Big 3 Need to Change Culture
By David E. Zoia Ward's Dealer Business, Jan 1, 2006 12:00 PM

General Motors Corp. and Ford Motor Co. plan deep job cuts and plant closings to stem financial losses, but that won't solve the domestic auto industry's long-term problems, says one auto analyst.

“Job cuts are not enough,” Laurie Harbour-Felax tells the Society of Automotive Analysts in Southfield, MI.

“When you cut heads you cut costs at the end of the process,” she adds. The Big Three “have to get at the root cause of their problems,” if they want a more permanent fix to what ails them.

That means changing company culture, from the way auto makers design and engineer cars to how they deal with suppliers and unions, says Harbour-Felax, a former vice president with manufacturing productivity specialist Harbour Consulting and now an independent consultant.

Toyota Motor Corp., Nissan Motor Co. Ltd. and Honda Motor Co. Ltd. average a profit of $1,700 per vehicle, she points out, while GM loses more than $1,200 per unit and Ford is nearly $140 in the red per vehicle sold. DaimlerChrysler AG ekes out a $186 profit per unit, she says.

That gap could widen, Harbour-Felax adds, because the Japanese now are offering higher-margin trucks, which the domestic auto makers have been counting on for most of their profits.

Harbour-Felax says the bulk of the bottom-line deficiency is not a result of poor productivity. The Big Three largely have eliminated the productivity gap with the Japanese.

Instead, she says, most of the profitability problems are due to more upstream processes and issues, including (in order of impact):

• Lack of common vehicle architectures and components. The Japanese are masters at making sure vehicles are designed to be built the same way and use common parts, not only across platforms but throughout the entire model range, Harbour-Felax says.

The Big Three largely have failed to do this, she says. She points to one unnamed OEM that will use 81 different sideview mirrors for an upcoming platform and another that uses 140 different catalytic converters across its lineup. The best-in-class auto maker uses just five catalytic converters.

That parts proliferation costs money in design and engineering, purchasing and manufacturing.

GM has made some gains on commonization with its upcoming GMT900 trucks, and Chrysler Group is using the philosophy of common architectures with its large rear-drive cars, Harbour-Felax says. “So it is going on, it's just not widespread across the organizations.”

• Retiree health care. GM pays health-care costs for three retirees for every active worker, and Ford has about 1.5 retirees on its rolls for every active employee. Harbour-Felax says auto makers must stop paying for all health-care costs of retired workers.
• Warranty/recall costs. Although domestic auto makers are scoring high when it comes to initial quality studies, their warranty and recall bills come to $300-$500 per vehicle more than best-in-class competitors.
• Labor practices. The Big Three have a $200-$300 cost disadvantage due to work schedules, she says. Unionized plants have two more weeks of vacation and five to six more holidays than non-union plants, and they average 46-50 minutes of relief time compared with 24-30 minutes at Japanese transplants. “This really adds up,” she says. Auto makers need to cut vacation and relief time in the next labor contract, she says, and they must eliminate supplemental unemployment payouts that maintain 95% of pay for laid-off workers.

Harbour-Felax says the domestic auto industry has gotten the message to some extent but hasn't made all the cultural changes necessary to fix the problems once and for all.

“They understand what to do,” she says. “But there is an underlying culture that exists and a reward system that is a conflicting force.

“And there's still an element of denial. I had an executive from one supplier tell me all this is just a phase we're going through and that GM once again will have 35% of the market some day.

“I mean, come on.”