This is a mirror image of the auto market in America, where the plants that best resemble Buick’s Shanghai operation are run by foreign labels like Toyota, Honda, Hyundai and BMW in the sun belt, not Michigan. These transplants are the reason that the U.S. automotive sector employs more people today than it did in 1990 and delivers 55 percent more output, despite the decline of Detroit. Taken together, however, the stories of GM in Shanghai, and Toyota in America, offer a simple lesson: the problem with U.S. carmaking is not management or work force, but the way they mix in the century-old bureaucracies of Detroit.
By measure–labor efficiency–the Big Three are closing the gap with foreign rivals, according to the 2006 Harbour Report, a survey of industry competitiveness. The average number of worker hours GM takes to make a car is now 33.2, within minutes of Honda and just 7.3 hours behind industry pacesetter Nissan. In 1998, that gap stood at 16.6 hours and represented more than $1,000 in additional costs per vehicle for U.S. makers. The report forecasts more narrowing ahead, and says that in a couple of years “the leader could be anyone.”
Yet the same report highlights a startling rigidity: GM runs five of the 10 most efficient auto plants in North America, yet two of them are slated to be closed, while Ford is closing the single most efficient line in North America, its Taurus facility in Atlanta. Why? They make models with falling sales and, unlike foreign rivals, cant convert. Toyotas flagship facility in Georgetown, Ky., can build eight models, including sedans, minivans and SUVs. The 7,000-worker plant also belies the notion that good jobs in automaking are disappearing: they are simply moving south. Toyota hasn’t pink-slipped a single employee since 1957.
There is also a tendency to place too much of the blame for Detroit’s troubles on benefits granted in old union contracts. Those legacy costs are real (GM’s average hourly cost for U.S. workers is $80; Toyota’s is $35), but there are many other problems. GM’s eight brands made sense when it commanded half the United States in 1970, but not when it is slipping toward 20 percent. Detroit is full of cars like the Chevy Tahoe that have not only sister SUVs (from GMC and Cadillac), but redundant design and marketing arms that greatly inflate costs. “To go from eight [models] to four would cost $4 billion,” says Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich. These are legacies of a day when GM was much, much bigger, and they have nothing to do with the union.
Yet a comeback is possible. Remember, Japan’s Nissan was near collapse in the late 1990s until fix-it man Carlos Ghosn engineered a surprise recovery with sporty new vehicles. And Detroit has shown it can make hits, like the Chrysler 300a–rocket sled that redefined the midsize sedan with its aggressively square grille. Since the 300, says Toyota’s Randall Stevens, who helped relaunch the Avalon, his company’s entrant in the midsize class, rivals have had to bring something to the table that is more than a standard midsize car.
Detroit, in the end, has no choice but to adapt to a North American market that increasingly resembles China and Europe: fragmented, open and highly competitive. For GM and Ford in particular, that means shrinking, adding focus and cutting costs before the roof falls in–which it very well could. If there’s a good old-fashioned recession next year, [GM] is definitely history, and so probably is Ford, warns McAlinden. The bad news: more and more economists foresee a slowdown coming in early 2007. With a few more hit models, the American auto industry could come roaring back, even in Detroit. But it needs more than six months.
