U.S. Auto Makers Approach a Crossroad
The truth about the present, confusing time for the U.S. and world economies is that we’re at a great divide between past and future, a period of enormous promise but also challenge.
And just as it was 75 years ago, the car industry once again is at the center of great trends. Despite talk of plant closings and a car surplus in the world, the automobile is still a growth industry, with technological impact still to come.
The potential market is huge. About 80% of the cars produced each year are sold in countries with 20% of the world’s population--which means that roughly 80% of the world’s people are potential customers.
And in this decade, impressive numbers of those automotive “wannabes” are going to get their wish.
Mexico could go very quickly from 600,000 cars a year to 1 million, and on from there to become a globally significant producer and consumer of automobiles.
What used to be East Germany may triple car sales to 750,000 a year in this decade, says Hans-Jorg Hungerland, president of Volkswagen of America. And beyond Germany, says Hungerland, “if Eastern Europe and the Soviet Union came up to only half the 500-cars-per-1,000-people ratio of the United States or West Germany, it would add 23 million cars to current world production of 36 million, plus 14 million trucks.”
The promise is great.
So are the challenges. At the very least, a massive increase in automobile use in an environment-conscious world will demand a change in fuels to reduce pollution.
More than that, most of the world’s automobile companies face a critical struggle to adapt because an improved way of manufacturing cars is changing the rules, as much as Henry Ford changed them with the assembly line 77 years ago.
The new system is called “lean” production by the authors of “The Machine That Changed the World,” a remarkable book that has come out of the Massachusetts Institute of Technology’s five-year, $5-million study on the future of the automobile.
Authors James P. Womack, Daniel T. Jones and Daniel Roos relate how one man, Taiichi Ohno, production chief of Toyota, looked at the assembly line some 40 years ago and saw a better way.
To improve quality, Ohno allowed assembly workers to stop the line to correct defects immediately, rather than reworking errors in the completed vehicle.
He organized workers in teams, gave them responsibility for quality checks and production improvements--and then cut out ranks of supervisors.
Ohno eliminated inventories of back-up parts and devised ways to change models quickly.
Some of what the book relates is familiar to Americans, who have been hearing sermons on Japanese competitiveness for more than a decade now.
But there is nothing necessarily Japanese about lean production--one of the most successful plants practicing it is in Hermosillo, Mexico, and is owned by Ford. The lean production idea is powerful, the nation that adopts it becomes so.
Ohno’s production system has cut car assembly time in half--to 16 hours from 31--and lifted Toyota to third place among the world’s car manufacturers, after Ford and General Motors. And adaptations of lean production have helped Japanese industry rise to prominence--just as Ford’s mass production ideas powered the United States to industrial leadership before 1920.
In Ford’s case, his use of interchangeable parts and auto assembly broken down to single repetitive tasks reduced costs 88% from traditional craft assembly.
The implications go beyond industry. “How we make things dictates not only how we work, but what we buy, how we think and how we live,” write the authors of “Machine.” Mass production made cars affordable for the masses. Ford raised wages to $5 a day in 1914 and said he was creating customers.
Today, lean production makes cars even more affordable and has ensured employment for Japanese workers, whose pay is now higher than that of U.S. auto workers.
But adaptation to a new system is neither easy nor assured. Managers and workers in Britain resisted mass production, and British industry lost out. With the coming of lean production the message again is adapt or die.
Conventional wisdom sees a global surplus of 8 million cars today, but the authors of “Machine” disagree. There is “a vast glut of uncompetitive mass production capacity,” they write, “and that is threatened by a shortage of competitive lean production capacity.”
That’s why Toyota can confidently announce an expansion to double production at its Georgetown, Ky., plant, as it did last week, while General Motors talks of even more cutbacks. Still, GM’s Saturn project is a start at shifting completely to lean production, and the giant company “under its new chairman, Robert Stempel, is making a serious effort to reform,” says analyst Joseph Phillippi of the Lehman Bros. investment firm.
To date, Ford has adapted to lean production faster than GM or Chrysler, and all have been quicker to do so than their counterparts in Europe, where it still takes 36 labor hours to assemble a car, compared to 25 in the United States and 16 in Japan.
What’s the problem? One is that lean production eliminates the boss’s job. Today at Toyota “there are seven layers of management between the worker on the line and Chairman Eiji Toyoda’s office,” says an auto expert. “At GM there are still 17 layers.”
Also, some resist lean production because it wasn’t invented here. But neither was the radio. Accepting a better idea and adapting to a changing world is not a sign of weakness, but failing to do so spells decline. At a great divide, we can stay behind or cross over confidently.
