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Wednesday, May 24, 2006


A look at the advantages a newly constructed Toyota auto assembly plant will have over an existing GM plant:

A Tale of Two Auto Plants, by By Lee Hawkins Jr. and Norihiko Shirouzu, WSJ: For more than 50 years, General Motors Corp. has built cars and trucks here at Texas' only auto assembly plant... The sprawling factory, one of GM's best, employs 3,000 people and buys myriad parts and services from local suppliers to build the big sport utility vehicles that have been among the company's most profitable -- including "the national car of Texas," the Chevrolet Suburban.

Now, though, a rival has come deep into the heart of Texas to battle GM. At a 2,000-acre site in San Antonio, Toyota Motor Corp. is getting ready to start production later this year of the newest generation of Tundra pickup trucks in a plant that will use the Japanese car maker's most advanced machinery and methods.

Separated by 280 miles, these two factories bring into stark relief the competitive problems plaguing GM... In no small part, the world's largest auto maker's difficulties stem from the fact that its challengers can start fresh, unencumbered by old plants and old obligations that limit innovation and add ... to the cost of each vehicle...

Toyota appears to be working aggressively to make the most of its advantages. The company has been able to deploy the latest know-how to fit various manufacturing processes ... into a relatively compact space and make the plant more efficient.

On the other hand, ... GM can't maximize its success by adopting its newest, best methods... "Arlington is doing a great job for GM, but they can't have an optimal layout, and their footprint is landlocked because a world with subdivisions and expressways has grown up around it...," Mr. Robinet says...

Even so, Arlington ranked No. 1 among North American large-SUV factories last year, at 22.39 assembly labor hours per vehicle... Two decades ago, GM factories suffered from a sizable gap compared with similar Toyota factories... Recent ... surveys show that this gap has narrowed substantially. But GM's productivity gains are offset by higher hourly labor costs and the burden it carries for benefits owed to retirees.

In Arlington, GM pays union-scale wages of ... about $1,800 ...  per vehicle. ... Harbour Consulting President Ron Harbour estimates Toyota's total hourly U.S. labor costs, with benefits, at about $35 an hour -- less than half of GM's rates. The brand-new plant won't have any direct retiree costs for many years. So if the San Antonio factory does no better than match the Arlington plant in productivity, it could still enjoy a labor cost advantage of about $1,000 per vehicle, a substantial sum in industry terms...

Click to enlarge

Being new means Toyota can use its most-efficient manufacturing technology... Further, Toyota has arranged for 21 key Tundra suppliers to set up factories right on the same site, sandwiching the plant on the north and south sides. Engines still come from a Toyota plant in Alabama and axles from a supplier in Arkansas, but most other major parts, from instrument panels to seats to exhaust systems, are assembled at those on-site suppliers. That cuts the cost of transporting parts and storing large inventories on site as insurance against missed shipments...

GM, in contrast, is restricted by space, existing deals with suppliers who are located elsewhere and its agreements with the United Auto Workers that prohibit it from using lower-wage, non-union workers on the same site. Of the total 3,330 different kinds of parts that are supplied to the Arlington facility, about 1,075 come from Michigan suppliers, while 739 come from Texas and the rest from Canada and Mexico. Having suppliers located far away has a price tag...

Moreover, because the Tundra plant brings new jobs to San Antonio, Toyota ... has been able to bargain for a generous package of subsidies from various levels of government. ... The direct incentives alone, averaged over roughly one year's production, amount to more than $600 per vehicle in savings for Toyota. Even though it has made significant investments in Arlington in recent years, GM no longer gets the same pampering...

About a third of all cars built in the U.S. last year were assembled in the 14 plants owned by foreign-based auto makers... Toyota executives routinely downplay the threat the company's growth poses to traditional American auto companies. But there's little doubt that Toyota has big plans for using the new San Antonio factory to grab a chunk of market share in the large pickup market, one of Detroit's last bastions of profit...

Update: A comment made me think of previous posts on this topic:

    Posted by on Wednesday, May 24, 2006 at 12:06 AM in Economics | Permalink  TrackBack (0)  Comments (24)


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