Will the Real Europe Stand Up?

December 23, 1998
by Ron Harbour

For those of us on this side of the Atlantic, the argument has always been the same: Is North America more competitive than Japan? Europe has never really been a consideration for one reason or another, and it should not be, right? Well, don't be so sure.

When the Japanese decided to launch their offensive on export markets in the late '70s, it was North America that was hit first, and companies such as Toyota, Nissan and Honda won buyers with outstanding, high-quality products. As Bob Lutz said last year, the best thing that ever happened to Chrysler was Toyota. To expand on that, the best thing that ever happened to the Big 3 was Toyota, Nissan and Honda.. Their presence awoke the U.S. industry and has fostered huge improvement in cost, quality and productivity.

A later challenge

Japanese competition came much later in Europe. Unlike the United States, Europe is split among six major manufacturers: General Motors, Ford, Volkswagen, Fiat, Renault and PSA. Although competition was tough, a challenge like the one from the Japanese had never hit their shores. And many of the European Economic Union nations had stiff import limitations, again unlike the United States. What ultimately happened was a gradual realization of their competitive standing from benchmarking new Japanese competitors and, in the case of Ford Europe and General Motors Europe, some shared learnings from North America.

For most of the European manufacturers in the 1980s and for still some today, cost and productivity were poor, and although outgoing quality was good, the internal cost to acheive it was enormous. One might think it's not as critical if costs are higher since the European market commands from 20 to 40 percent higher pricing for a comparable vehicle in the United States. But are costs really higher? Remember, a 17 percent value-added tax is tagged on every vehicle as it leaves the factory door. Shipping and distribution costs are also higher. Labor costs are higher only because each person is limited to approximately 35 hours per week week in which he or she can work. In the United States, we consider that part-time; in Europe, it's a means of achieving full employment according to more socialistic beliefs.

Speedy improvements

In the last three or four years in Europe, armed with the knowledge of where the rest of the world was going and where Europe had to change, the industry is moving at breakneck speed. GM plants in Eisenach, Aspern and Antwerp have areas of their facilities that rival the Japanese. Chrysler/Steyr operations in Austria are small-volume benchmarks for cost, quality and productivity. Some Ford operations are among their best in the world. With the help of former Toyota masters, Porsche has done a complete turnaround of its Stuttgart factory.

Whereas it was always assumed that Europe was as far behind the Americas as the Americas were behind Japan, Europe has probably moved faster than either. The European manufacturers can be stubborn and very inward-looking about their own operations and systems. But given awareness and knowledge and, ultimately, new direction, they can move at blinding speed. Their education system provides some of the highest-quality, broadest-base knowledge in the world. Skilled tradesmen are very highly trained, and engineers are plentiful.

What has happened is some of the quickest and most comprehensive improvement in the auto industry. And Europe needs it. The market has been in the doldrums for years, and competition is fierce. With the knowledge of what manufacturing improvement can do for a company, plants are making huge strides.

Just when North American makers were thinking they could stay in the ring with Japan, look who's now jumped in the ropes. We think onlookers will be surprised.

Ron Harbour is president of Harbour and Associates Inc. in Troy, Mich. A regular contributor to numerous newspapers and publications, Ron is a coauthor of the annual Harbour Report on plant and company manufacturing performance.

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