If you've ever played Jenga, the high-pressure puzzle-game that demands dexterity, logic and guts, you have a vague notion of the challenges facing stakeholders in North America's auto industry.
The rules of Jenga are simple: Deconstruct a tower of blocks, piece by piece, without causing a collapse. (And you can't take from the top.)
Substitute the blocks for assembly plants and you have a snapshot of today's auto industry.
But skyrocketing gasoline prices have introduced a cruel twist: The remaining plants must be interchangeable, like segments of a Rubik's Cube, to enable assembly of multiple vehicle derivatives at a single production site.
Insiders and observers, alike, say this is a significant moment in industry history as the depressed climate compels auto makers to contract their assembly networks, while also expanding flexible manufacturing capability. This strategy is expected to serve as a hedge against an increasingly competitive marketplace, where a shrinking number of potential buyers are craving economy over excess.
For manufacturing chiefs seeking to align capacity with demand, such conditions create the ultimate brain teaser.
“It is a true test of who has the most flexible systems to go from one type of vehicle to another, and how fast,” says Ron Harbour, productivity consultant with Oliver Wyman and principal author of the benchmark Harbour Report.
With the advent of $4-per-gallon regular-grade, 2008 has seen the long-anticipated market shift from thirsty to thrifty as consumers abandon body-on-frame vehicles for lighter, unibody cars and cross/utility vehicles that afford superior fuel efficiency. Still, the industry was “caught flat-footed” when pump prices rose so sharply and steadily, it accelerated the consumer flight, Harbour observes.
Aggressive capacity actions provide proof of the resulting chaos. Within a 6-week period ending July 24:
Motor Co. confirms it will retool three U.S. truck-assembly plants to accommodate small-car output, with production expected to begin at two sites in 2010, followed by the third in 2011.
Corp. further slashes its anticipated truck output by 150,000 units, after announcing just 30 days earlier the closure of four plants that build pickups or SUVs.
LLC reveals it will idle the St. Louis minivan plant indefinitely beginning Oct. 31; its sister plant, which builds Dodge Ram pickups, will lose a shift.
Motor Corp., which defined flexible manufacturing with its much-copied Toyota Production System, announces it will suspend production of the Tundra fullsize pickup and Sequoia large SUV until November, starting this month. Tundra production also is being consolidated at the new San Antonio plant.
As big-truck sales plummet and Altima sedan sales soar,Motor Co. Ltd. is eliminating the second shift on the truck line at its Canton, MS, plant and adding an afternoon shift to the Altima line. Canton currently builds the Nissan Titan pickup, Armada SUV, Infiniti QX56 SUV and Nissan Quest minivan on the truck line. But the auto maker's next-generation Titan, due in 2011, will come from a plant. In 2010, Canton will produce the first of three new light-commercial vehicles.
Meanwhile, no fewer than four other plants that build body-on-frame vehicles — one at Chrysler and three within the GM network — face closure or at least uncertain futures between now and 2010.
The erosion of North America's truck assembly landscape, which threatens thousands of jobs, will further crystallize in August, according to Ward's AutoForecasts.
While light trucks accounted for 58.4% of light-vehicle output in August 2007, this August's tally is expected to plunge more than 12 percentage points to 46.1%.
Another wave of change is expected in 2010 with the promised North American production launches of several fuel-efficient cars, including thePrius, Fiesta, next-generation Ford Focus and Chevrolet Cruze.
Despite the logic behind these moves — first-half car sales stood nearly even with like-2007, while light-truck deliveries plummeted 18%, according to Ward's data — the mix shift, itself, is buffeted by external forces such as fallout from the sub-prime-lending crisis and the resulting decline in consumer confidence.
“If you're going to transition when the market is booming, it's one thing,” says Sam Gindin, lecturer at Toronto's York University and former chief economist with the Canadian Auto Workers union. “If the market is down, it's just so much more difficult. The competition is more intense. There's so much more uncertainty.”
The basic task is no different today than it was when Henry Ford was dueling with Louis Chevrolet in the 1930s: Build the right product, right now.
Cars and CUVs are the right products. But “it's going to be a race,” Harbour says.
For the moment, it's an easy race to call. There'sMotor Co. Ltd., followed by everyone else.
“took a beating in the press, and from others, in the 1995-2003 timeframe because they didn't have a (fullsize) truck,” says Brett Smith, assistant director, Center for Automotive Research-manufacturing, engineering and technology group. “But they're now the heroes because they don't have a truck.”
If Honda had a fullsize, body-on-frame pickup or SUV in its lineup, the auto maker likely would not have enjoyed the first-half success it recorded this year. Through June, Honda's sales rose 4.1%, compared with the first six months of 2007, according to Ward's data.
Meanwhile, each remaining Big Six auto maker — GM, Ford, Chrysler, Toyota and— have suffered declines related to the consumer flight from personal-use pickups and SUVs.
Smith recalls the 2002 Management Briefing Seminars in Traverse City, MI, when Hiroyuki Yoshino, then the president of Honda, listened while executives from GM, Ford and Chrysler boasted about plants that could build two or three derivatives of a single vehicle.
Asked about Honda's flexibility, Smith says Yoshino's answer stunned the audience.
“He said, ‘We can build any product at any plant at any time, anyplace in the world.’”
Smith admits such an endeavor would stretch even Honda's flexibility.
“But in essence, the message was really clear,” he says. And it resonated in Detroit, because CAR received a special request from a GM executive.
“We got a letter saying, ‘I want a tape of that. I want to show it to my staff.’”
Honda's manufacturing prowess primarily is attributable to commonalities in vehicle architectures. The auto maker's plant in Alliston, ON, Canada, can accommodate all-wheel-drive Honda Ridgeline unibody pickups and Acura MDX CUVs on the same assembly line as a front-wheel-drive Civic small car, notes Dan Bonawitz, vice president-corporate planning and logistics for Honda of America Mfg. Inc.
“We can literally build one right after the other of the different models,” he says.
This enables Honda to exploit peak demand for hot-selling models by juggling excess capacity reserved for slow movers. The auto maker did just that in March when it shuffled some Civic production to Alliston from its assembly plant in East Liberty, OH.
This created more capacity in East Liberty for production of the CR-V compact CUV, while moving the Ridgeline to Honda's plant in Lincoln, AL, where there was excess capacity.
Last year, the CR-V was the best-selling utility vehicle in the U.S. And through June, despite a down market, deliveries were flat vs. first-half 2007, according to Ward's data.
Meanwhile, sales of the Ridgeline and its linemates, the Odyssey minivan and Pilot large CUV, were off 11.9%, 9.6% and 16.7%, respectively.
Ironically, Honda's capacity utilization is expected to dip this year to 87.5% before sinking to 73.3% in 2009, as the auto maker launches its new Civic assembly site in Greensburg, IN, according to Ward's AutoForecasts.
Last year, Honda led the Big Six with 94.2% capacity utilization.
Model changeover is another key facet of flexibility. At Honda, it's “immediate,” says Bonawitz. “We'll build a new model right behind an old model. You might have one or two empty spaces, but that's it.”
Toyota's plants “are all about the same in terms of flexibility,” says Toyota Motor Engineering & Mfg. North America Inc. spokesman Mike Goss. “Any one North American assembly line is pretty much dedicated to either framed vehicles or unibody vehicles. Over the course of our manufacturing history in North America, we have localized production of high-volume vehicles that essentially occupy one or more assembly lines by themselves.”
But the mix shift has Toyota “considering how to improve flexibility,” he adds.
Meanwhile, Detroit auto makers are “better positioned” than they were in the past, Harbour says. “The Detroit Three have moved to more flexible systems in their plants in the last five years.”
As with Toyota and Nissan, they essentially maintain two networks of flexible plants — one for body-on-frame and one for unibody vehicles. The latter variety offers considerable flexibility.
Citing Chrysler's plant in Brampton, ON, Canada, as an example, Harbour says it could add the C-segment, FWD Dodge Caliber to the fullsize, rear-drive Chrysler 300 and Dodge Charger sedans that comprise the majority of its output.
“It's easier to go in that direction — big to small — than the other way,” he says.
Frank Ewasyshyn, Chrysler's executive vice president-manufacturing, confirms the plausibility of this scenario. But the auto maker didn't always design its platforms with flexibility in mind.
In 2000, Chrysler's woefully underutilized Neon plant in Belvidere, IL, could not build the new hot-selling PT Cruiser, even though it was based on the Neon platform. The PT was too tall for Belvidere's assembly line.
Though unlikely, Ewasyshyn says today's Chrysler could build unibody vehicles alongside body-on-frame vehicles. There is simply too much “mystique” that surrounds the differences between them, he says.
“A body-on-frame is nothing more than a reduced-weight unibody sitting on a frame,” Ewasyshyn says. “If you look at the cab of a truck, it's a welded unibody.”
Meanwhile, additional players are attempting to broaden the avenues available to auto makers in search of more flexibility.
“It's absolutely a historic time in North America,” says Linda Hasenfratz, CEO of supplier Linamar Corp. “There's a huge sense of urgency to react and change quickly. Yes, it's turbulent. It's difficult to manage. But ultimately, I think it brings a lot of opportunity.
“It's only through change that opportunity comes to a company.”
Linamar's blossoming relationship with Chrysler suggests a new model for auto makers seeking quick adjustments to a market that grows more and more unforgiving.
An Ontario-based powertrain-components maker with global reach, Linamar is weeks away from sealing a deal with the auto maker to assume partial control of Chrysler's transmission plant in Kokomo, IN. Using Chrysler's unionized workforce, Linamar would machine parts for a breakthrough dual-clutch gearbox supplied to the auto maker byGmbH for installation in the '09 Dodge Journey CUV and other vehicles.
“Moving to a more collaborative model needs to happen in order to have an industry that's more efficient,” Hasenfratz says. “As we all drive for efficiency and competitiveness on a global basis, it only makes sense to see a more collaborative approach develop.”
But auto makers must meet suppliers halfway. “There's more work that has to happen in that regard,” she admits. “The sooner all the sub-tiers get on board and help design a product, the better.”
Says Ewasyshyn: “The cost of moving parts around is becoming more and more of a variable in the overall (vehicle assembly) discussion,” he says. “If you can bring (the supply chain) closer, you're going to bring it closer, because it's less expensive and you'll end up with the type of arrangement that we have with Linamar.”
Another Chrysler facility that leverages supplier integration, the Jeep Wrangler assembly plant in Toledo, OH, was cited in the Harbour Report for requiring the fewest man-hours, 13.57, to build a vehicle. But neither Ewasyshyn nor Harbour expect increased supplier integration to become a major trend.
“I don't think this is a runaway freight train,” Harbour says. “The one thing that may cause us to see more Toledos is the current financial situation at the Detroit Three. They (Chrysler) brought that Jeep to market for relatively low capital investment. They were able to push a big chunk of that capital investment to the supplier.”
Chrysler's Wrangler plant features three suppliers in key roles: Kuka Group assembles the bodies, which are painted byInternational Inc.'s Magna Steyr Fahrzeugtechnik AG & Co KG, while Mobis-owned Ohio Module Mfg. Co. assembles the chassis. Chrysler workers then complete the assembly process at a site adjacent to the three supplier-owned operations.
But the list of potential partners is a short one, Harbour warns.
“Remember, the paint shop went through three different suppliers,” he says, referring to a series of failed partnerships. “There are really very few suppliers out there that have that kind of money, particularly now. That alone limits the number of Toledos that will be done in the future.”
Ford has aggressively pursued increased flexibility for nearly a decade, even though recent moves maintain its one plant-one platform manufacturing model.
“We've been working on changing our manufacturing infrastructure to be more flexible over time,” says Bennie Fowler, vice president-quality. “That doesn't happen overnight.
“We've been changing all along. We didn't get 90,000 (Six-Sigma) green belts and 9,000 black belts because we weren't willing to understand what was happening externally.”
But the quality stakes are highest on the shop floor, where flexible manufacturing technology is making new demands of assemblers.
“The skill set is definitely going to improve,” says Jeff Shrock, president of United Auto Workers Local 685, which represents Chrysler employees affected by the proposed Linamar deal.
“They're training in the equipment with the manufacturers, being trained on CNC (computerized numerically controlled) machines and upgraded equipment,” Shrock says.
“The company's taking the initiative to allow them to be trained, and the people, in turn, are taking the initiative to want to be trained,” he says.
Ewasyshyn endorses enhanced training because the auto worker of the future “isn't going to be someone who, at 16, quits (school) and walks in the plant and works. Those days are gone.”
Auto makers will “need people who can handle more than they could in the past.”
But he is uncertain how this era will be perceived in the course of history.
“There's been so many pivotal years in this industry,” Ewasyshyn says. “The competition level is unbelievable. The consumer has, obviously, (made) a major shift. It's going to be an interesting time.”
— with Drew Winter and Christie Schweinsberg
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