SCDigest editorial staff
The News: Excellent story in a recent Wall Street Journal about how two automotive assembly plants in Texas illustrate the challenges of GM, and Toyota’s strong supply chain advantages.
The Impact: Understanding Toyota’s thinking is usually useful for most manufacturers, and the story underscores the deep hole GM (and Ford) find themselves in.
The Story: GM’s assembly plant in Arlington, TX produces highly profitable SUV’s like the Chevy Suburban, and is considered the company’s most efficient SUV factory. Still, as rival Toyota prepares to bring on line its first Texas plant near San Antonio, a recent story in the Wall Street Journal shows the challenges GM faces along many fronts.
“Separated by 280 miles, these two factories bring into stark relief the competitive problems plaguing GM at home at a time when car-building in the U.S. is thriving, even though American car companies are faltering,” the Journal notes. “In no small part, the world's largest auto maker's difficulties stem from the fact that its challengers can start fresh, unencumbered by old plants and old obligations that limit innovation and add hundreds of dollars to the cost of each vehicle.”
You can start with labor costs. Non-union Toyota pays competitive wages of $15-20 per hour, which is grow to $21-25 per hour over a few years. But with benefits, one industry researcher estimates Toyota’s total labor costs to be about $35/hour, versus $81/hour for GM, including its legacy retirement and healthcare costs. That means that if Toyota did no better than match GM’s Arlington levels of productivity, it would still have a $1000 per car cost advantage in labor alone.
But it will exceed GM’s level of productivity. GM’s 3000 workers in Arlington operate in a decades old plant that is landlocked by development, making many potential cost-saving changes to flow and efficiency impossible. For example, as the WSJ reports, “GM's body shop is housed in a separate building, which was built in 2000 to introduce new technology. The bodies are transported on an elaborate, enclosed conveyor to the final assembly area, where they are painted and stored before being bolted onto frames. GM managers say they would use a more modern layout that would help boost the plant's productivity even more, but GM can't afford to shut down operations and completely rebuild the plant.”
Toyota, meanwhile, is deploying all of its latest manufacturing thinking and technology to reach new levels of efficiency.
The story says that, “smaller, lighter machinery with a simpler design that takes up less space than previous generations of equipment, an effort Toyota calls "simple and slim." Smaller machines mean Toyota can spend less on the building that houses them, while simpler design means those machines are cheaper to install, easier to maintain, much less likely to break down and simpler to fix if they do. The plant covers about 2.2 million square feet, including some metal-stamping operations, which are not done in Arlington. Still, the Toyota plant is roughly a third smaller than the 3.75 million-square-foot GM plant.”
Conventional technology would have increased the footprint by 30-40%.
Gone from the new Toyota plant also are the traditional shelves holding parts for assembly tasks. “Instead, the parts for each vehicle are delivered in a small container inside each car, freeing workers from having to pick out the right parts from the shelves,” the WSJ reports. “The missing shelves coupled with the smaller machines turn what would ordinarily be a dark and noisy place into one that is airy and well lighted.”
Toyota has also arranged to have nearly two dozen key suppliers close by two the San Antonio factory, reducing the cost of transportation, inventory carrying and factory space. A combination of history, long-term supply agreements, and union contracts give GM much less flexibility, meaning higher cost parts that come from all over the country.
To top if off, Toyota was able to gain tax and training incentives in selecting San Antonio for the new plant, giving it a further cost advantages over GM.
With lots of room around the plant, Toyota will have many future options for adding capacity of changing material flows. The GM Arlington plant does not.
As one industry pundit noted, both literally and figuratively, “"GM has to stay within the box. Toyota was able to think outside the box."
Is it possible for GM to compete given the types of advantages for Toyota cited in this article? What should they do? Let us know your thoughts.