Are the Big Three the Lean Three?

by Jamie Flinchbaugh on 12-10-09


Are you waiting for your annual GM and Chrysler report? I would assume as a shareholder that we’ll all get one. No? OK, I won’t wait by the mailbox (since technically we’re not shareholders). Fortunately there are plenty of people trying to offer an explanation of progress, or lack thereof, from numerous journalists and bloggers. Here’s an article by IndustryWeek’s Josh Cable titled GM, Ford and Chrysler Strive to Become the Lean Three. This paints a picture of both the good and the bad, but some of the focus seems wrong to me.

There is a tendency to focus too much on direct labor productivity. Certainly it is important. Here’s some data from the article:

According to the 2008 [Harbour Report], the gap between the most and least productive automakers in terms of total manufacturing labor (a measurement that encompasses assembly, stamping, engine and transmission operations) shrunk to 3.5 labor hours per vehicle (or about $260 per vehicle), down from 10.51 hours (or $790 per vehicle) in 2003.

I was visiting one automaker and in the factory they measured on a daily basis against the Harbour Report. Driving a metric for external reporting drives the wrong behavior. The article mentioned that Chrysler outpaced everyone with a 7.7 percent reduction in labor hours per vehicle in 2007. The easiest way to do this is to pump out more product that you don’t need. This was the company that they ended up with extreme overproduction of minivans. Great Harbour Report, bad results as a business.

The article goes on to describe how this gap has been closed.

[Wally] Hopp adds that the restructuring efforts at GM, Ford and Chrysler are helping to reduce some of the baggage that has given their Japanese rivals such a cost advantage (the 2008 “Harbor Report” noted that despite Detroit’s gains in productivity, “the profitability gap between Detroit-based and Japan-based automakers remain[ed] wide” due to the fact that Detroit was paying more for health care, pensions and sales incentives). But even if Detroit levels the playing field in that regard, Hopp says they’ll need to keep improving on the factory floor to stay afloat.

But fundamentally, cost and productivity was never the real problem. It was A problem. It wasn’t THE problem. In the end, you still need to built cars and trucks that people want. There does seem to be equal progress there, at least for Ford and perhaps GM. Chrysler sales continue to struggle mightily.

For more on the “lean” 3, read reviews of Frtiz Henderson leaving GM by Mark Graban and by Kevin Meyer.