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Tuesday, October 03, 2006

US Automakers Face Profit Gap- Toyota Motor (TM), Ford (F) & General Motors (GM)

By Yaser Anwar, CSC of Equity Investment Ideas

US automakers have an approximately $2.4K per vehicle profit disadvantage compared with foreign manufacturers, due to flawed pricing strategies, a lack of common platforms and vehicle architectures, and labor issues, according to the report titled "Automotive Competitive Challenges: Going Beyond Lean" and put out by the Harbour-Felax Group.

"Lean methods have driven the Detroit automakers for the past 25 years," veteran automotive consultant Jim Harbour, who authored the report with Laurie Harbour-Felax, said in a statement. "They've made impressive progress in quality and productivity, and now they must adopt a new guiding principle: Common."

By using common platforms, body architectures and components, Toyota Motor has saved approximately $1K per vehicle over the last five years. In addition, when fewer unique parts are needed for each vehicle, quality improves, reducing warranty costs, it said.

Another major contributor to the gap is revenue per vehicle. On average, domestic automakers take in $21.6K, 11% less than the average revenue of Japanese automakers, which collect $24.3K per vehicle, the report said.

The authors attributed that disparity to steep discounts that domestic manufacturers use to fuel sales, as well as discounts for rental and other fleet sales, which average 25 percent of total domestic sales.

The study also pointed to labor issues, including generous health-care benefits and contracts that allow workers to continue collecting wages when there is no work for them, as a major factor in the profit gap.

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