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 recently, 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.

Harbour 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.”