Ford, Chrysler cut production costs below Japan's

June 18, 1992|By New York Times News Service

Ford and Chrysler have increased the efficiency of their factories and workers so much in recent years that their basic cost of producing a car is now less than that of their Japanese rivals, according to a study published yesterday.

Analysts have long recognized productivity improvements at Ford Motor Co. and Chrysler Corp. But the assumption in the industry has been that a production-cost gap remains between the second- and third-largest automakers in Detroit and the Japanese companies, especially Toyota Motor Corp., generally considered the world's low-cost producer.

But that assumption is no longer true, according to the report by the Economic Strategy Institute, a research organization in Washington. Based on a yearlong study, conducted with help from the University of Michigan's Office for the Study of Automotive Transport, the private research group estimates that the direct cost of producing a small car at Ford is $5,415, Chrysler's cost is $5,841, and Toyota's is $6,216.

The comparable cost for the other three leading Japanese companies -- Nissan, Honda and Mazda -- are somewhat higher than Toyota's. General Motors is the high-cost producer, at $7,205 a car.

"The good performance of Ford and Chrysler is surprising," said Clyde V. Prestowitz Jr., president of the Economic Strategy Institute. "And the figures show that Ford and Chrysler really have become competitive with the Japanese."

The glaring exception in the report's picture of the U.S. industry asan efficient producer is General Motors Corp., the nation's largest automaker. Its laggard position in terms of cost of production helps explain the urgency of its recent management changes, payroll cuts and plant closings.

Other analysts agreed that Ford and possibly Chrysler were quite competitive with the Japanese companies but said the Economic Strategy Institute report may have overstated the case.

By stating the results in U.S. dollars, they noted, the biggest reason for the new-found cost advantage for Ford and Chrysler was the 85 percent decline in the value of the dollar against the yen since 1985.

But more recent studies have tended to focus on the number of worker-hours, rather than dollars, required to make a car.

"Ford has done a terrific job and, in the past few years, Chrysler has made huge gains in its productivity," said James Harbour of Harbour & Associates in Troy, Mich. "But I'd still rank Toyota No. 1 with Ford close behind."

In 1981, Harbour & Associates published a study that concluded the Japanese industry could produce a small car for $1,500 less than Detroit could. Some later studies were even more pessimistic about how far the U.S. industry lagged, estimating that Japanese costs were $2,500 or more below Detroit's.

The Economic Strategy Institute report found that in terms of man-hours and total labor costs in each car produced the Japanese still have an edge over all the Detroit companies. But the research group calculated that Ford and Chrysler more than made up that deficit by the lower prices in the United States for such things as purchasing glass, rubber and industrial fuel.

The report, "The Future of the Auto Industry: It Can Compete, Can It Survive?," written by Mr. Prestowitz, Paul S. Willen and Larry Chimerine, separately figured the costs that are often beyond the direct control of managers and workers.

For example, they estimated that higher health-care and pension expenses -- nearly half of which go to retirees and laid off workers -- meant an additional cost of $600 on each car Detroit makes, compared with the Japanese.

And the fact that the U.S. industry ran its plants at only 62 percent of capacity in 1991 vs. 95 percent for the Japanese resulted in a cost penalty of $800 to $1,500 a car for the Detroit producers.

When what the report calls these social costs, including a slightly higher cost of capital for investment in the United States, are added, Toyota becomes the low-cost producer and Ford slips to No. 2.

"The U.S. industry does carry all these burdens compared with Japan, but they are part of the competitive environment," said MaryannKeller, an auto analyst at Furman Selz Inc.

The Economic Strategy Institute recommends drafting an industrial policy for the U.S. industry, putting more pressure on Japanese factories in the United States to buy low-cost U.S. parts and attaching a "North American content" sticker on all cars sold in the United States.

The Economic Strategy Institute is supported by about 200 donors, including corporations, foundations, unions and individuals. Auto companies and suppliers provide about 15 percent of its financing.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.