firm’s news release, here are some of the latest findings:

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.

However, the Big Three are not really catching up with their Asian competitors. First, all U.S. automakers are still losing money on every car (though the report notes that new agreements with the UAW, which let the Big Three employ people at lower wages and use them more flexibly, may help).

Second, the news release notes that being a leading company is not just about how long it takes to build a car.

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.

And perhaps most telling is this brief comment from the news release:

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.

As any lean devotee knows, purchasing more from suppliers doesn’t really save labor; it just passes it off on to someone else. And laying people off may reduce costs in the face of lower production, but it doesn’t do anything to improve processes.

The Big Three are getting better. But they’ve got a long way to go before they become better than Toyota and the other Asian automakers – if ever.