Higher Ground

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GM’s newest production plant in Delta Township is getting high marks for efficiency.

Photograph By Dave Lewinski

For years, Detroit automakers have been playing catch-up when it comes to manufacturing in North America. Honda, Nissan, and Toyota regularly set the pace with lean manufacturing practices, an obsession with quality, lower wages, just-in-time parts delivery, and unmatched teamwork. Now with a new, competitive labor agreement with the United Auto Workers in hand, Detroit automakers are as confident as ever that they can narrow the productivity gap with Asian rivals.

Long stymied by bloated structural and labor costs, GM, Ford, and Chrysler can hire new workers at a fraction of the pay and benefits longtime UAW workers earn — $25.65 an hour vs. $78 an hour. They also have greater flexibility in deploying factory manpower where needed, including wider use of temporary workers, and new plant-level work agreements give them more leeway to assign tasks, manage production levels, oversee maintenance schedules, and control quality.

And the new labor pacts wipe billions of dollars in future health-care obligations — some $90 billion to $95 billion — off their collective books. That’s a liability that added as much as $1,900 to the price of a new GM car or truck, for example, in recent years. Yet even before the historic new contracts were signed last fall, Detroit was making progress on the quality and productivity front. Based on the latest closely watched survey by Harbour Consulting, GM has, after a 20-year chase, essentially matched Toyota Motor Corp. in vehicle assembly productivity across North America.

And the difference between the best (Nissan) and the worst (Chrysler) is now three hours per vehicle, a significant drop from the 12-hour gap just four years ago. And when stamping, engine, and other manufacturing operations are included, the gap between the top and bottom performers is about five hours per vehicle, half of what the gulf was four years ago.

What’s more, Toyota, Honda, and Nissan have plateaued — and in some cases, slipped — in the Harbour survey. A tide of early retirements and buyouts will shave more Big Three workers in 2008, allowing even more productivity gains on the plant floor. The only hurdle standing in the way of more progress is slower economic growth, which is expected to weaken auto sales further in 2008, forcing additional production cuts.

Detroit automakers are still dogged by big challenges, too — higher absenteeism, pockets of restrictive labor agreements, higher pension obligations — that add to manufacturing costs. And North America remains awash in a glut of plants, with more on the line as Honda, Toyota, Kia, and VW open or launch new factories over the next few years.

And there are other intangibles to overcome and keep workers and suppliers rallied. After decades of market share losses and staggering red ink in recent years — they lost a combined $15 billion in 2006 — the survival of all three Detroit automakers is at risk. That prospect has many workers unsettled, and it encouraged many of them to accept generous buyout packages.

As a result of the latest contract, the industry’s period of largesse and generous benefits that began to take root in the 1950s is coming to an end, and in many cases, is being reversed. As The Wall Street Journal recently described it, the golden age of dominance is over for the UAW and the Detroit automakers.

Pockets of bad blood between UAW workers and management still exist, and could be exacerbated as benefits are reduced and new hires making less money start working alongside veteran workers making more.

Some suppliers grumble that Detroit’s automakers require more robust tools and equipment to counter employee abuse — even sabotage in some cases, that add to their manufacturing costs. But it’s clear that after years of false starts, Detroit thinks it has some real traction. Quality is improving across the board. Productivity and lower warranty outlays are permitting GM, Ford, and Chrysler to spend more money making new models more appealing.
 

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