As the Detroit three are failing to come at par with their Japanese counterparts the already existing per vehicle profit gap is on an increase. According to a study conducted by Stout Risius Ross, a Chicago-based financial and operational advisory firm, this gap between the Japanese automakers and the Detroit three grew by 32% from 2005 till 2006.
The gap puffed up by a striking $915 per vehicle sold in the North American region. As it was already a momentous $2899 for 2005, the situation got worse for the year 2006 when the figures reached around $3814.
The study of industry costs and profits by Laurie Harbour-Felax, managing director of Stout Risius Ross was made public at an automotive industry conference. It reveals that though general motors are making some significant improvements in cutting its production costs, nevertheless with its Detroit counterparts it still has some huge barrier to cross to come at parity with the Japanese automakers.
With GM surging higher and harder every day it was able to lower its losses by a marginal $146 for 2006 out of $1271 for the year 2005. The company has employed many tactics to cut down costs, around 34,000 hourly workers have been departed with early retirement offers and buyouts. Another strategy is to design cars and trucks at global level, making an increase in use of common parts for range of its vehicles and making purchases on global basis.
Even with all of its efforts GM is still making $2123 less for every vehicle sold in the year 2006 when compared with Toyota. The report also reveals that in terms of profit per vehicle sold for the year 2006 Toyota has registered an increase of $802, the company is most profitable among all the other auto makers.
Ford motors is also making some frantic efforts to lower its production costs; imply for common parts and desperately trying to globalize, still it is making $ 3939 lesser profits from the topper of the list. With the same trend Chrysler earns $3088 less on every vehicle sold when weighed against its Japanese rivals.
According to Harbour-Felax, managing director of Stout Risius Ross the basic reason behind Chrysler lagging behind in there profit margins is because they put up with what was not required and selling them with more incentives. She said “They put all these vehicles on the market that the consumer wasn’t demanding.
She also commented that the difference in labor costs between the Detroit three and the Japanese auto maker’s amount to $1200 to $1500 on every vehicle manufactured. Even though the ongoing contract talks between the United Auto workers and the Japanese will seek parity between the labor costs yet it seems that this will not be of much help, because the labor costs will contribute only 10% of the average vehicle costs.
Felax mentioned that GMs progress is a consequence of the company becoming more global, with adopting the same basic design and building techniques across the world for cars and trucks.
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They have been the most advanced from a product engineering, design efficiency and process engineering perspective,” Harbour-Felax said. “It’s not only saving them in terms of design and product engineering, but it also cascades down, so (parts) suppliers are seeing huge savings.
The main reason why the Detroit giants are lagging behind the Japanese auto makers is because they produce common parts for varied vehicles.
GM has worked a long way to manufacture more parts which will be common to multiple vehicles reducing the assembly lineup of varied parts for different vehicles. According to the national automobile dealers association the average selling price for a vehicle in the US amounted to $28451 last year.
Still it sounds that the American giants have to pass a long way to be at par with the Japanese auto makers and it will definitely be a time consuming process which will need a lot of patience and innovations.
Credit : IHT
