The Balkanization of the American Car Market

June 3, 2005
Good news often conceals bad. And I have the feeling that some of the worst news emerging out of the new Harbour Report may be overlooked in the rush to analyze the basic data ranking the players by productivity. The Harbour Report has become the absolute benchmark of factory efficiency. But for those who can read between the lines, it is a surprisingly good crystal ball for analyzing the overall health of a manufacturer.

Toyota topped the latest list, just nudging out the perennial leader, Nissan. But the fact is, virtually all the players now operating in North America have gotten incredibly efficient. At one point, Japanese-owned transplants had as much as a $2000 manufacturing cost advantage over Detroit's Big Three. These days, the spread from best to worst is barely $300 or so. In fact, Detroit would probably score even better if it didn't have so many plants clocking so much downtime. That is, if it had the right products to keep its plants running at full speed -- or the flexibility to shift production from one plant to another and close underutilized assembly lines.

It doesn't, partially due to restrictive work rules, and in good part because of management mistakes. But the bottom line is that Detroit makes less money per car, which means it has less to invest in new products, which means it will have to charge less, offer bigger incentives, and make even less per car. The cycle continues and the Big Three share of the market keeps plunging. As recently as 2000, Detroit makers were responsible for 65.2 percent of the passenger cars and light trucks sold in the U.S. So far this year, that's fallen below 50 percent, while South Korean and Japanese brands soar to new records.

"One has to wonder whether we're migrating to the European model," said Ron Harbour, the man behind the Harbour Report. On the other side of the Atlantic, a baker's half-dozen manufacturers constantly fight it out, their shares in the low to mid-teens. It is a costly, largely no-win situation, especially for the least efficient makers. General Motors at 15 percent? Hard to imagine, but remember, the giant maker once sold more than half the cars on the U.S. market. I recall the controversy that broke out in the late 1980s, when a well-respected analyst predicted GM would plunge to 36 percent. It's now struggling to stay above 25 percent, and giving away the store in the process. Barring some breakthrough, who knows where it might bottom out.

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