DETROIT - The difference in efficiency between the seven biggest automakers in North America is minor, much like the quality differences among 36 auto brands, as I reported in my last post. And they're all improving, says Ron Harbour, whose Harbour Report lists Toyota and - surprise - Chrysler as operators of the continent's most efficient factories. Paradoxically, North America's most efficient single plant is the Toledo, Ohio facility where Chrysler makes Jeeps, the 36th out of 36 brands in terms of initial quality, according to Wednesday's J.D. Power and Associates report. Typically, an efficient plant puts out a high-quality product, Harbour says.
He's right. But the Toledo Jeep assembly plant is an experiment in outsourcing, with various suppliers owning and controlling various parts of the factory. Let's hope it has room for improvement. One factor affecting Jeep's poor quality ranking is that Wranglers were flying out the dealership doors last year, especially the new Wrangler Unlimited. No doubt many buyers were new to the brand, and expected the same level of refinement they got in their Accords or 3 Series, or even Explorers. That might explain some of Jeep's lack of ownership satisfaction, but it can't explain the whole thing: Jeep averaged 167 problems per 100 vehicles, much worse than the industry average of 118 and more than twice Porsche's 87. (That accounts for the entire Jeep lineup, by the way, not just Wrangler/Unlimited.)
The Jeep Toledo South plant needs just 13.57 employee-hours to assemble a vehicle, a significant margin over the second-place Oshawa, Ontario Chevy Impala/Monte Carlo plant (15.18 hours) and third-place Oshawa Pontiac Grand Prix/Buick LaCrosse plant (16.17 hours). Belvidere, Illinois, was fourth, needing 17.09 hours to assemble Dodge Caliber/Jeep Compass/Patriot and GM's CAMI plant in Ontario was fifth. It needs 17.59 hours to assemble a Chevy Equinox, Pontiac Torrent or Suzuki XL-7. Note that Nissan, which for several years had the most efficient plants in North America, and Honda, declined to participate in this year's study, though Harbour extrapolated estimates from available information. Hyundai was added to the list for the first time.
When Harbour adds up all the man-hours it takes to build a car or truck, including stamping, assembly, engine and transmission manufacture, Hyundai was seventh of seven majors, at 35.1 hours per vehicle in North America. Ford Motor Company was sixth, at 33.88 hours, a 3.7-percent improvement over last year, Nissan was fifth, at an estimated 32.96 hours, or 8.8-percent more time than the previous year, and GM was fourth, at 32.29 hours, a 0.2-percent improvement. Honda was third, at 31.33 hours, a 2.3-percent improvement.
Chrysler was 7.7-percent more efficient than the previous year and Toyota got 1.5-percent less efficient, to tie at 30.37 hours, average, to make a new vehicle in North America. Harbour got Chrysler's numbers late last year, before it was taken private. Chrysler and Dodge divisions were not much better with quality, according to the J.D. Power study. Chrysler was 29th, with 142 problems per 100, and Dodge was 28th, with 141. Toyota was fifth, with 104.
You can learn much about an automaker's profitability by looking at its capacity utilization. Chrysler's factories run from 46 percent of capacity to 126 percent of capacity, with an overall rate of 88 percent. Key to an automaker's efficiency is plant flexibility, which allows an automaker to fill that 46-percent plant's truck capacity with small cars, for instance, and also saving from paying costly overtime to run third shifts and weekends on a 126-percent-capacity compact car plant.
Ford averages 84 percent, with a range of 47- to 129-percent. GM averages 88 percent, with a 44- to 147-percent range. Honda runs from 62- to 100-percent and averages 97 percent. Nissan runs from 72- to 92-percent, averaging 80 percent.
And Toyota's range is 92- to 107-percent, with its plants running at an astonishing 100-percent overall capacity. You can't get more cost-efficient than that.
For the most part, though, Harbour sees better times ahead for North American production, for both American and foreign-brand cars.
"We've seen more improvement in the last five years than in the previous 15," Harbour says. His company now is part of Munich-based Oliver Wyman, and has branched out with surveys of automotive plants in Europe and South America. The surprise here is what Harbour calls the "bright story": Fiat.
He's also bullish on how the Detroit Three will do with the bloody, brutal shift from big trucks and SUVs to small cars. GM, Ford and Chrysler always have struggled to make any money on small cars, while Toyota and other Asian automakers excel at it.
Harbour's forecast for labor cost per vehicle is as optimistic about the Detroit Three as Harbour is about Italy's Fiat. Calculate Motown's efficiency and productivity gains along with labor costs that last year's United Auto Worker contracts will save, and Toyota, Nissan and Honda go from a $606 per-vehicle advantage over GM, Ford and Chrysler in 2007 to just $97 by 2011. That's the best news you'll read about the domestic auto industry for the next three years.
To buy a copy of The Harbour Report, click here.