News Column

Detroit 3 Said to Be Closing Hourly Cost Gap with Toyota

Sept. 20, 2012

Nathan Bomey

Detroit 3

The Detroit Three are closing the hourly cost gap with Japanese competitor Toyota, a top industry expert said this morning.

Chrysler is expected to have lower U.S. hourly labor costs than Toyota by 2015, Center for Automotive Research chief economist Sean McAlinden projected at an AutoBeat Group conference in Dearborn.

Hourly costs for General Motors and Ford will be slightly higher than Toyota in 2015, but the gap will be razor-thin, McAlinden said.

The cost gap has long dogged the U.S. automakers, giving Toyota a big advantage. But after the 2009 bankruptcies of GM and Chrysler, restructuring at Ford and concessions from the UAW, the Detroit Three have lowered their operating costs.

"There's been a lot of changes to say the least," McAlinden said.

He projected U.S. hourly labor costs in 2015 of $62 for Ford, $60 for GM, $58 for Toyota and $55 for Chrysler. Some other competitors will still have lower costs with Honda at $53, Nissan at $50, Hyundai at $47 and Volkswagen at $40.

The lowered cost gap is already paying dividends. In five vehicle segments, GM has higher transaction prices than Toyota, which boosts profits, McAlinden said.

McAlinden said U.S. automakers are keeping incentives low while maintaining total market share in the range of 44 percent to 45 percent.

"It's not about market share, it's about having the right-sized market where you get the best available price compared to cost," he said.

To be sure, the auto industry has gone through significant pain to reach a sustainable level of production. The Detroit Three cut North American production capacity by about 35 percent from 2004 through 2012, the equivalent of more than 20 assembly plants, McAlinden said.

Those were widely considered necessary cuts to preserve a smaller, but healthier industry. But in Europe, where consumers are conserving cash in the midst of a sovereign debt crisis, the auto industry is operating at about 70 percent capacity. That's pummeling profits, and analysts say the industry needs to close plants.

But McAlinden said U.S. automakers are handcuffed by the centralized political process in western Europe, where labor laws and political leaders make it very difficult and costly to close plants and cut jobs to restore profits.

"Europe runs their industry like a cartel," McAlinden said, and "GM and Ford are out in the waiting room."

Source: (c)2012 the Detroit Free Press. Distributed by MCT Information Services

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