Study Blames Designs, Discounts, Labor Costs for Big Three’s Woes

U.S. automakers face a wide gap in profitability per vehicle compared with their major Japanese rivals because of missed design opportunities, heavy discounting and high labor costs, a study released Monday said.

The study by consultant Harbour Felax Group marked an attempt to quantify the costs that have sapped profit for the U.S. Big Three manufacturers relative to their major competitors in the American market.

The study found that General Motors Corp. lost an average of $1,271 for every car and truck it sold in North America last year.

By contrast, Toyota Motor Corp., on track to overtake GM as the world’s largest automaker by volume, made a profit of $1,715 per vehicle.

The profit margin was better at Nissan Motor Co., the smallest of the six major players in the U.S. market, which made $2,135 per vehicle, the study said. Honda Motor Co. earned $1,259 on average.

By comparison, Ford Motor Co. lost $451 per vehicle and Chrysler Group, the U.S. unit of DaimlerChrysler, made a narrow per-vehicle profit of $144.

That left the three Detroit-based automakers with a combined profitability gap of $2,400 per vehicle compared with Nissan, Toyota and Honda, the study said.

Some of the disparity is the result of factors beyond the control of the U.S. auto industry, including spiraling healthcare costs and a weaker yen, said Laurie Harbour Felax, who heads the consulting firm known for its productivity studies.

But by making design improvements, holding showroom pricing steadier and taking other steps, U.S. automakers could earn as much as $1,500 more per vehicle sold, she said.

“When you multiply that out by global volumes, it’s a huge number,” she told Reuters.

Although U.S. automakers have made progress in quality, they still trail in wringing out costs by sharing components across their lineups, an area in which Toyota has surged ahead.

Toyota has reduced its worldwide costs by $1,000 per vehicle by using unseen components such as air-conditioning and heating systems more widely, the study said.

The study also found that U.S. sales incentives, including employee-level pricing, cut deeply into revenue per vehicle for the Big Three in 2005.

On average, vehicles from U.S. automakers sold for $21,597 last year, almost 13% below the comparable sales price for the Japanese companies, the study said.

Harbour Felax said GM had made dramatic improvements this year by easing off such discounts and pulling back from sales to auto rental companies, which typically command discounts of $3,000 to $4,000 per vehicle.

“I think they’re on the right track, and I think they’re ahead of the curve,” she said, adding that GM had made faster gains in its turnaround than Ford or Chrysler.

She questioned the logic of a GM tie-up with Nissan and Renault of France, which the three automakers are discussing, saying the complexity of such a deal could reverse progress GM has made in reducing its annual bill for parts purchases.

An expanded alliance also would fail to address GM’s high labor costs, an issue that has to be taken up in negotiations set to begin next year with the United Auto Workers, she said.