2004 Traverse City Coverage

August 4, 2004

MBS coverage sponsored by:

New Jeep Plant Risky but Promising

There are plenty of risks — along with a potentially huge payoff — to the $2.1 billion Jeep plant DaimlerChrysler plans to build in Toledo, Ohio, says Laurie Felax, vice president of Harbour & Associates. On Tuesday, the automaker revealed that suppliers will kick in about $300 million towards the cost of the experimental operation, and assume control of specific portions of the plant, including the paint shop and body line. “It will truly be a test for them to learn how to better work with suppliers,” said Felax, during an interview at the Management Briefing Seminars. The potential payoff is huge, and could yield significant reductions in cost and big gains in productivity, but the risks also are sizable. For one thing, Felax cautioned, DCX “won’t have complete control over quality anymore.” On the other hand, with suppliers “sharing the risk,” they’ll be even more likely to ensure that everything meets customer expectations.

Chrysler Builds New Jeeps with Suppliers by Joseph Szczesny (8/3/2004)
New Toledo plant subs out more work than ever for Jeep.

Aluminum on the Offensive, but Steel Is King

Obesity is a big problem — and not just for the average, fast food-chomping American. “Cars, in general, have put on 10 kilos (22 pounds) of weight every year, and have for the last 20 years,” noted Mark White, senior body structure manager for the British Jaguar brand. Ford’s high-line marque has attempted to address the issue with its all-aluminum XJ sedan. The big four-door weighs less than the smaller Jaguar S-Type. But the decision to adopt aluminum was costly and required significant changes in manufacturing methods, White acknowledged during an appearance in Traverse City.

There are many who see aluminum as the material of the future for the auto industry. But it appears to be catching on at a far slower rate than advocates anticipated, cautioned several of the speakers at this year’s Management Briefing Seminars. Few things underscore that lag better than Audi’s decision to move away from aluminum for the next-generation of its A2, a minicar that tested the low-cost limits of the metal.

There’s no question the auto industry has to cut weight in order to deal with government regulations, consumer demand and competitive pressures, concurred Dr. Jody Hall, an engineering group manager with General Motors. And aluminum is clearly a part of the solution, she said, noting that GM has nine vehicles with aluminum hoods and a number of others use the metal for their liftgates. But with “the cost of aluminum expected to remain significantly higher than steel,” GM is looking for other solutions, focusing its attention on an assortment of new, high-strength steels. As much as three times stronger than so-called “mild” steel, manufacturers can use less of these materials, Hall explained, achieving at least some of the weight reduction without the added cost of aluminum.

The 1992 Grand Am, Hall said, used 95 percent mild steel, but by late this decade, high-strength steel will account for well over half the weight of similar GM products. Across the line-up, she added, the use of various high-strength steels “will increase tenfold over the next six years.”

That’s good news for the U.S. steel industry, which has suffered through several years of severe losses under the pincer assault of recession and low-cost foreign competition. Major manufacturers, including U.S. Steel and NuCor, have recently reported sizable profits as demand begins to recover, and more are expected to follow suit. The steel recovery has ridden in on the back of rising metal prices, and “We don’t see the price going down between now and the end of the year,” cautioned Ron Krupitzer, a senior director at the American Iron and Steel Institute. If anything, he told TheCarConnection, “You may see pressure on the (automakers) for further increases as they negotiate new contracts.” Ironically, steel’s recovery could lessen its advantage against aluminum and other lightweight alternatives, Kruptizer conceded.

A Car in Microsoft’s Future?

On Wednesday, Microsoft will announce a new joint venture with the Center for Automotive Research, one of the primary sponsors of the annual Management Briefing Seminars. Together, the partners will conduct a series of annual surveys designed to focus on key trends in the auto industry, said John Fikany, head of the Washington-based software giant’s automotive “vertical.” The initial survey will focus on three issues, including warranties, he explained, noting that automakers are desperate to cut what amounts to a $22 billion annual cost — about $2000 a vehicle. Microsoft is making major assault on the U.S. auto industry. It already dominates demand for factory-floor control software, and its MSN Auto site is one of the larger online retail outlets. It’s also expanding its role in the vehicle, especially with a push into telematics. The house that Bill Gates built recently signed an agreement to provide all the navigation and other telematics software for the struggling Italian automaker, Fiat.

Daily Edition: Jul. 16, 2004 by TCC Team (7/15/2004)
Bernhard not going to VW, profits could be good in Q2, Microsoft/Fiat alliance.

Not Sexy, But Critical

Manufacturing dominated the first two days of this year’s Management Briefing Seminars, and the main message was simple: it may not be a sexy topic, but it’s a clear differentiator that automakers — indeed, the U.S. as a whole — ignore at their own peril. “Manufacturing is a competitive advantage and many companies are using it as a key differentiator,” said Laurie Felax, vice president of Harbour & Associates. U.S. automakers have made an especially strong push in recent years, reporting gains in both productivity and quality, she said, quickly cautioning that Japanese automakers operating in North America still remain the productivity leaders. And that can add up to a cost advantage of as much as $800 a vehicle.

Healthcare at “Tipping Point”

U.S. automakers have long complained about the burden of health care, which now adds an average $1200 to the cost of a typical Ford and General Motors vehicle. Finally, there seems to be momentum for real change in the troubled U.S. health care system, Ernst & Young’s Mark Finucane told an audience at the Management Briefing Seminars. “There’s new consensus the thing is really busted,” he asserted, though he immediately emphasized that despite the chaotic nature of the medical system, “It’s the most organized system in the world when you try to make a move on (change) it.” But Finucane, the leader of the consulting firm’s medical center practice, said the debate has reached what is often called the “tipping point,” where consensus demands that critical steps be taken.

Delphi Says It Is Delivering

After posting an unexpectedly strong, second-quarter performance, Wall Street analysts are taking a cautious look at the future for giant supplier Delphi. The one-time General Motors subsidiary is working hard to improve its fortunes, said Vice Chairman Don Runkle, during a speech at the Management Briefing Seminars. The one-time GM executive revealed that productivity jumped 17 percent last year. And Delphi has been aggressively pursuing its goal of expanding ties beyond its former owner. It generated a record 45 percent of its business from non-GM customers during the second quarter, and added Runkle, “We expect to cross the 50/50 point sometime next year.”

Delphi Looks at Losing in Q3 by Joseph Szczesny (7/19/2004)
But with labor cost reductions coming, supplier sees black for the year.

Global Engines to Save DC $100 Million

Though it is otherwise reducing or severing ties to its Asian partners, DaimlerChrysler expects to save $100 million annually through Global Engine Alliance LLC. The Dundee, Michigan, operation, which will produce a new line of “global” engines, was formed as a joint venture between DCX, Mitsubishi Motors Corp., and Hyundai Motor Co. It will begin three-crew, two-shift, 120-hour-a-week operations in mid-2005, Bruce Coventry, president of the Global Engine Manufacturing Alliance, announced during the opening session of the Management Briefing Seminars. The project, he declared, is “utilizing the best engineering inputs from Mitsubishi, Hyundai and DaimlerChrysler,” with a goal of “significantly reducing capital and program lead times.” Among several steps taken, the venture purchased three sets of manufacturing equipment in Michigan, South Korea, and Japan. The alliance is outsourcing everything that it doesn’t see as core to engine production. The Dundee factory will produce 1.8-, 2.0-, and 2.4-liter engines. The $100 million figure was derived by comparing the forecast price of producing those four-cylinder engines compared to what it costs at the DCX plant in Saltillo, Mexico.

DC Hopes To Keep Best of Mitsu by Jim Burt (4/26/2004)
But no more money makes the very future of the Japanese company tenuous.

Nissan Sees Silver Lining in Canton Cloud

Things have gotten off to a much rockier start than Nissan expected at its new assembly plant in Canton, Mississippi, a $1.4 billion facility that launched five new models in an eight-month blitz. Quality has fallen short of expectations, as has productivity, a sharp setback for a company that has long led the North American pack in terms of efficiency. Despite such start-up problems, Nissan’s senior vice president of manufacturing, Hidetoshi Imazu, sees Canton as a global model. “Overall, in spite of everything else, we did quite well,” he asserted during a speech at the Management Briefing Seminars in Traverse City, Michigan. The Canton plant has provided a learning lab for a variety of Nissan manufacturing practices. For one thing, 20 different Tier I suppliers have located “on campus” to produce parts, tightly synchronizing their operations with the assembly line. That and other practices will be copied at new Nissan facilities in emerging markets such as China and India, Imazu revealed. In the meantime, the automaker has assigned 200 Japanese engineers to try to fix the problems that have been plaguing the new factory in Mississippi.

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