US auto cos fall behind in profitability

DETROIT: US automakers face a widening gap in profitability per vehicle compared to their major Japanese rivals because of missed design opportunities, heavy discounting and high labour costs, a study said.

The study by the automotive consultant Harbour Felax Group marked an attempt to quantify the costs that have sapped earnings-per-vehicle for Detroit-based car makers relative to their major competitors in the American market.

The study found that General Motors lost an average of $1,271 for every car and truck it sold in North America last year. By contrast, Toyota Motor, which is on track to overtake GM as the world’s largest automaker by volume, made a profit of $1,715 per vehicle on average. The profit margin was better at Nissan Motor, the smallest of the six major players in the US market, which made $2,135 per vehicle on average, the study said.

Honda Motor earned $1,259 on average per vehicle, it said. By comparison, Ford Motor lost $451 per vehicle on average. Chrysler Group, a unit of DaimlerChrysler made a narrow profit of $144 per vehicle on average. That left the Detroit based automakers with a combined profitability gap of $2,400 per vehicle compared to Nissan, Toyota and Honda, the study said.

Some of the disparity is the result of factors beyond the control of the US auto industry, including spiralling health care 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, US automakers could earn up to $1,500 more per vehicle sold, she said. “When you multiply that out by global volumes, it’s a huge number,” she said.

Although US automakers have made progress in quality, they still trail in wringing out costs by sharing components across their line-up, an area where Toyota has surged ahead. Toyota has reduced its worldwide costs by $1,000 per vehicle by simply using unseen components such as air conditioning and heating systems more widely, the study said.

The study also found that US sales incentives, including employee-level pricing, cut deeply into revenue per vehicle for the traditional Big Three in ’05. On average, vehicles from US car makers sold for $21,597 last year, almost 13% below the comparable sales price for the Japanese car makers, the study said.

Harbour Felax said GM had made “dramatic improvements” this year by easing off such discounts and pulling back from sales to car rental companies, which typically command discounts of $3,000 to $4,000 per vehicle purchased. “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 either Ford or Chrysler.

She questioned the logic of a GM tie-up with Nissan-Renault, saying the complexity of such a deal could reverse progress the US automaker has already made in reducing its annual bill for parts purchases. An expanded alliance would also not address GM’s high labour costs, an issue that has to be taken up in negotiations set to begin next year with the United Auto Workers, she said.