Competitive Connection June 25, 2007

Note:  Competitive Connection will resume publication on July 23. We decided not to publish the week of July 16 due to the timeliness of the materials and the requirements of the review process.

What others are saying . . .
Difference between domestics and Toyota
The work rules in place at Detroit's three automakers have resulted in 8,200 assembly jobs that wouldn't be needed if the automakers had the flexibility of rival Toyota's U.S. factories, according to an analysis by consulting firm AlixPartners.

Work rules and job classifications negotiated in union contracts have led to inefficiencies at U.S. plants operated by Ford, General Motors and the Chrysler Group, when compared with Toyota's U.S. operations, the study says.—Source: Detroit Free Press, June 20, 2007
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A look at the competition
Toyota's New U.S. Plan
Five years ago, Toyota launched a factory-building blitz in the U.S. that helped make it the world's largest auto maker.

Top Toyota executives are concerned that the car maker may have built too many U.S. factories, in part to build political support by providing new jobs in lots of places. And although Toyota's U.S. sales continue to grow, these executives worry about an uncertain outlook.  At the same time, a cheap yen is making it advantageous for Toyota to increase manufacturing capacity and export cars from Japan.

"It's much, much more profitable to produce cars in Japan and ship them all to the U.S. right now, if it wasn't for the political problems that might cause," says a senior executive and management-board member. Toyota has increased shipments to the U.S. of Japanese-made vehicles from 762,000 in 2004 to 1.27 million last year.

Toyota's planned slowdown in U.S. factory building, and a parallel effort to rein in rising labor costs, suggests a rare misstep for the Japanese giant.

In the automobile industry, having too much manufacturing capacity is bad business. Toyota can now make more than 100,000 more Tundras each year than it expects to sell. The sluggish demand and competition from Detroit have forced Toyota to offer unusually large discounts on Tundras, including zero interest financing for five years -- a tactic borrowed from GM.

Toyota's most efficient plants around the world operate more than one assembly line each. Between 2002 and earlier this year, Toyota announced four new vehicle-assembly sites -- Tijuana, Mexico; San Antonio; Woodstock, Ontario; and Tupelo. Not one of the four has plans for a second assembly line. Only Tijuana and San Antonio are currently up and running.

In Japan, some of Toyota's plants are capable of building more than a half-dozen different vehicles. In North America, several of them build just one or two models. That lack of flexibility makes it more difficult for the company to adjust to sudden swings in demand.  --Source Wall Street Journal, June 20, 2007
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What others are saying . . .
Dealer glut costs $3.9 billion?
How much does having too many dealers cost Detroit's automakers? According to the best publicly available estimate, it is about $436 per vehicle, or $3.9 billion, according to CNW Marketing Research in Bandon, Ore.

The $436 figure represents the average of what General Motors, Ford and the Chrysler Group spend above the industry average.

The estimate includes the cost of delivering vehicles to stores, as well as a variety of administrative expenses that automakers incur to support their dealers. Those services include marketing assistance, parts and service support, training, auditing and other behind-the-scenes activities, such as communications about financing and new products.  Having to provide all those services to thousands of unnecessary dealerships is a huge cost disadvantage for Detroit's automakers.

Chrysler has the heaviest cost disadvantage among the group, spending $581 more than the industry average, CNW reports. Ford and GM had lower, but still significant, cost disadvantages, of $503 and $312, respectively. Toyota, on the other hand, is the most efficient, spending $226 below the industry average. -- Source: Detroit Free Press, June 17, 2007
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