Why the Most Profitable Cars Made in the U.S.A. Are Japanese and German

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More Productive Factories
Chrysler, Ford and GM take an average of eight more hours to make a vehicle at their North American plants than do Honda, Nissan and Toyota. Nissan is fastest at 18 hours a vehicle, and Chrysler (the U.S.-based unit of DaimlerChrysler) is slowest at 31 hours, according to the Harbour Report, an annual productivity guide. These times translate into an extra expense of $300 to $500 a vehicle for the Big Three as compared with the transplants, which in a tough market can kill already slim profit potential.

The transplants have spent decades refining "flexible assembly," a process that Detroit hasn't practiced as well. Flexibility means being able to make several types of vehicles on one assembly line, which can cut investment 25% for a new model and allow for efficiently altering the model mix based on changes in demand. At Toyota's operation in Princeton, Ind., a single line cranks out the full-size Sequoia SUV and Sienna minivan. What's novel: the Sequoia is built on a frame, while the Sienna, as a "unibody" vehicle, isn't. Toyota's line is the first in North America to assemble such fundamentally different vehicles. By 2005, five of Toyota's nine U.S. lines will produce multiple models, accounting for 71% of the automaker's North American volume, according to analyst Michael Bruynesteyn of Prudential Securities. Only a third of Big Three plants, with 34% of their production volume, will be as flexible by then. Winning the flex race, Bruynesteyn writes, "has been the key catalyst for the dramatic acceleration in market-share transfer from the domestics to the transplants and imports since 1998."

Doing flexible assembly well is a lot tougher and, initially, more expensive than it may sound. Of the $1.5 billion Nissan has invested in its new plant in Canton, Miss., just north of Jackson, about a third went into making the operation as flexible as possible. At full capacity, the Canton plant can produce 400,000 vehicles a year, including sedans, minivans, SUVs and pickups.

With advanced robotics and software, particularly to weld vehicle skeletons, Nissan can switch among models quickly. Major suppliers, some housed on site, receive orders 90 minutes before production time, cutting inventory costs for both parties. Nissan's suppliers also preassemble "modules," say, for a front-end or cockpit, and deliver them in the sequence in which they're needed on the line: a batch of leather-finished cockpits for SUVs, followed by plastic-finished versions and then different cockpits for pickup trucks. Nissan's paint shop was designed for high flexibility too, using robotic painters that are programmed to switch spray patterns based on the model mix.

Some Big Three assembly lines feature similar technologies and practices, and upgrades continue. But execution is key. "It takes tremendous discipline to keep everything organized as you switch between models and to maintain the right quantities of supplies at the line," says Jeff Liker, an engineering professor at the University of Michigan. "In that regard, GM, Ford and Chrysler aren't as advanced."

Warmer Labor Relations
Contrary to popular belief, workers' wages and benefits at the transplant factories none of which are unionized except for joint ventures with Detroit are comparable to those at factories organized by the United Auto Workers (UAW). Assembly-line workers, regardless of their location, earn about $45,000 to $100,000 a year (depending on experience and overtime). Bonuses are typically tied to profitability, and health-care and pension benefits vary only slightly.

But job classifications at transplant factories are broader. Line workers are trained in a variety of tasks say, spot welding as well as interior assembly and they rotate jobs frequently. They're less susceptible to boredom and repetitive-stress injuries. They're also trained to do preventive maintenance. At Toyota plants, every assembly-line worker has the authority to stop the line if he or she spots, say, a flaw in a windshield. More important, workers are encouraged by management to do so.

The long and often bitter relationship between the Big Three and the UAW means that their work practices are rooted not in mutual trust but in a system of sometimes picky rules. A "skilled tradesman" may be required to change a fuse in an assembly-line machine, a task that an assembly worker could easily be trained to perform. Work rules differ from plant to plant because agreements are negotiated with local union leaders. If a tradesman notices a line worker fiddling with equipment, he may file a grievance, claiming that his job is being undercut by a lower-paid employee.