Detroit is raving about the recent news that GM has practically matched Toyota in terms of factory productivity.
General Motors Corp., once the symbol of big, slow corporate America, virtually matched Toyota Motor Corp., the icon of lean manufacturing, in North American assembly plant productivity last year for the first time since it has been measured, industry research group Harbour Consulting reported Thursday. Toyota logged 22.05 hours of plant labor per vehicle assembled, while GM reported 22.15 hours, a difference of one-tenth of an hour, or just 6 minutes per vehicle.
That is an impressive accomplishment. But as the saying goes, if you’re very good at making crap, you’re still making crap. No, GM cars aren’t crap, but they aren’t exactly Lexus. From the JD Powers report earlier this week,
General Motors took some lumps in this year’s survey. Its Cadillac and Chevrolet divisons slipped into the below-average category, leaving no GM brands ranked above average.
To be fair and balanced, Toyota slipped a bit and Ford improved. However when you continue to make cars with quality and designs that customers believe to be inferior to your competition, productivity can actually hurt you. Especially when traditional accountants insist on running factories full-bore to absorb overhead.
GM, Ford and Chrysler each stock roughly 40,000 vehicles on dealer lots for each point of market share — more than twice the level stocked by Toyota Motor Corp.
That’s a decent amount of underutilized cash sitting around in inventory depreciating in value and awaiting obsolescence. And that eats away at the real bottom line: profit.
The most important race is the one for profitability. Right now GM is losing that one. The Detroit Free Press featured an interesting graphic the week Toyota surpassed GM. It showed GM and Toyota pretty close in a number of areas: number of employees — Toyota 2.35 million; GM 2.26 million; 2006 vehicle sales — Toyota 8.8 million, GM 9.1 million; 2006 production — GM 9.2 million, Toyota 9.0 million. But where the road diverges is in profitability. GM lost $2 billion in 2006; Toyota is expected to earn $13 billion. GM’s market capitalization is $17.4 billion; Toyota’s is a whopping $233.5 billion.
GM needs to focus on profits and building vehicles people want to buy. Look at BMW and Honda (and Toyota). They aren’t focused on being No. 1 in global sales; they are focused on growth with profits, their brands and their images. That needs to be GM’s mantra. It’s the only way to earn back the No. 1 spot.
Profit is definitely not related to the useless metric of being number one in sales, but instead it’s building cars that people want. Cars with great designs, high quality, and appropriate cost. Productivity helps. Bashing suppliers into submission may help temporarily, but not long term. GM and Ford are making improvements in quality and design… but so is Toyota.
The bar continues to rise. To succeed improvement must accelerate past the norm. That’s a tough challenge.
Dr. Electron says
Very interesting numbers there. 233.5 billion in capital is very nice. Maybe GM needs to cut their least profitable models and focus on their most profitable ones. Seems like they have too much on their plate to recover from both quality and financial burden.
Mark Graban says
What % of GM’s cost is direct production labor? There’s such a focus on just that portion of cost, as opposed to total cost or total producitvity.
Ron says
This just further proves the point that we can produce and produce but if we are not respectful to people AND making money who really gives a damn.
Karthik Chandramouli says
Here’s some perspective on the Harbour Report, which is the source of this productivity data. Disclaimer: I was involved in this benchmarking activity when I was at Toyota, so I know how it works.
While Harbour does a good job of trying to compare apples-to-apples, the methodology for deriving hours per vehicle relies on adjustments to sourcing (make vs. buy) decisions that affect pure labor productivity.
The former Big 3 typically outsource in a similar pattern, based on contracts with the UAW and their historical philosophy.
Toyota philosophically believes in making certain types of parts in-house (particularly, small parts in body weld). Nissan outsources those processes to suppliers.
Which is one reason that Nissan has been at the forefront of the Harbour Report rankings for a long time. This is never explained by a gross view of hours per vehicle.
They outsource more labor content, so their Smyrna plant looks better from a pure hours per vehicle perspective.
True productivity can only be understood through in-depth benchmarking — something that is difficult to do on a large scale, not to mention gaining agreement between companies to share proprietary data.
So, while the Harbour Report delivers some value to the industry in terms of overall trend performance, many companies grudgingly go along with it because of inertia.
Looks like Nissan decided to pull back from it this year, which makes me wonder what they are hiding? In their defense, it is labor-intensive to participate…
What isn’t apparent from the hours per vehicle metric is the impact of modular assembly / integration and automation, and how that moves the productivity numbers.
For example, the Ford Atlanta plant was at the top of the productivity rankings for a long time. They achieved this through expensive, inflexible automation. Now they are shutting down this factory.
GM, similarly, has — by all accounts — an excellent factory in Oshawa, Ontario. Recently this factory achieved the top rank in productivity and in quality (JD Power).
Now GM is shutting it down. WHY ??? This might be one of the dumbest moves I have ever seen. You get a plant running at a very high level, invest in the people, and then you close what is their best factory in quality and productivity?
How does that makes sense? Probably the finance weenies in their NYC Treasurer’s Office have figured out that allocating all the corporate overhead to that plant makes it unprofitable…
The other day I was shocked to see Ford (well, Lincoln) vault to the top of the JD Power IQS rankings.
Makes me wonder how bad the survey design was this year…
Bottom line — don’t believe the hype. Toyota has definitely slipped, but they are still in a different league on productivity and quality, regardless what third-party ratings say.