- The Washington Times - Monday, October 2, 2006

U.S. automakers are making far better cars and trucks than they were only few years ago, a new report says.

The trouble for Detroit is that Japanese automakers are improving at an even faster clip.

“The Big Three are dramatically different companies than they were five years ago or 10 years ago; they’re leaner and more efficient,” said Laurie Harbour-Felax, who co-authored the report. “It’s just that the Japanese aren’t sitting still. So the Big Three haven’t been able to narrow the gap because the target keeps moving.”

As a result, Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co. earned $2,400 more per vehicle sold in North America last year than their American competitors did, according to the study, “Automotive Competitive Challenges: Going Beyond the Lean,” released yesterday by the Harbour-Felax Group, a Michigan-based consulting company.

Toyota, Japan’s biggest automaker, last year enjoyed a $2,985 profit-per-vehicle advantage over the General Motors Corp. in North America, and held profit margins of $2,165 and $1,570 over the Ford Motor Co. and DaimlerChrysler AG’s Chrysler unit, respectively.

Nissan and Honda also enjoy large advantages over GM, Ford and Chrysler.

The average sales price of a Toyota, Nissan or Honda last year in North American was $24,289, more than 12 percent higher than U.S. automakers’, the report said. This gap of $2,692 per vehicle was up from $1,362 in 2004.

“U.S. companies have made huge strides to improve labor productivity,” said Ms. Harbour-Felax, who co-authored the study with her father, Jim Harbour, a former vice president of manufacturing engineering at Chrysler Corp. “The rest of the gap are things that they haven’t spent a lot of time working on.”

Japanese automakers take less vacation and get shorter breaks than U.S. workers do. The Japanese also pay $1,400 less per vehicle on health care.

But burdensome labor, health care and pension costs, often explained as a primary reason for the financial struggles of the U.S. auto industry, are only partially to blame for the imbalance, the report says.

Flawed pricing strategies, warranty costs, a weak dollar and a lack of common platforms and vehicle designs also are major problems facing the U.S. automotive industry, the report said.

By using common platforms, body architectures and components, Toyota Motor Corp. has saved about $1,000 per vehicle in the past five years, the report said.

Detroit companies also are too dependent on heavily discounted sales to vehicle fleets, especially to car-rental agencies, the report said. Price cuts to rental agencies range from $3,000 to $4,500 per vehicle, a heavy drain on revenue.

Although Detroit isn’t blameless, it’s difficult to compare costs of auto companies in the U.S. with those elsewhere because governments in most other car-producing nations, including Japan, subsidize their automotive industries more than the U.S. does, said automotive analyst Charlie Hughes.

“If you want to talk about a level playing field, we’re going in the opposite direction,” he said. “There is plenty to criticize what is going on in Detroit, but we’re not doing all that we can to help them out.”

Ford spokeswoman Anne Marie Gattari said she had not seen the report and couldn’t comment other than to say that Ford is working to improve.

GM has made progress but still faces challenges that it needs to address for long-term profitability and growth, spokesman Dan Flores said. For example, the company has reduced the number of different sun visors in its models from 32 to 18 as it increases the number of common parts, he said.

Chrysler said it is not satisfied with the profitability gap per vehicle between North American automakers and the Japanese.

Ms. Harbour-Felax said she wasn’t surprised by many of the findings in the report. But she said she doesn’t understand why the U.S. auto industry isn’t quicker to mimic many of the successful business practices employed by Japanese companies.

“Toyota tells everybody what their plan is, and then they go out and execute it,” she said. “So all the other [U.S.] companies have sat back and watched Toyota just continue to gain market share and reduce costs, but they haven’t gone out and done the same thing.”

• This article is based in part on wire-service reports.

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