DETROIT – Detroit has all-but eliminated the productivity gap with the Japanese in the U.S., but greater manufacturing flexibility will be the key to survival as the market continues its rapid shift toward more fuel-efficient vehicles, says Ron Harbour, a consultant with Oliver Wyman.

In a bit of a stunner, Chrysler LLC moved to the top of the charts in Oliver Wyman’s 2008 Harbour Report released today, tying with Toyota Motor Corp. at an average 30.37 hours per vehicle for its assembly, stamping and powertrain plants combined.

Chrysler gained 7.7% in productivity over the past year, the largest increase of any auto maker, while Toyota declined 1.5%.

But General Motors Corp. and Ford Motor Co. also narrowed the gap with their Asian competitors, with GM improving 0.2% to 32.29 hours and Ford gaining 3.7% to 33.88 hours.

The 3.5-hour difference between the worst of the Detroit-based auto makers and the best of the Asians compares with a more than 8-hour deficit in 2003. Fifteen years ago, the U.S. Big Three averaged twice as many hours per vehicle as Toyota.

“There’s been more improvement in the last five years than the previous 15,” Harbour tells the Automotive Press Assn. here in discussing the study’s results. He attributes the gains to productivity improvements as well as the massive job cuts GM, Ford and Chrysler have engineered in the past few years.

“To make productivity improvements while there’s been the sizable degradation in (output) is noteworthy,” Harbour says, noting Ford and GM each have taken more than 1 million units of capacity out of the system since 2005.

Rounding out the major competitors on the Harbour Report ranking, Honda Motor Co. Ltd. saw overall productivity improve 2.3% to 31.33 hours, while Nissan Motor Co. Ltd. suffered an 8.8% decline to 32.96. Both Nissan and Honda data is estimated. Hyundai Motor Co. Ltd. finished below Ford at 35.10 hours.

Harbour predicts the U.S. market won’t return to the 17 million-unit annual volumes of early in the decade, saying somewhere near 15 million vehicles likely will be the norm for the next few years.

That, plus the sudden shift in demand away from pickups and SUVs and toward small and midsize cars, will “challenge companies to have flexible (tooling) in order to respond,” he says.

“Whether you can shift (the mix at) plants is going to determine the winners and losers,” Harbour says.

That may favor the Japanese, he says, because they are used to building multiple models in smaller volumes at single plants. But the Detroit Three also have been investing in more flexible tooling, he points out.

“You can’t have a plant called a ‘truck plant’ or a ‘car plant’ or a ‘small-car plant’ any more. It just has to be a plant.”

And it is not just assembly operations that will be affected. Engine and transmission facilities also will need to be flexible as the market shifts to a variety of fuel-saving powertrains, moving from large V-8s toward smaller turbocharged and supercharged engines and hybrid systems.

“The powertrain is one-third the cost of the vehicle, and that’s increasing because of the increasing sophistication of the technology,” he says. “There’s going to be more 4-cyl. turbos and direct-injection engines and less V-8s. It’s a huge shift for this industry.

“Those with flexible head lines have the advantage, because that’s where direct-injection and turbocharging technology comes in.”

Chrysler’s Toledo, OH, Jeep Wrangler plant topped the list of most productive assembly plants, with just 13.57 hours per vehicle, the lowest number of hours ever recorded by the Harbour Report for a single plant. GM’s two Oshawa, ON, Canada, car facilities were next, but trailed Toledo by an hour or more. Notably, no Toyota assembly plants made the top 10.

Overall, the industry gained 2.0% in assembly productivity from 2007, averaging 22.50 hours per vehicle, a new record low for the study. Ford, Nissan and Volkswagen AG all finished worst than average, but only VW’s Mexican operations were noticeably off the industry’s pace, at 41.33 hours per vehicle.

In stamping, there’s still a wide gap between Toyota, which produces 828 parts per hour and the rest of the industry. Ford is next best at 695, followed by Hyundai (671), GM (659) and Chrysler (636).

On average, industry stamping productivity is twice what it was 15 years ago.

“It’s $30 million-$40 million for a typical stamping press,” Harbour says. “So if you have to buy only half as many, you can put that money back into the product.”

Toyota also leads on engine plant productivity at 3.13 hours per unit, but GM (3.44) and Chrysler (3.35) also are running below 4 hours. Ford improved 5.9% to 4.32.

Chrysler’s Global Engine Mfg. Alliance plant in Dundee, MI, leads all engine plants. GM placed five facilities on the top 10 list.

GM had the most productive transmission plant (Toledo), but Chrysler is the most efficient of all at 3.36 hours per transmission. Ford and GM trail that by about 30 minutes.

The new labor contracts with the United Auto Workers union will tighten the cost gap between the Detroit Three and Toyota, Nissan and Honda to $97 per vehicle in 2011, from $606 in 2007, the report says.

A bigger gap in profitability remains, with Ford losing $1,467 on every vehicle it builds vs. Honda and Nissan earning $1,641 per unit.

“Productivity doesn’t guarantee profitability,” Harbour says, noting the Detroit Three are chipping away at cost disadvantages but still pay more in health care and other benefits.

But the efficiency gains have made “the Detroit Three like Rocky,” he adds. “They are in the fight of their lives, but at least they’re going into the fight in the best shape they’ve ever been.”

dzoia@wardsauto.com