Image: Saturn Sky
The Saturn Sky, pictured, and Chevy Cobalt both make use the same door handle. It's the kind of efficiency needed by U.S. automakers, observers say.
By Roland Jones Business news editor
updated 10/17/2006 6:29:38 PM ET 2006-10-17T22:29:38

It’s no secret that like companies like Nissan and Toyota are outrunning their American rivals, but now a new study has put a number on the advantage Asian automakers have over Detroit’s Big Three.

U.S. automakers make an average of $2,400 less per vehicle than their Japanese counterparts because of less-efficient purchasing and manufacturing procedures, according to a study by the Harbour-Felax Group, an industry consulting firm based in suburban Detroit.

The study’s findings paint a bleak picture of the challenges the big American automakers face when competing with their Asian rivals. GM and Ford, the two largest, are busy working through massive job reductions and plant closures to restore their businesses to financial health and remain competitive, but Harbour-Felax Group President Laurie Felax does not think they are moving quickly enough.

“GM and Ford are doing a tremendous amount of work, but they don’t have 25 more years to execute [their restructuring plans],” Felax said. “So I think the study’s findings show they are moving in the right direction, but they need to move faster,” she added.

U.S. automakers are certainly struggling to keep up with their Asian rivals, according to the study, which looked at over 20 competitive business areas where Detroit’s Big Three — General Motors, Ford and Chrysler — are falling behind Japan’s Big Three — Toyota, Nissan and Honda. Revenue and pricing, product design, and manufacturing and labor issues were identified as having the most impact on profit per vehicle.

By restructuring through layoffs and plant closures, GM and Ford are not focusing on the root cause of their problems, Felax said. One large U.S. automaker, which Felax declined to identify, makes 81 different types of wing mirrors, while its Asian counterpart Honda only makes two, she said. By using more common parts and processes, U.S. carmakers can close the gap with their rivals, she said.

“You can cut labor, but at the end of the day you can’t cost cut your way to competitiveness,” Felax said, adding that automakers need to share components between their vehicle brands to save money, especially commodity components that will not have a major impact on a car buyers' purchasing decision, like wing mirrors or batteries.

“All three of the big U.S. automakers are working on this,” Felax said. “The Japanese started doing it much sooner and are seeing the benefits. U.S. automakers are at a different level of maturity and execution and they are quite far behind the curve.”

Felax calculates that for every component that is shared between vehicle models, automakers stand to save between $1,000 and $1,500 dollars per vehicle.

“So if you multiply that saving by the volume of vehicles made by any one of these companies you can see there’s a potential for saving billions of dollars,” said Felax. “GM still produces the largest volume of product of any other carmaker, and this is an issue over which they have total control” — as opposed to the vagaries of consumer tastes and gasoline prices.

Kevin Reale, research director for AMR Research, an industry consulting company, says GM is the best positioned of all the three U.S.-based carmakers to take advantage of component sharing. The Pontiac Solstice and the Hummer SUV, for example, both use the same climate control system, while the Saturn Sky and the Chevy Cobalt use the same door handle.

“So what’s interesting from the GM perspective is they are taking things that are visible to the customer and reusing them,” Reale said. “Right now, all of the Big Three need to do a better job of this. Chrysler is also moving down this path and Ford has the biggest opportunity to accelerate this process. They have been doing a good job with the Ford brand, but now they need to extend this to other brands, like Volvo and Jaguar.”

Labor issues are another handicap for the Big Three, said Felax. The “Jobs Bank,” where unionized workers who have been laid off by the Big Three are paid while not working, lax work rules and large healthcare benefits add to the profitability gap. Toyota, for example, has far fewer retirees than the U.S. automakers and doesn’t have the burden of paying for healthcare for retirees, while the Big Three pay the healthcare costs of thousands of retirees.

“And when it comes to vacations and holidays, Big Three workers get more through their unions than the Japanese, and they get more relief time,” said Felax. “A GM worker gets 46 minutes off each day, while a Toyota worker gets 30 minutes. So GM has to hire more people to get the same volume as Toyota. And when it comes to work rules, a Toyota worker can do almost anything to a car, while at GM there are seven or eight different work classifications, and certain workers can’t touch certain parts of a car.”

But despite the challenges facing the Big Three, Felax remains cautiously optimistic.

“I believe all three automakers are doing a tremendous amount of work — they know their ills and they have been attacking it for number of years,” she said. “The issue is one of execution. So I have cautious optimism that they will diligently work to attack these issues and save money across the board.”

The Associated Press and Reuters contributed to this report.


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