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October 16, 2007
Auto Industry: Revved Up or Broke Down?
As compact Hondas and Toyotas continue to crash onto the scene, U.S. automakers have largely failed to recognize what today's car consumers need: an auto industry that is fast, flexible and efficient.
Globally, about 53 million new cars have been sold this year, according to Scotiabank Group.
United States vehicle sales have consistently weakened in 2007, falling to an average of 16.1 million units through September, down from 16.5 million in all of 2006 and a peak of 16.9 million in 2004 and 2005, according to Scotia Economics’ latest Global Auto Report, released last week.
In September, U.S. auto sales continued to slip amid an industry slowdown sparked by economic uncertainty and massive production cuts at struggling U.S. automakers. The Big Three automobile manufacturers (Michigan’s General Motors Corp., Ford Motor Co. and Chrysler LLC) took a hit from planned reductions in low-margin sales to rental car companies, as they downsized operations to better cope with a steady loss of market share to rivals.
The Detroit, Mich., companies are under intense competitive pressure from foreign-based firms while enduring high labor costs at home. Ford and General Motors (GM) are both struggling to re-engineer all parts of their operations, from design to manufacturing to marketing in order to cut costs and regain market share.
While gas prices moderated during much of this year, they remain high enough to affect consumers’ car-buying decisions. Sales of heavy, gas-guzzling SUVs, for one, have lagged miserably. As such, Ford and GM have canceled production of some of their massive vehicles.
Another result of gas prices is that new vehicles are expected to set new records for average gas mileage in 2007, driven by improved technology and demand for fuel-efficient vehicles, the U.S. government has reported (via The Associated Press).
Moreover, Toyota Motor Corp.’s Prius hybrid car has seen remarkable demand. The automaker thus responded by raising the price and planning production increases. There has also been good demand for Toyota’s Lexus RX400h hybrid crossover.
Sales of hybrid vehicles and small cars are expected to set new sales records this year despite a sluggish U.S. auto market. Sales of pickup trucks and SUVs have largely declined due to high gasoline prices and the slump in the homebuilding industry, according to data based on Transportation Department analysis of sales estimates released in August. Honda Motor Co. is estimated to lead the way, averaging 39.9 mpg for its imported vehicles and 33.7 mpg for vehicles built in the U.S., while Toyota follows with 38.5 mpg for imported vehicles and 31.7 mpg for cars and trucks produced in North America.
Ford thus launched its first hybrids, and other carmakers such as GM were greatly encouraged in their own efforts to bring more hybrids to the market. Response to hybrids from U.S. automakers, however, “has been lukewarm at best,” Plunkett Research notes.
While Michigan’s Used-To-Be-Big Three struggle, Asian automakers are generally enjoying booming success, with Toyota and Honda at the forefront. In particular, Toyota is attacking mercilessly.
Toyota beat out GM for the first time in the first quarter of this year, selling 2.35 million units against GM’s 2.26 million units. Toyota very likely will have passed GM in global sales this year, ending GM’s 76-year reign as the world’s best-selling automaker. (Save for two periods when GM production faltered because of strikes in the 1970s and 1980s, the automaker had been on top since 1931.) On a global scale, the automaker plans to sell 10.4 million vehicles by 2009, up from 8.8 million in 2006, according to media reports in August.
Moreover, according to Plunkett Research:
South Korean makers Hyundai and Kia have established themselves as true, high-quality manufacturers with a growing global customer base. They will give the Japanese very tough competition. European manufacturers have challenges of their own. High costs, tough labor laws, daunting government regulations and a few disappointing model designs have hampered recent results.
Sales in Asian countries are booming, due in no small part to a burgeoning middle class in India and the rising affluence of Chinese consumers. (Ford said last week that its retail sales of vehicles in China rose 30 percent in the first three quarters from a year earlier to 149,455 units.) In the first quarter of 2007, China’s import and export value of automotive products amounted to US$13.361 billion, of which the imported value was $5.362 billion, up 18.46 percent year-on-year. The export value was $7.99 billion, up 36.30 percent from a year earlier, according to Research & Markets. From January to March 2007, 99,800 complete vehicles were exported, rising 59.32 percent over the same period of last year.
As such, automakers from all over the world are rushing to open plants and establish partnerships in China to produce cars both for domestic use and for export. And as China manufactures its inexpensive cars for the U.S. market, U.S. automakers are making intense demands on their component suppliers for lower prices — and “these suppliers are, in turn, looking to low-cost production in China,” Plunkett notes.
In fact, low labor costs (See below) and increasing product quality in China threaten auto plants located in high-cost nations such as the U.S.
On the shop floor, flexible factories are reducing man-hours. However, they are also cutting costs per car while offering a much wider range of choices for consumer customization. Today more than ever, car manufacturers and their suppliers are cooperating in the design and manufacture of new cars in ways that very well could revolutionize the entire process. (See: Working Smarter on the Shop Floor)
The parts manufacturing business in the U.S. is dismal, too. Delphi Corp, the giant supplier that was part of GM until 1999, has been in bankruptcy reorganization since October 2005, having lost nearly 4.6 billion in 2004 alone. The company hopes to exit bankruptcy by the end of this year, though a global credit squeeze that began in August is adding to the difficulty of that goal.
Meanwhile, due to automakers’ growing concern about the U.S. sales outlook, they are paring back production. The largest U.S. automaker is slashing fourth-quarter output 10 percent below a year earlier, reducing overall North American vehicle assemblies to an annualized 15.2 million units in the final months of 2007, down from more than 16 million so far this year, according to Scotiabank’s fall 2007 Global Outlook.
The U.S. alone has lost 3 million manufacturing jobs in the past three years, racking up an $800 billion trade deficit, according to industry statistics (via Automotive News).
Job losses in Detroit’s auto plants and at auto-parts makers have knocked labor-union membership; restructuring by those automakers has meant the loss of tens of thousands of jobs, waves of retirements and the closing of dozens of assembly plants and facilities. Recent labor strikes don’t seem to be helping. Japanese automakers, with few exceptions, have avoided organized labor at the nearly dozen U.S. assembly plants they operate.
Most comments on the blog attempt to assign blame to one or the other side. The reality is that both management and labor likely share blame for the decline of the U. S. car industry. And both had better be willing to “give back” in some way to construct a deal that can buy the companies and their workers some time to get their act together. Today’s car consumers and carmakers need an auto industry that is fast, flexible, efficient — and dedicated.
Earlier: Auto Industry Outlook: Sinking and Soaring
U.S. Automakers: Left Behind
Resources
Automobiles and Trucks Trends
Plunkett Research, Ltd.
Global Auto Report
Scotiabank, Oct. 4, 2007
US auto sales slump amid slowdown, Toyota overtakes Ford again
Agence France-Presse, Oct. 2, 2007
2007 vehicles boost gas mileage levels
The Associated Press, Aug. 31, 2007
Honda, Toyota, Ford and Volkswagen Land the Most Vehicles at the Top of the Inaugural Automotive Environmental Index
J.D. Power and Associates, Aug. 31, 2006
Delphi Scales Back Financing Plan
by Terry Kosdrosky and Christopher Witkowsky
The Wall Street Journal, Oct. 3, 2007
Toyota aims to sell 10.4 million vehicles in 2009: paper
Reuters, Aug. 22, 2007
Ford Sales in China Gain Nearly 30 Percent
Reuters, Oct. 9, 2007
Global Outlook: More Of The Same — Only Different
by Warren Jestin
Scotiabank, Fall 2007
Experts: U.S. manufacturers undermine themselves
by April Wortham
Automotive News, Aug. 20, 2007
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13 CommentsGood article with lots of background to verify what is happening in the turbulent auto industry. I have just been talking to Linamar Corp. officials who are working hard to extend their regular base of customers to include Asian car makers.
October 16, 2007 3:38 PMAmerican auto makers still refuse to give the consumers what they want.
The latest thing is the heat, air and ventilation controls. In the foreign cars one can choose fresh air or recirculated air and in either mode have the option of directing the air to their feet or their face or the windshield. The air conditioning compressor is turned on or off via a separate switch.
In an American car, if you choose recirculate, the air conditioning comes on and you don't get to choose where the flow is directed. Consumers don't care if the manufacturer thinks he knows air handling better than they do, they want full control of the system and the foreign manufacturers are giving it to them.
October 16, 2007 4:51 PMI think it all revolves around what I term "manufacturer snobbery" as in which, as Dave McCartney (above) states that the U.S. auto makers produce something that is not what the consumer wants. I, for instance, want a hybrid with good gas mileage. I'd love to by the Ford Escape hybrid, which is rated #1 on the list for fuel efficiency for small SUV's. But, when I see the prices START at $30,000, I have to take a pause. Same for the Prius. USED ones of those start at $30K. I get this off AutoTrader.com. As long as the prices for these high fuel efficiency cars remains sky high, many of us can't afford to buy them. Let's do the math. Buy the Escape Hybrid at $30K, as opposed to $18K for the regular version with 4-cylinder engine and standard shift. Looks like a clear initial saving of $12K. Difference in gas mileage is average of 8 mpg. At today's gas prices, it boils down to around 10 cents per mile. How many miles must you drive to save enough money on gas to cover the added cost of the hybrid? Trust me, it's a LOT of miles. (120,000 to take care of the up-front cost difference)
Hybrids are a great idea. I like the idea of an SUV that is rated at 36 City and 31 Highway. But, you can get one at 23 City and 27 Highway for a lot less money. Seems we need to readjust some of the priorities on what to make and how much to sell it for.
Oh, and by the way... How much does it cost to replace the batteries in the hybrids? And how long do they last before needing replacement? How many more miles must you drive at 10 cents per mile to cover the cost of the batteries being replaced? Probably a lot of money, and often enough to destroy the cost savings you'd have on gas by buying the hybrid. Possibly enough to offset the cost difference in the very long term, but more likely at best you'll break even. So, why bother? Because you're a green freak? Because you want to be trendy? Because you want the neatest thing in new technology? (For engineers and techno-geeks, only) Maybe any of these reasons, or just because you want to help save the Environment. But, how many folks can afford any of these esoteric reasons? Fewer than even the foreign manufacturers think.
Maybe we just need to go to mass transit and taxis only in cities, and get REAL serious about using alternative fuels.
In short, it seems we in America just don't think far enough ahead to start planning 5 or 10 or 15 years ahead to sensibly predict what the market will be forced to be in the future. Until we change our basic thinking on automotive things, we will forever remain behind the power curve, and will always be catching up to those pesky foreign automakers.
I agree with your assessment regarding the US Car companies DO NOT PLAN ENOUGH in ADVANCE an stick with their plan. They allow small market diversions (like gasoline prices) change the whole lineup of offerings. They should have a diverse offering and ramp up (or down) production based on market diversions.
October 16, 2007 6:55 PMI always find humor in the articles written by the industry analysts, as well as the comments by the readers. Obviously, the large majority of these writers have no experience in high volume manufacturing.
Fast, flexible, and efficient are nice buzzwords to throw around. The American auto industry is faster and more efficient that the Japanese transplants. Since Toyota and Honda are paying far less for labor than the Big Three, the price of their cars should be proportionately less. They aren’t, why not? Because the Big Three is faster and more efficient. Flexibility is not realistic in a high volume environment without adding cost. Changeover computes to downtime, and that adds cost to any product line.
I get a kick out of hearing about the “gas guzzling SUVs.” The fuel to weight ratio is more efficient now than ever before. The sacrifice for greater fuel economy is low weight, low power, and poor safety. Try pulling a boat with a Honda Accord.
Everyone wants to bash the American autoworker’s wages. The cost of one hour of labor today is the same as it’s been for 50 years when compared to the price of a new car. The transplants are paying the equivalent to poverty level wages, and everyone thinks that’s ok. Maybe the American autoworker should work for $0.80/hr like the Chinese slave laborers. Would that make the journalists happy? How much does the average journalist that writes these articles?
Could someone please tell me exactly which cars it is that GM makes that people don’t want to buy?
Comment to Gary Hoover's comment: Thank you for sharing your thoughts with us. No need to wonder about what journalists make:
The median salary for journalists ranges from $33,842 for those who work in Orlando and San Diego to $51,247 for those who work in Washington, D.C., according to PayScale
(http://www.payscale.com/research/US/Job=Journalist/Salary). Assuming a 45 hour week and 48 week per year, that works out to an hourly range of $15.66 to $23.72 before benefits.
According to USAToday (http://www.usatoday.com/money/autos/2007-10-09-auto-exec-pay_N.htm), “It's estimated that GM workers earn an average $73 an hour when benefits including health care and pensions are added in. That appears to be about $25 an hour more than Toyota's U.S. workers.
October 17, 2007 4:56 PMThanks for the information, Fred. I don't know where USA Today gets their information, but it's skewed. A senority production worker at GM makes $27/hr. They have better health care than average, so factor that in. If we average in the salary of the President, CEO, and other top executives at GM, then we can raise the average or median wage to some disapportionate level like the $73/hr you quoted. I suppose if we factored in the salary of the Publisher of the New York Times we could raise the average level of journalist's pay as well.
Contrary to popular belief, automotive workers are not monkeys that do nothing more than place screws in holes on an assembly line. Their work is far more technical than one would think from reading the USA today. Most production equipment is computerized and require operators to have considerable electro-mechanical knowledge. It isn't like working in your garage with hand tools.
One feature I would like to see in ALL cars - something that would turn off a turn signal after the car has traveled x hundred feet AND after y seconds have elapsed. That is available on motorcycles, but I've never seen it on cars.
Any idea why that hasn't been done? It sure beats some of the sillier "features" that ARE available.
October 17, 2007 9:39 PMWanna talk about poor pay? How about this... I'm a Civil Engineer working for DoD. I have 30 years experience, and only make about $5 an hour more than the average auto production worker. I handle design projects every year totalling Millions of $$$$, and am pretty successful at what I do. But that and wage rates for workers are hardly the point.
The point of this article is what is the matter with the U.S. auto industry. What we pay our workers is only part of it. What we need to do is continue to build a very high quality vehicle, which we do! Don't fall into that nonsense that people keep trying to peddle that our production vehicles are inferior to Japanese and other foreign manufacturers. U.S. autos are at least as good as general production models of any other maker in the world, and we continue to take the brunt of folks that still believe that foreign cars are substantially better. They're NOT!
If domestic producers need to do anything, they need to produce a hybrid that is relatively affordable. I know what I think when I look at them. $30K for the hybrid. $18K for the conventional vehicle. Looks like a no-brainer to me.
I'm no Green Freak, but I do recognize something that is well-engineered. Hybrids and alternate fuel vehicles make sense. Oil is a finite resource, as we are now finding out, and have been told for decades. The less of it we use per mile traveled, the better. I'd LOVE to buy that hybrid and smile on those infrequent occasions when I'd have to visit the service station for gas. But, I'd also frown when I have to deduct that huge monthly payment for the installments on that car. Yeah, the public will get on board to buy hybrids... But, only when they get affordable.
Thank you, Gary, for your reply.
Yes, some UAW workers must control robots and other sophisticated equipment and this takes knowledge and skill. I also suspect you must learn Six Sigma and lean manufacturing precepts. In addition, you may be expected to offer ideas for cutting cost and adding value. Work has changed and old stereotypes don’t cut it regarding today’s shop floor.
No, I don’t know of any vehicles that cut the circuit for turn signal operation based on distance and time as occurs with some motorcycles. Your idea is a good one and we hope someone uses it to prevent some drivers from cruising down the highway with their blinker on when they have no intention of turning. As most turn signal sounds seem somewhat too low in volume and baby boomers start to age, this may become more of a problem, especially if they listened to music that was too loud when they were young.
Pretty good article and I am big believer in what the market wants on supply and demand. If I want to buy an SUV from GM, then I buy it. If I want a Toyota Camry, then I buy it.
This article doesn't demean the consumer. The consumer is ultimate decision maker. Why in this country is our consumer being scorned for making choices with their own money? If I want to buy an SUV, then I am a "gas guzzler". If I want to buy a Honda or Toyota, then I am considered "not backing the unions and un-american". My money my choice.
As far as the whole wage debate, GM and Ford better get their costs under control and jobs are never garuanteed. UAW members cannot ride the contract theory of job security and mandatory wages. Management must change their philosophy to rewarding like Toyota and Honda does. The UAW needs to control wage requests and start promoting the workers to take pride in their work.
October 19, 2007 11:57 AMFor Tom Williams, Here's what Tesla had to say about its battery:
TESLA MOTORS REPLY:
We expect the cost to be somehwere between $20 and $25K. The replacement pack will likely get a longer range and more power.
Otherwise, the cost of ownership for the roadster is very low; fuel costs are about 1/10th gasoline prices and regular maintenance is limited to tires and brakes. Including battery pack replacement, cost of ownership for the Roadster is not significantly different from other cars in it's price range.
what was the value of imports and exports in the u.s. auto industry for 2007?
January 30, 2008 9:12 PM
