Competitive Connection

November 19, 2007

What others are saying . . .
Industry experts comment on labor talks

Harley Shaiken of the University of California, Berkeley, said the contract was the best that could be hoped for in difficult times. The Ford deal and similar agreements at GM and Chrysler together signal the beginning of a new era in the U.S. automotive industry.

"We're in uncharted territory," he said. "The signing of these contracts only sets the stage for the future. It doesn't determine what's going to happen next.

"The union managed to preserve core principles, made some painful sacrifices and set the stage for future gains. It had to enable the companies to survive and prosper. "

David Cole, chairman of the Center for Automotive Research in Ann Arbor, said the new contracts should cut about $1,000 out of the cost of each vehicle made in the United States by Ford, GM and Chrysler. That may not close the labor cost gap with their Asian rivals, but it narrows it considerably.

The industry still faces challenges, he said. The U.S. economy is weakening, and with it demand for new vehicles. "It doesn't mean it's going to get easier," Cole said. "But now there's hope."—Source: The Detroit News, November 13, 2007

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What others are saying . . .
Getting better at balancing supply and demand

Eight of the nine biggest car makers in the U.S. market managed to push up their average transaction prices for vehicles during the third quarter from the same period a year ago, the Power Information Network reported. GM increased average retail transaction prices by 5.5% to lead the group. On average, transaction prices for the nine manufacturers rose 2.6% during the third quarter from a year earlier, PIN reported.

For most of this decade, Detroit's auto makers did a poor job of balancing production with actual consumer demand. The reasons are many, starting with the fact that car makers book revenue when a vehicle is sold to a dealer -- and ordinarily that "sale" is booked whenever a vehicle is built. Never mind that a car could be "sold" and then sit for weeks in a parking lot before a real customer showed up. Selling new cars as if they were leftovers at a cheap electronics store helped to tarnish the images of Detroit brands, and perpetuate weak resale values that drove customers to brands such as Honda or Lexus or BMW.

Unfortunately for the manufacturers and their shareholders, the underlying causes of weak automotive pricing – a glut of car-making capacity world-wide and the status of the U.S. as the open market of choice – haven't changed. It's hard enough to walk the straight and narrow path. It's even harder when the whole world is against you.–Source: The Wall Street Journal, November 11, 2007

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A look at the competition
Absenteeism trends

Absenteeism among hourly workers in the automotive industry runs about 10 percent annually, about three times higher than in other industries, according to a 2004 study by the Supplier Action Committee, a trade group.

At some Big Three plants, the study found, absenteeism runs as high as 20 percent. The figures include vacations, paid time off and medical leave. Industry analysts have long pinpointed absentee rates as an area in which Detroit automakers lag behind their foreign rivals who operate U.S. plants.

"The foreign-owned plants were a lot tougher in this area," said manufacturing consultant Ron Harbour of Harbour Consulting Inc., which tracks productivity in auto plants. "If it was 'five unexcused absences and you're fired,' you were really fired."

In plants with the worst attendance rates, Harbour said, missed work can add a couple of hundred dollars to the average cost of building a vehicle. -- Source: The Detroit News, November 12, 2007

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Then and Now
The challenge to change perception

"People have very, very long memories," said Michelle Krebs, editor of AutoObserver.com. "They had bad experiences with domestic cars in the '80s and '90s. Things have changed, but they are reluctant to believe it."

That's why just 20% of the 2.7 million people who shop for family cars every year have a domestic brand at the top of their list, said Ed Peper, Chevrolet general manager.

Another 20% are "import neutral," GM's research says. The rest -- 60% of all Americans looking for a family car, 1.6 million buyers a year -- range from mildly opposed to actively hostile to the idea of buying a car from a U.S.-based automaker.--Source: The Detroit Free Press, November 13, 2007

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A look at the competition
Toyota ’s profits

Toyota predicted that it would make a record $14.9 billion profit for the year after posting higher second-quarter earnings.

"Because income from other regions has increased so much, our dependence on North America has decreased somewhat to a level that is slightly below 50 percent of income," Toyota Senior Managing Director Takeshi Suzuki. Fierce competition in the United States – and heavy discounting in the large pickup segment that Toyota is now trying to crack – cut earnings from its local U.S. operations.

In past years, Japan's automakers generated the bulk of their earnings in the United States, where they sell one out of every three new vehicles. But analysts say that is changing. -- The Detroit News, November 8, 2007

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