MEETING THE CHALLENGE:

U.S. INDUSTRY FACES THE 21ST CENTURY

THE U.S. AUTOMOBILE

MANUFACTURING INDUSTRY

Professor Charles H. Fine

Dr. Richard St. Clair

The International Motor Vehicle Program

Massachusetts Institute of Technology

and

Dr. John C. Lafrance

Office of Technology Policy

Technology Administration

Dr. Don Hillebrand

PNGV Secretariat

Technology Administration

U.S. Department of Commerce

Office of Technology Policy

December 1996
The U.S. Automobile Manufacturing Industry 3

THE U.S. AUTOMOBILE MANUFACTURING INDUSTRY OFFICE OF TECHNOLOGY POLICY

CONTENTS

FOREWORD .................................................................................................. 5

ACKNOWLEDGMENTS ................................................................................... 7

EXECUTIVE SUMMARY .................................................................................. 9

INTRODUCTION ...........................................................................................13

STATUS OF THE INDUSTRY ...........................................................................15

MARKET FORCES AND PRODUCTION TRENDS .............................................21

U.S. Market Trends..................................................................................... 21

The Geography of Production:

Global Sourcing and Factory Transplants .......................................... 22

Foreign Transplants in the United States ............................................... 23

Investment in Developing Countries ...................................................... 24

COMPETITIVENESS AND PRODUCT STRATEGY .............................................25

Manufacturing Plant Performance .......................................................... 25

Product Development Performance ........................................................ 31

Big 3 Assessment ........................................................................................ 34

TECHNOLOGY..............................................................................................41

Cooperative Research and the Partnership for a

New Generation of Vehicles ................................................................. 42

Increasing Use of Electronic Components ............................................. 45

ADOPTION AND EVOLUTION OF LEAN PRODUCTION HUMAN

RESOURCE PRACTICES.............................................................................46

Human Resource Management ............................................................... 46

Key Issues in Labor Relations .................................................................. 46

Implications of the Key Issues in Manufacturing

Plants and Human Resource Practices ............................................... 48

Experimentation Case Studies ................................................................. 51

AUTOMOTIVE COMPONENTS SUPPLY CHAINS .............................................57

Supply Chain Policies................................................................................ 57

Key Issues in Supply Chain Relationships ............................................ 58

Supply Chain Management...................................................................... 60
4 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

DISTRIBUTION, RETAILING, AND POSTMANUFACTURING INDUSTRIES .........63

Key Issues in Distribution, Retailing, and Postmanufacturing .......... 63

The Major Role of Distribution and Retailing in the

Automotive Value Chain ...................................................................... 65

Making Distribution Lean ........................................................................ 66

The Role of Information Technology in Selling Cars ............................ 67

Independence and Diversification of North American

Dealerships ............................................................................................. 68

One Example of Retail Innovation: The Saturn Corporation .............. 70

Urban Multibrand Retailers ..................................................................... 71

Conclusions ................................................................................................. 72

REGULATION OF AUTOMOBILES TO MEET SOCIAL OBJECTIVES ..................73

Mobility, Economic Development, and the Automobile ...................... 73

Safety Concerns and the Automobile ..................................................... 76

Environmental Concerns and the Automobile ...................................... 77

Diverse Approaches to the Regulation of

Auto Manufacture and Use .................................................................. 79

SUMMARY AND CONCLUSIONS....................................................................82

APPENDIX A: THE U.S. SUPPLIER BASE AND MEXICO:

A CASE EXAMPLE OF GLOBALIZATION ....................................................85

Human Resource Management Issues ................................................... 87

Supplier Issues ........................................................................................... 87

APPENDIX B: REGULATORY POLICY AND HARMONIZATION ........................89

BIBLIOGRAPHY ............................................................................................91

Manufacturing Systems ............................................................................ 91

Industrial Relations and Management Systems.................................... 92

Product Development ............................................................................... 94

Supplier Performance and Relations ...................................................... 96

Globalization and Emerging Economies ................................................ 99

Retailing and Distribution ...................................................................... 101

Environment and Mobility ..................................................................... 101
The U.S. Automobile Manufacturing Industry 5

OFFICE OF TECHNOLOGY POLICY

FOREWORD

For more than a decade there has been widespread and increasing concern that the ability of the United States to achieve sustained economic

growth and long-term prosperity is adversely affected by declining industrial

competitiveness. Congress, in a bipartisan response, has introduced a wide

range of programs and policies to improve U.S. competitiveness. Whether

focused on building a 21st-century infrastructure, stimulating technological

innovation and commercialization, improving the business climate for investment and growth, supporting education and training, or promoting trade,

these policies start with assumptions, often implicit, about the competitive

position of U.S. industry.

Meeting the Challenge: U.S. Industry Faces the 21st Century is a new series of

studies, produced by the Department of Commerce’s Office of Technology

Policy, that assesses the competitive position of a number of major U.S.

industries and the factors influencing their growth. Drawing principally

from the experience and insight of the private sector, some 150 experts

from over 30 organizations in industry, academia, and government have

contributed to the drafting and review of the studies. Overall, the studies

provide a framework for public policy that is better informed and that

more accurately reflects the shifting, and often improving, competitive

position of U.S. industry.

This report on the U.S. automobile manufacturing industry concentrates on

the Big 3 firms (Chrysler, Ford, and General Motors) and discusses the condition of the industry, product and production strategies, the importance of

the supply chain, distribution and retailing, and conclusions and possible

future directions. It suggests that, although the U.S. industry (and the Big 3

in particular) has made tremendous progress in the past 15 years, new

challenges are clear as the global market, technology, and industry structure continue to evolve. For example, the fastest growing markets are in

countries that are developing an auto industry of their own. And as the

report makes clear, best practice is easily transferred to emerging producers. New technologies are also being introduced, often in response to the

challenges posed by environmental and safety regulations. In addition, the

major producers are experiencing structural pressures as suppliers produce

a larger fraction of the finished product’s value, and well-financed and independent organizations threaten the traditional distribution networks on

which producers rely to sell their products.

Graham R. Mitchell

Assistant Secretary of Commerce for Technology Policy
The U.S. Automobile Manufacturing Industry 7

OFFICE OF TECHNOLOGY POLICY

ACKNOWLEDGMENTS

MIT’s International Motor Vehicle Program (IMVP) was asked to

develop this study in parallel with industry reports in other sectors

to provide strategic assessments of key U.S. industries to government

policymakers. Drawing on the experience and expertise of several dozen

IMVP-affiliated researchers from around the world and numerous industry participants, this study reports on the U.S. automotive industry in the

context of the world automotive industry.

The study represents contributions from Martin Anderson, Erik

Brynjolfsson, Joel Clark, Michael Cusumano, John Ehrenfeld, Frank Field

III, Kaye Husbands, Jacqueline Isaacs, Thomas Kochan, James Maxwell,

Jennifer Nash, Kenneth Oye, Daniel Roos, Richard Roth, Sandra

Rothenberg, Brian Schenck, Gregory Scott, and Daniel Whitney (Massachusetts Institute of Technology); Kim Clark (Harvard Business School);

Takahiro Fujimoto (University of Tokyo); Young-suk Hyun (Han Nam

University, Korea); John Paul MacDuffie, Jeffrey Dyer, David Ellison, and

Frits Pil (Wharton School of Business, University of Pennsylvania); Susan

Helper (Case Western Reserve University); and Mari Sako (London

School of Economics and Politics).

In addition to the IMVP staff listed above, John Lafrance and Don

Hillebrand of the Department of Commerce, Technology Administration,

contributed to the study.
The U.S. Automobile Manufacturing Industry 9

OFFICE OF TECHNOLOGY POLICY

EXECUTIVE SUMMARY

The Automotive Industry Today: A Global Endeavor

While sometimes characterized as “mature,” the U.S. automotive

industry continues to experience dynamic change—change that

sweeps across national borders. To succeed, auto manufacturers must

manage large and complex supply chains, spanning many geographic

regions, and pursue opportunities in diverse national markets. While

national policies play an important role in shaping the environment for

local manufacturing operations and resulting products, cost competition

increasingly drives the industry toward global product offerings.

This report explores several important dimensions of the forces of change

facing the industry and reviews the responses of the Big 3 manufacturers

(Chrysler, Ford, and General Motors) to those forces.

Forces of Change in the U.S. Market

Important changes are under way in the U.S. market, both in the type of

vehicles preferred by consumers and in the system that delivers those

vehicles to consumers. Equally important, foreign firms are opening new

assembly plants in the United States, and foreign suppliers of parts and

components are building a domestic presence.

In response to shifting consumer preferences, the variety of products

supplied by the automotive industry has increased dramatically.

Lifestyles have shifted toward the two-wage-earner family, and as a

result, demand for light utility vehicles has surged. In addition, consumers have shown increasing interest in both safety and performance. At the

same time, average new-vehicle transaction prices have continued to rise

at a rate far higher than the increase in average household income,

posing a serious challenge for the industry.

Dramatic change is also taking place in the “downstream” activities of

the automotive industry—distribution and retailing. These activities

represent 20 to 30 percent of the value of a new vehicle and are an important potential source of cost savings. The changes in this area reflect a

shift from capital-intensive operations (involving inventory investment)

to information-intensive operations (providing the right vehicle in the

right place at the right time). This shift is leading to the development of
10 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

flexible and highly entrepreneurial structures and methods to serve

customers.

Finally, new assembly plants operated by Japanese and German auto

manufacturers have been built in the United States, introducing additional competitive challenges for the Big 3. Because of their location, they

have also altered the regional distribution of automotive employment.

These new “transplant” manufacturing facilities have been accompanied

by the arrival of new suppliers from the home markets of these manufacturers. The presence of these new suppliers has benefited both the new

assemblers and the Big 3 by introducing additional competition into the

supply of automotive parts.

Competitive Responses of Big 3 Manufacturers

The Big 3 have responded to these forces of change in a variety of ways.

Most important, they have dramatically improved both the quality of

their products and the productivity of their operations. This study shows

that Big 3 plants improved their productivity from 24.1

to 20.7 direct labor hours per vehicle between 1989 and 1994—a 17

percent improvement. While Japanese-owned plants in Japan improved

more slowly, they still remain the most efficient producers—but by a

relatively smaller margin.

From a broader perspective, the productivity data underline the need for

continuous improvement in these areas, evidencing the convergence of

average performance across the world. European plants improved their

productivity nearly 30 percent, and new entrant countries (Korea and

Mexico) showed significant improvement as well. Equally important, the

data show that productivity varied widely within each regional group,

suggesting a disparity among regional competitors in the management of

vehicle production.

The Big 3 have recognized that the development of new products is of

special importance as manufacturers struggle to respond to the demand

for product variety and low prices. Since the 1980s, these companies have

shortened the time required to bring a new product to market and decreased the engineering effort required for new products. The large

differences among the three companies in their approach to this challenge—in terms of the involvement of suppliers, organizational structures, and the degree of coordination among different product offerings—are explored in this study.
The U.S. Automobile Manufacturing Industry 11

OFFICE OF TECHNOLOGY POLICY

Human resource practices represent another important determinant of

the auto industry’s competitiveness. There appears to be wide variance

among U.S. manufacturers in this area—ranging from traditional labormanagement practices to new and unique management structures. The

rate of diffusion of new practices within the United States is slow, but

research presented here suggests that several important changes are

occurring: (1) decreases in inventory buffers; (2) increases in the use of

teams, job rotation, and worker suggestion programs; and (3) use of

contingent compensation, training investment, and other human resource

practices.

A final area of competitive response in which each of the Big 3 is developing its own unique approach is the management of supply chains.

Earlier research suggested that management of automotive supply chains

was improved by the development of close relationships among auto

manufacturers and suppliers who develop and produce components and

subsystems. Recent events suggest a number of key issues in the management of these relationships. The nature of the relationship may vary

with the supplier’s degree of involvement in the development of parts

for the manufacturer. Each of the Big 3 companies is pursuing a different

approach in this area based on its corporate experience and strengths.
The U.S. Automobile Manufacturing Industry 13

OFFICE OF TECHNOLOGY POLICY

INTRODUCTION

This report discusses the U.S. automotive manufacturing industry

in the context of the world industry. The first section discusses the

status of the U.S. automobile manufacturing industry, concentrating

on the performance of the Big 3. Then market forces and production

trends in the industry are addressed, focusing primarily on the geography of automotive production. The next section reports on competitiveness and product strategy, particularly in the areas of automotive manufacturing and product development, the two areas where the best data

are available. The following section highlights technical areas where

improvements and innovations are needed to make the next generation

of vehicles possible. The dynamics of the adoption and evolution of lean

production practices are then discussed. Two sections address supply

chain issues looking upstream of the manufacturing plant, as well as

downstream from the manufacturing plant to automobile distribution

and retailing. A final discussion covers several “social agenda” issues

such as mobility, environment, and safety. The last section provides the

report’s conclusions.
The U.S. Automobile Manufacturing Industry 15

OFFICE OF TECHNOLOGY POLICY

STATUS OF THE INDUSTRY

Like a number of long-established U.S. industries, the automobile

manufacturing industry has gone through wrenching times in the

past 10 to 15 years. Nevertheless, the U.S. industry is still home to the

two largest vehicle manufacturers in the world, General Motors and Ford

(table 1), and has been responsible for 20 to 25 percent of world vehicle

production in several years since 1980 (figure 1).

Over the past few years, the United States has closed the gap with Japan

with respect to the volume of domestically produced passenger cars

(figure 2) and overtaken Japan in the increasingly important sector of

Trucks, Buses, and Others (figure 3). In this sector, which includes the

popular light trucks, minivans, and utility vehicles, U.S. producers are

considered market leaders.

The U.S. Big 3 have recently gained market share in domestic passenger

car sales (figure 4), from 61 percent in 1991 to 64 percent in 1994. Transplants have also increased their share, from 14 percent in 1991

to 17 percent in 1994. Despite these gains—which were made at the

expense of imports—the United States is running a well-publicized trade

deficit of $50 billion (as of 1994) in the motor vehicle sector. The $89

billion of production by foreign affiliates of the Big 3 (figure 5) is less well

known, and although it does not solve the trade deficit problem, it does

put the U.S. industry’s position in the world in perspective.

Through the past 15 years, the Big 3 have maintained the confidence of

financial markets—their market capitalization has kept pace with the

capitalization of Standard & Poor’s Industrials (figure 6). Over the years,

the return on assets of the Big 3 has generally been below par (figure 7) in

spite of their efforts to increase profitability and efficiency. One of the

casualties of these efforts has been employment, which has decreased

substantially since the late 1980s (figure 8).

The U.S. Big 3 have

recently gained market

share in domestic

passenger car sales.
16 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

 Light Trucks

Passenger and Commercial

Company Country Cars Vehicles Total

General Motors U.S. 2,604 1,845 4,450

Ford U.S. 1,661 2,073 3,734

Toyota Japan 2,769 739 3,508

Peugeot-Citroën France 1,770 121 1,892

Chrysler U.S. 551 1,142 1,693

Renault France 1,395 261 1,656

Nissan Japan 1,341 268 1,609

Volkswagen/Audi Germany 1,516 85 1,601

Fiat Italy 1,231 127 1,358

Mitsubishi Japan 891 414 1,306

Source: American Automobile Manufacturers Association

Note: Numbers may not add to totals due to rounding.

Table 1. 1994 Vehicle Production (in Thousands)

Figure 1. U.S. Domestic Production

as a Percentage of World Production
The U.S. Automobile Manufacturing Industry 17

OFFICE OF TECHNOLOGY POLICY

Figure 2. Domestic Production of Passenger

Cars in the U.S., Japan, and Germany

Figure 3. Domestic Production of Trucks,

Buses, and Others in the U.S., Japan, and Germany
18 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Figure 4. U.S. Passenger Car Sales

as a Percentage of Market Share

Figure 5. Big 3 Sales
The U.S. Automobile Manufacturing Industry 19

OFFICE OF TECHNOLOGY POLICY

Figure 6. Normalized Market

Values for the Big 3 and S&P Industrials

Figure 7. Return on Assets
20 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Figure 8. Normalized Employment
The U.S. Automobile Manufacturing Industry 21

OFFICE OF TECHNOLOGY POLICY

MARKET FORCES AND PRODUCTION TRENDS

U.S. Market Trends

The variety of motor vehicles is expanding and the market is no

longer dominated by a handful of very high volume cars. Detroit

automakers have been able to respond much more quickly to this demand for a range of models with the adoption of lean production. The

average time to market or “lead time” of U.S. automakers has fallen from

about 61 months to about 52 months—below the Japanese average,

which actually increased from 45 to 55 months from the late 1980s to the

early 1990s. As a result, U.S. companies can now compete with the

Japanese in product development. Lead time may already be significantly faster at Chrysler than at many of the Japanese companies. However, American manufacturers‘ competitive disadvantage in model mix

complexity creates a barrier to their ability to compete in product diversity.

The continuous rise in price of new cars is an ominous trend for all

automakers. According to the National Automobile Dealers Association,

the average new-vehicle transaction price has soared from $8,850 to

$19,200 since 1981. Median U.S. household income, however, has increased from $22,400 to only $37,800. Therefore, car buyers now pay a

higher percentage of their annual income to purchase new cars. The

increasing costs are forcing consumers into alternative buying and replacement strategies—retaining cars longer and purchasing used

cars instead of new cars.

American family lifestyles have also changed. There are more working

women, which has changed commuting and errand-driving patterns.

Families once had a commuting car for the wage earner and a larger car

for family use. Often now they have two wage earners instead of one,

and the second family vehicle is a minivan or utility vehicle to supplement the family car. U.S. automakers have been very effective in creating

and supplying this new market, excelling in minivans, light trucks, and

recreational vehicles.

Light trucks are not only popular in the American automotive market,

but also highly profitable for Detroit’s automakers. They are relatively

inexpensive to build, and their price has been high due to customer

demand and relatively few viable Japanese competitors. Light trucks are

predominantly a U.S. market and have captured nearly 50 percent of the

entire U.S. automotive market.

U.S. companies can

now compete with the

Japanese in product

development.
22 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Another trend influencing the automotive industry is consumer preference for certain features. Consumers are choosing safety (e.g., airbags,

antilock brake systems) with amenities (e.g., air conditioners, powerful

engines, power steering, and compact disc players) over vehicles whose

primary appeal is size and interior space. Factors influencing customer

choices are performance, suitability to personal needs, and family

lifestyle, safety, comfort, and appearance. Consumers are showing a taste

for the practical, as embodied in the Toyota Camry and the Ford Taurus,

both top sellers in the medium price range. Japanese automakers, however, have increased market share in the United States through new

“luxury” nameplates: Lexus, Infiniti, and Acura. In addition, previously

“compact” models such as Toyota’s Camry and Honda’s Accord have

become larger and more luxurious.

The Geography of Production:

Global Sourcing and Factory Transplants

In automotive development and manufacturing, geography plays a

major role. Historically, automotive employment has been tightly clustered, with major concentrations in Nagoya, Detroit, and Stuttgart, for

example. In more recently developed infrastructures, we also observe

very tight clustering—in the midwestern United States, we see a tight

concentration of the Japanese assembly transplants and transplant suppliers.1

 In the new transplant clusters, the philosophy of just-in-time (JIT)

seems to play an important role in location decisions: All of the suppliers

want to be near their assembler customers to achieve short, fast supply

lines—just like in Toyota City.

We also see recent trends of “de-clustering,” however. In search of

cheaper or different labor forces, manufacturers from Europe, North

America, and Japan have all built plants in Mexico. Thailand, Spain, and

Eastern Europe—each quite distant from a historical automotive cluster—have attracted significant investment as well. Toyota even built a

major plant in Kyushu, Japan, several hundred kilometers south of

Toyota City, in search of an expanded labor base. These patterns raise a

puzzle for analysts. In particular, why did JIT supply lines matter before

and not now? Has a critical level of learning transpired such that geographic closeness is no longer important? Are only the suppliers of

noncritical components moving south? If so, what defines criticality for

geographic closeness?

 1 Richard Florida and Martin Kenney, “The Globalization of Japanese R&D: The

Economic Geography of Japanese R&D Investment in the United States,”

Economic Geography 70, no. 4 (1994).

In automotive

development and

manufacturing,

geography plays

a major role.
The U.S. Automobile Manufacturing Industry 23

OFFICE OF TECHNOLOGY POLICY

Furthermore, if network clustering is important, as the Florida-Kenney

work on the midwest auto industry suggests, then one might have

expected the North American Free Trade Agreement (NAFTA) to reduce

the incentive to build cars or parts in Mexico, since free trade guarantees

that companies can eventually ship south as much as they want. However, it is not clear what role, if any, network clustering has played in

post-NAFTA decisions concerning plant location. What new light does

this fact shed on the importance of the network clustering?

All of these questions are critical to regional economic development. If

attracting a manufacturing plant guarantees that a swarm of suppliers

will follow, then it may pay for states to offer incentives to attract the

manufacturing plants, as many states have done. On the other hand, if

suppliers chase low wages, other government strategies make sense. If

some suppliers go toward low wages and others must be close to the

manufacturers, then governments must consider what mix of companies

they should try to attract or should reasonably hope to attract.

In Korea, India, Eastern Europe, Thailand, Brazil, and many other developing countries, the growth rate of automotive sales now far outpaces

those of the traditional automotive manufacturing and consuming areas

of Western Europe, North America, and Japan. Furthermore, these developing countries typically want to fill domestic demand with domestic

production, driving multinational automobile firms and suppliers to

develop local manufacturing capabilities to serve local markets. Following the policies that these governments pursue and watching how automobile and supplier companies respond to these government initiatives

will be informative for U.S. policy makers, who may also be concerned

with automotive employment shifts.

Foreign Transplants in the United States

The combination of high national productivity and the relative decrease in

value of the dollar against the yen and the deutsche mark has made the

United States a more attractive manufacturing site for foreign automakers.

This development has provided a new source of investment, jobs, and

training for Americans. Moreover, the transplant assemblers are significantly influencing the U.S. automotive supply base, both by encouraging

traditional Japanese and German suppliers to set up transplant operations

and by inciting the traditional U.S. suppliers to become more competitive.

These improvements to the supply base, driven in part by the Japanese

transplants, in turn benefit the Big 3.

If some suppliers go

toward low wages and

others must be close to

the manufacturers, then

governments must

consider what mix of

companies they should

try to attract or should

reasonably hope to

attract.
24 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

The Japanese-transplant assemblers in North America have continued to

expand their production and are now approaching a volume of three

million cars and light trucks per year (up from two million units in 1991).

The transplants represent an enormous positive economic impact for the

United States, compared with having that many vehicles imported from

Japan, for example. These investments have helped the Japanese companies as well, which would be in far deeper trouble had they not diversified their manufacturing base outside the high-priced labor and parts

markets in Japan. The displacement of Big 3 employment and production

with transplant production is more difficult to assess. In the main, it has

decreased the financial and market dominance of the Big 3, although

none are currently threatened with survival concerns. It has also affected

the geography of automotive employment within the United States.

Investment in Developing Countries

In the foreseeable future, most automotive demand in the United States,

Japan, and Western Europe will be for replacement vehicles. Demand

will be flat or grow slowly. In the developing world, however, demand is

skyrocketing, and many governments are requiring the establishment of

domestic production to satisfy this demand. As a result, the world’s

major multinational auto companies are pouring significant fractions of

their investment funds into capacity in China, India, South America, and

Southeast Asia. For example, Ford is spending approximately $1 billion

to set up factories in China and Southeast Asia. General Motors (GM) has

invested heavily in building up China’s part-making facilities. Last fall,

GM pledged a fresh $130 million for three parts facilities in Shanghai.

Overall, GM has agreed to set up 25 components-making ventures valued in hundreds of millions of dollars in China. GM also has been chosen

to participate in a $1 billion deal to make luxury cars in China and has

announced a $1 billion assembly plant investment in Thailand.

In Southeast Asia, the Japanese have a huge lead and are likely to continue dominating that market. India and China are still wide open, with

GM, Chrysler, Peugeot-Citroën (PSA), Isuzu, and Volkswagen having

early status in China. The Europeans and Americans are probably stronger in Latin America than the Japanese. All of these markets are in early

stages of development, however, and significant change should be

expected. All of the major players seem to be seeking to craft a global

strategy aimed at the developing world, and these areas will be critical

battlegrounds in the coming decade.

The transplants represent

an enormous positive

economic impact for the

United States, compared

with having that many

vehicles imported from

Japan,

for example.
The U.S. Automobile Manufacturing Industry 25

OFFICE OF TECHNOLOGY POLICY

COMPETITIVENESS AND PRODUCT STRATEGY

One of the most critical issues for the automotive industry today is

competitiveness in cost, quality, and product offerings. Companies

cannot survive in today’s market if they neglect any of these areas. In The

Machine That Changed the World, published in 1990, the International

Motor Vehicle Program (IMVP) documented significant differences in

these areas between the best- and worst-performing plants and companies. Since that time, differences between the United States and Japan in

productivity and quality have shrunk and effectively disappeared in new

product development lead time, pointing to a dramatic overall improvement in the competitive position of the Big 3 firms.

Manufacturing Plant Performance

The automobile is one of the most complex consumer products in existence.

The automotive manufacturing process serves as the “moment of truth” for

the entire design, development, supply chain, and manufacturing process. If the parts do not fit when the manufacturer attempts to put them

together, the system has a defect that must be tracked down and eliminated. Thus, auto companies focus a great deal of attention on understanding and improving the manufacturing process.

Across the world auto industry, the differences in regional averages in

quality, productivity, and diversity are declining. Within regions, however, the variance in performance is high, with large gaps between the

best and worst plants. Below, we report highlights from the assembly

plant performance research, both from the study of 1989 (Round 1) and

from the recent replication and expansion of the analysis with 1994 data

(Round 2).

Productivity Performance

In 1986, the IMVP developed an innovative methodology for normalizing

differences in vehicle designs and plant practices to enhance comparison

of productivity among plants making different vehicles with a variety of

manufacturing practices and methods. This methodology has been

improved in the 1990s and, we believe, allows reasonable comparisons

across disparate plants and vehicles.

Due to widespread improvement in North American manufacturing

plants, the performance gap between average U.S. and Japanese plants

has narrowed considerably. Big 3 plants are not the only ones that have

improved over this period. Korean plants and Japanese plants in North

America have shown considerable gains. European plants have shown

The automobile is one

of the most complex

consumer products

in existence.

Due to widespread

improvement in North

American manufacturing

plants, the performance

gap between average U.S.

and Japanese

plants has narrowed

considerably.
26 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

the greatest percentage improvement in productivity of any region,

partly because of a strong push toward adoption of lean production and

partly because they had lagged so far behind the Japanese and North

American plants.

Figures 9 through 13 depict international productivity trends from 1989

to 1994. The full 1989 sample comprises 62 plants from 24 companies and

20 countries, while the full 1994 sample comprises 75 plants from 20

companies and 20 countries.

Figure 9 shows that the U.S.-owned (Big 3) plants in North America (both

United States and Canada) improved their productivity by 17 percent—

from 24.1 to 20 hours per vehicle. In comparison, Japanese-owned plants

in Japan showed only a 5.8 percent improvement over this period, from

15.6 to 14.7 hours per vehicle. However, the relatively low percentage

improvement of the Japanese plants cannot be construed too negatively.

The Japanese still produce cars faster than any other manufacturer, and

on average they assemble a car over five hours faster than the Big 3 (i.e.,

in 25 percent less time). In addition, these averages mask far greater

gains achieved by some Japanese plants, such as Toyota’s RAV4 line in

Motomachi.

Figure 9. Scale = Weighted Productivity Averages

for Matched Sample of Plants, 1989 and 1994
The U.S. Automobile Manufacturing Industry 27

OFFICE OF TECHNOLOGY POLICY

Improvements for groups of plants other than the Big 3 were also impressive. European plants made a nearly 30 percent gain in productivity,

dropping their hours per vehicle from 37.8 to 26.5—about where the U.S.

automakers were five years ago. Among the plants in new entrant countries (mostly in Korea but also in Mexico, Taiwan, and Brazil), productivity increased by nearly 14 percent, from 34.4 to 29.6 hours per vehicle—

not far behind the current European average. Japanese-owned plants in

North America, the “transplants,” improved their productivity by 19.5

percent.

The regional averages above conceal considerable variation in productivity across plants within each region. Figure 10 reveals the extent of this

variation, showing the average, minimum, and maximum hours per

vehicle for plants in each region. The range is quite large in some regions—the best plant in Japan is more than twice as productive as the

worst plant, and the same is true among Big 3 plants. This fact suggests

major differences across plants within these countries. Indeed, differences

in company-level capabilities are likely to be far more significant for

productivity than country differences. Thus Europe’s wide range of

productivity performance may reflect its range of company capabilities

more than its country differences. The smallest range is found among the

Figure 10. Productivity Performance

within Regional Group, 1994

Improvements for

groups of plants other

than the Big 3 were

also impressive.
28 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Japanese transplants, which may reflect their common status as

greenfield plants adjusting to the U.S. context.

Quality Performance

Quality performance trends are similar to those for productivity. Much of

the quality gap between Japanese companies and their American and

European competitors has been closed. However, the variation among

plants in each regional group is large. (At this point, all quality data refer

only to vehicles sold in the United States. No comparable data exist for

vehicles sold in other regions.)

The dominant trend in figure 11 is convergence toward a quality level of

60 defects per 100 vehicles, with the exception of the new entrant group

of plants whose quality worsened over this period. The greatest improvement is shown by European plants (33 percent) and by Big 3 plants in

North America (26.7 percent). While this improvement closed much of

the quality gap with Japanese competitors, Japanese plants improved in

Japan (13 percent fewer defects) and in North America

(18 percent fewer defects) during this period. The North American

transplants have eliminated any gap in quality performance with their

sister plants in Japan.

The other notable trend is the worsening quality at the new entrant

plants. From 1989 to 1991, defects increased nearly 50 percent, primarily

because of a period of labor conflict in the Korean industry following

national political changes. The Korean automakers are already showing

signs of returning to more competitive levels of quality, although they

still lag behind the other regional groups.

Figure 12 shows the range of quality within each region. Here the range

of performance within regions is even greater than for productivity. A

wide range exists for the Japanese companies in Japan, with a threefold

difference in the number of defects per 100 vehicles between the best and

worst plants. While the best Japanese companies have grown stronger in

terms of quality performance, the pressures of the extended recession on

the Japanese industry are reflected in quality problems for the weaker

companies. The range in quality performance is also quite wide for the

Big 3 plants in North America, with a nearly three-to-one differential in

defects between the worst and best plants. While some of this variation is

specific to certain types of products (e.g., sports cars tend to have the

highest number of reported defects), overall it reflects persistent differences in plant capabilities for achieving quality. The narrowest range in

performance for quality is for the European plants.

Much of the quality

gap between Japanese

companies and their

American and European

competitors has been

closed.
The U.S. Automobile Manufacturing Industry 29

OFFICE OF TECHNOLOGY POLICY

Figure 11. Quality Levels across Regions, 1989 and 1994

Figure 12. Range of Quality Performance within Regions, 1994
30 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

The divergence in quality performance reflected at the regional level may

also reflect differences in company strategies for achieving quality. Some

plants and companies, in the United States and elsewhere, have boosted

quality through additional expenditures on post-process inspection and

repair; others have been more successful at building it right the first time.

Plants that improve quality through inspection will not only incur higher

costs but will also have less long-term continuous improvement in quality

than those that eliminate the sources of problems.

Making Multiple Product Lines in a Single Plant

The strategic advantages of manufacturing flexibility (the ability to

assemble multiple product lines in a single plant) have been widely

discussed over the past decade. Companies that are able to produce a

variety of products in their manufacturing plants have a number of

advantages. Such plants are an important resource for a company with a

product development strategy of high variety. In addition, flexibility

enables plants to respond more effectively to changes in their competitive

environment.

The manufacturing plants with the highest levels of product variety have

typically been those that produce many different models for export—

Japanese plants in Japan and European plants. Big 3 plants in North

America have typically been dedicated to one or a few models. The

Japanese transplants started their operations in North America with low

product variety while they established their production system philosophy and have slowly increased variety over time.

Figure 13 shows the regional averages in the IMVP’s International Assembly Plant Study, Round 2, for product variety (model mix complexity)

based on the number of different platforms (e.g., the core design, comprising a common chassis and wheelbase), different models (e.g., Ford

Taurus, Mercury Sable), and different body styles (e.g., two-door, fourdoor) built in a given plant. Model mix complexity is quite high for

Japanese plants in Japan, with the next highest complexity level among

plants in Europe and the Japanese transplants. Big 3 plants in North

America and new entrant plants have lower levels of product variety.

Japanese plants in Japan, which are highest in both quality and productivity, are also highest in flexibility. These data reinforce the earlier finding that the firms need not choose among these objectives, but can instead find strategies whereby the objectives are mutually reinforcing.

Plants that improve

quality through

inspection will not

only incur higher costs

but will also have less

long-term continuous

improvement in quality

than those that eliminate

the sources of problems.

Flexibility enables

plants to respond more

effectively to changes

in their competitive

environment.
The U.S. Automobile Manufacturing Industry 31

OFFICE OF TECHNOLOGY POLICY

Summary on Manufacturing Plant Performance

Japanese plants are still the best at automotive manufacturing by our

evaluation standards. However, the gaps are rapidly closing, and the

rising yen has eliminated any cost advantages that Japan once had. Like

many others, the manufacturing segment of the business has become

increasingly competitive. No firm can relax its efforts for continual and

significant improvement.

Product Development Performance

Automakers continually face the challenge to create “best in class”

vehicles and maintain a corporate reputation for performance and value.

To achieve this goal, they must be adept at managing the development

process, including involving suppliers as design partners. Product development includes understanding customer needs and desires; translating

those needs into “key characteristics”; developing the concepts, systems,

components, and tools to deliver those key characteristics; and designing

the immense logistical systems required to deliver vehicles in quantity at

competitive cost and quality.

Over the past decade, U.S. automakers have popularized the minivan and

sport utility/light truck vehicle classes. Continued success will result from

Figure 13. Model Mix Complexity, 1994

The manufacturing

segment of the business

has become increasingly

competitive. No firm

can relax its efforts for

continual and significant

improvement.
32 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

attention to demographic trends, customer tastes, design innovation, and

transportation needs. American automakers must maintain the simultaneous abilities to advance the state of the design art, respond to new or

latent purchaser demands, and continually refine existing vehicle types.

Automotive firms continually explore better ways to organize themselves

to perform these challenging product development functions. This

section describes some of those organizational strategies as well as

performance outcomes.

Alternate Development Structures

Four patterns or strategies of vehicle development management practice

are described below: functional management; single-car project management; multiproject management; and multifirm, multiproject management.

Functional management is characterized by teams of specialists within

largely independent and isolated technical and business areas following

sequential development phases to create a new product.

Single-car project management is the use of overlapped, integrated

functions and program phases to improve communication and lessen the

amount of change and re-work caused by changed or incompatible

design priorities. Typically, this management structure is associated with

a project manager who has significant authority and responsibility over

the entire team developing the vehicle.

Multiproject-management attempts to leverage the advantages of single

project management on multiple projects. Firms develop a portfolio of

vehicle products with common features or a related design. Various

products are related in terms of platform architecture, component families, and development lineage.

Multifirm, multiproject management, under which a firm integrates its

development and operational activities with those of other firms, is the

most difficult and demanding product management strategy. Multifirm,

multiproject management requires the complicated act of juggling component sharing arrangements, joint project ventures, and agreements to

market cars under each other’s brand names.

To support multiproject management, the basic design of one vehicle

platform is often leveraged for another through the process of “rapid

design transfer,” in which major structures or assemblies are reused in

Multifirm, multiproject

management requires

the complicated act of

juggling component

sharing arrangements,

joint project ventures,

and agreements to market

cars under each other’s

brand names.
The U.S. Automobile Manufacturing Industry 33

OFFICE OF TECHNOLOGY POLICY

follow-on projects. The benefits of such practices are greater product

variety, lower average design age throughout the corporate vehicle

portfolio, more efficient use of development resources, and a higher level

of component commonality. The difficulties include cross-project coordination and design compromises that yield multiproduct savings but

distinct vehicles. A number of firms have installed a heavyweight coordinator who serves as the executive manager over a set of projects in order

to address the delicate balance between individual projects and linked

platforms.

Product Development Performance Metrics

The research team of Ellison, Clark, Fujimoto, and Hyun2

 has developed

a rich database to examine product development performance over the

past decade. In comparing new product development practices in the

United States, Europe, Japan, and Korea, they have collected data on two

key measures of performance for automotive product development

projects: total engineering hours devoted to the development project and

total months of lead time from concept to market for new vehicle

projects.

The metrics calculated from the raw data are adjusted for factors such

as product complexity, new parts content, and supplier development

content in an attempt to approximate an “apples to apples” comparison. In

table 2, these performance measures are grouped and averaged by geographic location of the corporate owners of the developing company. The

data are based on a sample of 29 new car projects developed in the 1980s

and 27 different new car projects in the 1990s. The results show that U.S.

and European firms have made significant gains, catching up completely

with the Japanese in lead time but still trailing in the total number of

engineering hours required to develop a new vehicle.

Ellison et al. also observe a continuing shift toward “heavier” project

management systems, in which the functional and technical organizations

have relatively less power in the matrix management structure than the car

project team leaders. This practice was described in earlier work by Clark

and Fujimoto as being significantly associated with superior performance.3

The use of suppliers in the development process, another practice associated

with superior performance, has increased in the past decade.

2 David J. Ellison, Kim B. Clark, Takahiro Fujimoto, and Young-suk Hyun,

“Product Development Performance in the Auto Industry: 1990s Update”

(paper presented at the IMVP Research Briefing Meeting, June 1995).

3 Kim B. Clark and Takahiro Fujimoto, “Heavyweight Product Managers,”

McKinsey Quarterly no. 1 (1991): 42–60.

U.S. and European firms

have made significant

gains, catching up

completely with the

Japanese in

lead time but still

trailing in the total

number of engineering

hours required to develop

a new vehicle.
34 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

U.S. gains in performance result from fundamental changes in the way

projects are managed, including more interdisciplinary participation by

more closely linked development teams, greater and more effective use of

information technology, and greater delegation of project responsibility

by corporate management.

Trends in the practices of the foreign competitors show an important part

of the overall picture. Japanese trends show a strong emphasis on total

product quality (e.g., launch of Acura, Lexus, Infiniti), perhaps at the

expense of lead time and development productivity (total engineering

hours per development project). However, in part because of the rise in

the value of the yen, the pendulum between “cost is no object” quality

and cost-effectiveness is rapidly swinging toward the latter. Nevertheless, the Japanese demonstrate a strong command of the link between

product design and lean production. The European firms show lower

rates of improvement at all levels, likely the result of a later and slower

shift from traditional functional organization to project management. The

Koreans have emerged as very competitive automakers in terms of lead

time and development productivity, but lag significantly in quality.

Big 3 Assessment

The current sales success of the U.S. industry exploits some temporary

conditions (e.g., exchange rates, popularity of traditional product types,

cyclical market upturn). It is not due solely to elimination of previous

corporate weaknesses.

U.S. Japan Europe Korea

Engineering Hours (Millions)

1980s 3.366 1.703 2.915 N/A

1990s 2.297 2.093 2.777 2.127

Project Lead Time (Months)

1980s 60.9 44.6 59.2 N/A

1990s 51.6 54.5 56.1 54.5

Note: N/A = not available.

Table 2. Product Development Performance by Region

U.S. gains in performance

result from fundamental

changes in the way

projects are managed,

including more interdisciplinary participation

by more closely linked

development teams,

greater and more effective

use of information

technology, and greater

delegation of project

responsibility by corporate

management.
The U.S. Automobile Manufacturing Industry 35

OFFICE OF TECHNOLOGY POLICY

The U.S. automobile industry has made significant operational improvements but still lags in mastery of the overall product development process. It is still not as adept at product development as certain competitors

are, especially the Japanese (see corporate strategies and structures of the

Big 3, discussed below). U.S. automakers should not rest on temporary

success. The U.S. industry should avoid riding current good fortune and

assuming that it will ensure continued success.

Developing a robust product development infrastructure involves a

number of initiatives: eliminating duplication in product development

assets through reorganization, globalization, and alliances; developing

platform and component set strategies across a portfolio of vehicle

projects; defining critical areas of firm expertise and focus; creating

strategic links to technology suppliers; and improving the way “lessons

learned” are fed back into an interdisciplinary organization focused on

new product development.

Customer demand for high levels of product quality, safety, reliability,

and sophistication, even in the most economical vehicle classes, poses a

major challenge, particularly in an information climate that rapidly

disseminates reports on good and bad product attributes.

Implications of Vehicle Development Management Practices

among the Big 3

There are enormous differences in how the Big 3 manage product development.

Chrysler Corporation

Chrysler’s strategy emphasizes lean domestic product development

featuring high integration with its suppliers and an increasing export

focus. Chrysler has five platform teams that cover all U.S.-sourced products. All except Jeep and Truck are located in its new billion-dollar

Chrysler Technical Center. Chrysler’s U.S.-sourced product portfolio is

limited to eight mass-production platforms. Its Diamond Star/Mitsubishi

alliance is structured primarily to fill gaps in its model line. Chrysler

produces exports to increase the utilization of U.S. plants and to build

profits. The company has limited foreign production (minivans and Jeeps

in Europe, Jeeps in China).

Chrysler has a high level of component outsourcing (about 70 percent).

Its suppliers are increasingly engineering large built-up assemblies, such

as complete instrument clusters. There is also growing reuse of components across platforms (e.g., engines across Neon JA model platforms). Its

The current sales success

of the U.S. industry

exploits some temporary

conditions. It is not due

solely to elimination of

previous corporate

weaknesses.
36 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

corporate structure incorporates a service function, platform teams, Tech

Clubs, and a flattened organizational hierarchy.

Chrysler’s corporate staff functions as a service organization for platform

teams, manufacturing, and shareholders by allocating resources, setting

strategic goals, and managing infrastructure. It avoids interfering with

platform teams. The platform teams take clear responsibility for vehicle

development, subject to corporate-allocated budget and vehicle design

intent. Interdisciplinary activity is high in engineering, marketing, finance, styling, and manufacturing. Supplier participation is coordinated

with the total design effort. There is consensus management of tradeoffs.

The Chrysler Technical Center supports start-to-finish platform development with modern test facilities.

Chrysler’s Tech Clubs—personnel working in the same system or component area (e.g., wiring, brakes, audio)—represent a “virtual” functional

organization that maintains and disseminates technical knowledge across

platform lines. Chrysler’s flattened hierarchies have only five basic

engineering grades (the original LH model project had one vice president, one general manager, five executive engineers, 25 managing engineers, and an engineering staff).

Ford Motor Company

Ford’s global strategy, Ford 2000, has integrated global operations with

global product alliances, segment management, and world-class timing.

The Mondeo/Contour/Mystique “World Cars” are interlinked in Ford’s

Corporate Design network. Ford has a wide variety of alliances with

Mazda (Escort and 323, Ranger and B2000, Explorer and Navajo), Nissan

(Villager and Quest), Volkswagen (European Minivan), and Kia (Aspire),

and there are corporate synergies with Jaguar and Aston-Martin. Ford’s

segment management divides each market by vehicle size and drive type

and teams segment managers with vehicle program managers to identify

and fill market niches from a joint business and technical perspective.

Ford is proficient at low-cost, high-quality manufacturing. However,

Ford’s own extensive benchmarking against Toyota and Chrysler has

indicated both higher product development cost and deficiencies in its

time to market. Its world-class timing initiative seeks to standardize

the vehicle development process and shorten time to production (43

months or less from Program Definition to Job #1 for single body-style

programs; 48 months or less for multiple body-style programs).

Chrysler’s corporate staff

functions as a service

organization for platform

teams, manufacturing,

and shareholders by

allocating resources,

setting strategic goals,

and managing

infrastructure.

Ford is proficient at

low-cost, high-quality

manufacturing.
The U.S. Automobile Manufacturing Industry 37

OFFICE OF TECHNOLOGY POLICY

Ford’s corporate structure comprises Automotive Operations, Vehicle

Program Centers, and a balance of home organizations and dedicated

teams. Ford Automotive Operations unites North American Automotive

Operations and Ford of Europe, building on economies of scale from

common systems such as the Ford Corporate Design network, its Worldwide Engineering Release System, and the Purchasing Release System.

The rest of its operations are expected to follow in time. Ford’s five

Vehicle Program Centers in the United States and Europe divide development responsibility by vehicle size and drive type (four-wheel drive,

rear-wheel drive) to supply global markets. Models are designed to carry

high feature content to satisfy a variety of customer tastes.

Ford is attempting to arrive at a balance of power between core engineering groups and dedicated program teams. It encourages both advanced

systems and technologies as well as highly marketable vehicles. Ford

consciously avoids the Chrysler platform team model because management feels it fails to leverage Ford’s central technical strengths and

support a broad, interlinked vehicle portfolio.

General Motors Corporation

The strategy of GM is multifold, maintaining a coherent product portfolio, “Voice of the Customer” research, a standardized four-phase development process, strategic links between its North American and international operations, and organizational revitalization.

GM’s North American Operations Car Platforms and Truck Platforms

have replaced the former Chevrolet-Pontiac-Canada, Buick-OldsmobileCadillac, and Truck and Bus groupings. GM’s Platform rationalization is

under way to support each brand’s mission and achieve greater commonality of platforms and components. GM is aiming at unique variations on flexible engineering themes rather than a proliferation of unique

systems (e.g., from 200 steering column

designs in 1993 models to 50 in 1997–2000 models). GM has assigned a

disciplined, mandatory application of a four-phase vehicle development

process to all new products.

GM is making an increased effort to listen to the “Voice of the Customer”

through Needs Segmentation market research—designing future vehicles

to fit groups of people desiring similar attributes rather than predetermined size- and price-based market segments. GM’s intensive consumer

research has included over a million interviews since 1986.

GM’s intensive consumer

research has included

over a million interviews

since 1986.
38 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

GM’s structure is a matrix organization, with a Vehicle Launch Center

and Centers of Expertise. GM’s North American new product development (NPD) organization is run by four “heavyweight” executives, one

each for engineering and design operations (Small Car Group, Midsize &

Large Car Group); truck platforms (Matrix of Marketing Divisions—

brands like Chevrolet and Pontiac); platform divisions; and vehicle

groups (Small Car and Midsize & Large Car Groups).

The Vehicle Launch Center (VLC) monitors the first two years of vehicle

development process (program proposal, concept development, and

technology application) as the initial home for each new dedicated

platform team. It co-locates the team with centralized marketing, engineering, manufacturing, planning, and design staff resources. The VLC

acts as storehouse of NPD knowledge and has enforced documentation

and business management practices.

GM’s five North American Operations Technical Centers for design,

engineering, manufacturing, research and development, and quality hold

Centers of Expertise and support the Vehicle Launch Center with central

staff experts and personnel loaned to platform teams.

Development Organizations in the “Design Cultures” of the Big 3

Considered innovative, Chrysler Corporation’s design culture is informal, direct, collaborative, and collegial. Design innovations are owned by

the entire team and are taken up as challenges by engineering. At

Chrysler, there is intense concentration of activities on a single project at

a time with high group identification and few personality-driven product

changes. The product design team maintains close working relationships

between disciplines and with suppliers, has one-third union participants

on the platform team, and maintains longer supplier relationships than

the other companies in the Big 3.

Ford’s design culture may be described as academic and introspective,

but it is also pragmatic, with its business and technical groups in beneficial give-and-take with one another. Individual Ford employees must

develop networks across the company‘s large and complex organization

to effectively carry out their tasks. Ford spends more time than Chrysler

at process and organizational introspection, perhaps a result of having a

greater number of technical and business specialists not directly engaged

in platform activities. Ford also supports substantially more infrastructure than Chrysler, but less than GM.

At Chrysler, there is

intense concentration

of activities on a single

project at a time with

high group identification

and few personalitydriven product changes.

Ford’s design culture

may be described

as academic and

introspective, but it is

also pragmatic, with its

business and technical

groups in beneficial

give-and-take with one

another.
The U.S. Automobile Manufacturing Industry 39

OFFICE OF TECHNOLOGY POLICY

The culture of GM has, to some extent, been characterized by extended

chains of command, a complex matrix organization, and competition for

resources. GM is attempting to address these issues and to improve

communication throughout its organization. As a result, there have been

substantial increases in communication and teamwork between GM’s

marketing and technical staffs.

Impacts of Cultural Organization and Product Development Strategies of

the Big 3

The product development strategies of the Big 3 are the result of decades

of corporate practice increasingly influenced by foreign competition and

other external factors. The response of each of these companies is reflected in its corporate culture and performance. Each of the Big 3 defines

its issues differently than the other two, and the implications of these

definitions are similarly divergent.

Chrysler Corporation

Of the Big 3, Chrysler has the highest per-vehicle profits and lowest

break-even point, allowing it to expand its product portfolio and manufacturing capacity despite lingering concerns over quality. Chrysler has

less infrastructure than the other Big 3. Its vehicle mix is more skewed

toward high-profit minivans, and its sport utility vehicles contribute to

its high net per-vehicle profit. The Neon platform, two manufacturing

plants, and a new stamping facility were developed

in 31 months for approximately $1.3 billion (an improvement over

the LH platform—Chrysler Concorde, Eagle Vision, Dodge Intrepid—for

which one plant and a retooled stamping facility were developed in 39

months at a cost of $1.6 billion).

Ford Motor Company

Ford and GM have much broader vehicle portfolios than Chrysler. Ford’s

vehicle mix is less heavily weighted toward high-profit minivans and

SUVs. Ford has performed well, with strong sales but poor net

per-vehicle profit and high warranty costs in 1994. Its CDW-27 (Mondeo)

World Car program was costly, and its introduction of the new minivan

(Windstar) was quickly leapfrogged by Chrysler’s completely revamped

minivan line. Ford’s organizational structure and corporate culture—for

example, its history of vehicle champions—have slowed its efforts to

create cohesive and dedicated program teams. However, Ford’s management is aware of the need to make lines of decision-making more direct

and quicker, and organizational changes are in process.

There have been

substantial increases in

communication and

teamwork between GM’s

marketing and technical

staffs.
40 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

General Motors Corporation

GM is attempting to be more responsive to the demands of the marketplace. Oldsmobile is furthest along in remaking itself in Saturn’s image as

a model of customer responsiveness. The Corsa model is a de facto World

Car. The Saturn has been a cultural and sales success, although only a

limited financial success.

In terms of performance, GM has had the lowest net per-vehicle profits of

the Big 3, with continued problems in its minivan and family car markets

and problems increasing content from its outside suppliers. Chevrolet,

Pontiac, and Geo are below average in J.D. Power’s Vehicle Dependability Study on five-year quality. But GM quality has been steadily improving: Cadillac, Buick, and Oldsmobile are in the top

ten of the same study. Also, in some key segments (e.g., midsize car

[Lumina] and small car [Citation]) it is very cost and value competitive

compared with Ford’s offerings (Taurus and Contour).

GM’s relationship with the United Auto Workers is still strained: strikes

over management attempts to outsource brake system calipers cost GM

significant production losses in 1996.
The U.S. Automobile Manufacturing Industry 41

OFFICE OF TECHNOLOGY POLICY

TECHNOLOGY

The automobile is a highly engineered, sophisticated product that

meets stringent reliability, durability, and social requirements. Its

design, manufacture, and operation call more and more for cutting-edge

technology. The Big 3 companies have a long history of aggressively

pursuing research and development (R&D) to stay competitive, to meet

the changing needs of the consumer, and to meet federal requirements.

The diverse ways in which the companies meet these technology needs

reflect their diverse corporate competitive strategies.

General Motors Research has historically emphasized internal corporate

research and is currently the top corporate investor in R&D in the United

States, with a 1995 R&D budget of $8.4 billion—a 19 percent increase over

1994. It also employs more PhDs than any other private employer in the

United States. While much of its work has been in central research laboratories, GM is placing much greater stress on the integration of its

research efforts with the product planning of its car and truck divisions.

The GM tech center in Warren, Michigan, reflects this change.4

 The

center’s R&D plans are more focused on the needs of its operating divisions and its customers; more speculative R&D has been reduced. The

center is now organized as a business unit, with its research portfolio

fully open to GM’s product development community. The center’s

director has set a goal of placing 50 percent of projects into production in

two to three years. Consideration is also being given to licensing GM

inventions throughout the industry.

To meet its R&D needs, Ford relies on the Ford Research laboratory,

which employs over 650 full-time scientists and engineers. In general, the

objective of the research staff is to provide long-range technical leadership to the corporation worldwide. This means the lab is involved in a

spectrum of activities ranging from the development of advanced product and manufacturing technologies to long-range, relevant research in

key scientific and engineering disciplines. The research staff maintains a

mix of long-, medium-, and short-range programs. Short-range efforts

generally have a goal of solving immediate or pressing production

problems and account for about 10 percent of Ford’s efforts. Mediumrange projects are directed toward specific goals to meet longer-term

company needs and generally make up about 80 percent of Ford’s efforts.

Long-range programs are the least goal-directed efforts and make up the

remaining 10 percent. Ford’s research expenditures of $6.5 billion in 1995

4 “GM Customers Get to Drive Latest Tech Center Research,” Detroit News

(Aug. 6, 1995).

The automobile is a

highly engineered,

sophisticated product

that meets stringent

reliability, durability, and

social requirements. Its

design, manufacture, and

operation call more and

more for cutting-edge

technology.
42 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

made it the second largest U.S. corporate supporter of R&D, following

GM.

Chrysler Corporation addresses the need for new technologies differently. Chrysler research and development efforts are split into two portions. Its Scientific Lab handles technical R&D and delivers technical

expertise and services to the rest of Chrysler’s platform groups. The

second portion of its R&D effort is primarily handled by a small group

known as “Liberty and Technical Affairs” and relates to advanced development efforts. This group addresses specific high-technology projects

and develops ideas in the form of concept cars and government contract

proposals. The two R&D groups work in concert to monitor emerging

technologies, pursue new product concepts, and develop platformfocused products.

Cooperative Research and the Partnership for a New Generation

of Vehicles

Complementing their individual efforts, the Big 3 automakers have also

placed increasing emphasis on research collaborations with one another,

with their suppliers, and with the federal government. For example in

1992, Chrysler, Ford, and GM created the United States Council for

Automotive Research (USCAR) to facilitate, monitor, and promote

precompetitive cooperative research. Through this cooperative effort,

resources are coordinated more effectively to conduct research and

evaluate alternative technologies to improve the automobile.

Besides working with each other to research and develop technologies

for the next generation of vehicles, the Big 3 automakers are working

with the federal government in a cooperative, precompetitive research

effort called the Partnership for a New Generation of Vehicles (PNGV).

Combining the technology resources of seven federal agencies, twenty

government laboratories, and USCAR, this historic public/private partnership aims to strengthen U.S. global competitiveness, preserve American jobs, reduce our country’s dependence on foreign oil, and improve

the environment.

At an early stage of the partnership, the participants recognized the

importance of involving the traditional base of automotive suppliers as

well as some nontraditional sources of supply. Since that time, a special

effort has been devoted to understanding the supplier community,

recognizing its importance as a source of technical innovation, and

This historic public/

private partnership aims

to strengthen U.S. global

competitiveness, preserve

American jobs, reduce

our country‘s dependence

on foreign oil, and

improve the

environment.
The U.S. Automobile Manufacturing Industry 43

OFFICE OF TECHNOLOGY POLICY

finding means for its effective interaction with PNGV. Currently, more

than 400 automotive suppliers and universities have joined in PNGV

research.

PNGV has three mutually supportive, interactive goals:

1. Significantly improve national competitiveness in manufacturing.

2. Implement commercially viable innovations from ongoing

research in conventional vehicles.

3. Develop environmentally friendly vehicles that can achieve up to

three times the fuel efficiency of comparable 1994 family sedans

(i.e., the 1994 Chrysler Concorde, Ford Taurus, and Chevrolet Lumina) without sacrificing performance, safety, or affordability.

Major technical improvements and innovations are needed to enable the

U.S. auto industry to build this next generation of automobiles, which

will operate with much higher energy efficiencies and safety levels and

lower emissions than today’s vehicles, while maintaining present performance, size, and utility standards. (See table 3, which lists some of the

technical areas USCAR has identified as needing research and development.)

Technology Areas Candidate Technologies

Advanced Lightweight Jointing technologies and adhesives

Materials Glass fiber, and resin fiber composites

Metal matrix composites

Ceramics

Engineering plastics

Aluminum, titanium, magnesium

High-strength steel

Energy Conversion Four-stroke direct-injection engines

Gas turbines

Fuel cells

Advanced diesels

Energy Storage Devices Ultra capacitors

Advanced batteries (electrical vehicles or

hybrids)

Flywheels

Table 3. USCAR’s Focus Technical Areas
44 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Technology Areas Candidate Technologies

Efficient Electrical Power electronics

Systems Advanced electric motors

Efficient electric controllers (for regenerative

braking, power management, signal

distribution)

Exhaust Energy Recovery Thermoelectric systems

Advanced Analysis Structural mechanics

and Design Methods Virtual prototyping

Simulations

Fluid dynamics

Reduction of Tribology

Mechanical Losses Lubricants

Aerodynamics/Rolling Simulation tools

Resistance Improvements New materials

Advanced Manufacturing Supercomputing

Agile manufacturing (programmable

machines and tools, near net-shape

casting)

High speed data communication and data

management

Rapid prototyping (virtual manufacturing

and complex visualization techniques)

Advanced forging/joining techniques

Improved Efficiency of Stratified charge/lean burn engines

Internal Combustion EnginesDirect injection

(Combustion Management) Transient fuel control/fuel injection

Emissions Control Advanced nitrous oxide exhaust catalysts

Onboard diagnostics (evaporative systems,

catalyst diagnostics, engine misfires)

Advanced particulate traps

Fuel Preparation, Pressure vessels

Delivery, and Storage Hydrogen storage alternatives

Reformers/fuel processors

Climate Control Low emissivity windows

Efficient heating, ventilation, and air

conditioning

Table 3. Continued
The U.S. Automobile Manufacturing Industry 45

OFFICE OF TECHNOLOGY POLICY

Both the federal government and the automotive community are strongly

supportive of PNGV, which is now in its third year. In working together

toward national social and economic goals, this partnership is a unique

departure from traditional approaches to achieving public policy objectives.

Increasing Use of Electronic Components

With both vehicles and transportation infrastructure incorporating more

electronics into their systems, the auto industry will likely grow as a

consumer of electronics components and as a driver of electronic technology development. Like many other industries, the automobile industry is

rapidly increasing its use of electronic components. Virtually every aspect

of driving a modern high-end automobile is controlled by electronics—

acceleration, braking, seating, security, entertainment, navigation, driver

information, crash protection, steering, etc. This trend is likely to continue. In addition, the automotive infrastructure—traffic control and

guides, law enforcement, toll assessment, and the like—rely increasingly

on electronic controls.

As a result of both of these trends, the auto industry will likely grow as a

consumer of electronic components and systems and as a driver of

electronic technology development. Ford and GM, which are highly

vertically integrated with electronics, are likely to benefit as the market

value of their electronics divisions grows.

Table 3. Continued

Technology Areas Candidate Technologies

Advanced Crashworthiness/ Structural design and advanced lightweight

Occupant Protection materials

Technology Computer simulation of vehicle crashes

Advanced occupant restraint systems

including sensors

The auto industry

will likely grow as a

consumer of electronic

components and systems

and as a driver of

electronic technology

development.
46 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

ADOPTION AND EVOLUTION OF LEAN PRODUCTION

HUMAN RESOURCE PRACTICES

Human Resource Management

Labor-management relations, workplace innovations, and human

resource practices play a pivotal role in the economic performance

and competitiveness of the American auto industry and serve as a bellwether and pacesetter for American industry in general. This has been

the case from Henry Ford’s moving manufacturing line and

$5-a-day wage, to the “quality of working life” programs in the 1970s, to

the present efforts to implement lean production models of work organization, human resource, and labor-management practices. These issues

are tightly intertwined with technology and manufacturing strategies

and practices. Indeed, the joint effects of these human and technical

factors determine manufacturing performance.

Key Issues in Labor Relations

Demographics in the United Auto Workers

Automotive employment (particularly in the Big 3) has been hit by three

important forces: (1) the industry has reduced its capacity; (2) the industry has improved its productivity, requiring fewer workers to make the

vehicles demanded; and (3) global competition in the automotive supplier sector has resulted in a reduction in unionization. It has also resulted in a higher wage differential between employees of the Big 3 and

employees of the supplier sector, who earn less. As a result, over the past

two decades, the United Auto Workers (UAW) membership has declined

and aged considerably. Few workers have been hired into UAW jobs in

the past two decades and many low-seniority UAW members have lost

their jobs. Moreover, a significant fraction of the UAW membership

(estimated at 30 to 50 percent by some) will retire in the next decade. This

is expected to lead to significant additional hiring and outsourcing by the

Big 3.

Labor-management

relations, workplace

innovations, and human

resource practices play

a pivotal role in the

economic performance

and competitiveness of

the American auto

industry.
The U.S. Automobile Manufacturing Industry 47

OFFICE OF TECHNOLOGY POLICY

Labor-Management Innovations in the U.S. Auto Industry

To preserve high-wage auto manufacturing jobs in the United States,

many believe the auto industry must further the adoption of labormanagement cooperation and workplace innovation, such as the Saturn

and New United Motors Manufacturing Inc. (NUMMI) models and

Chrysler’s Modern Operating Agreements. Despite 20 years of significant

Japanese competition in the auto industry, the penetration of cooperative

labor relations is still low in the U.S. auto industry.

Why is diffusion of workplace innovations slower than expected in the

U.S. auto industry? There is no consensus answer to this question. However, IMVP research, along with findings of a recent U.S. government

commission,5

 suggests that the following factors are significant:

1. Limits on labor/management teams. American labor law restricts the forms of employee participation in non-union relationships and places limits on employee participation and

workplace reforms in collective bargaining relationships.6

2. Union recognition. Support and diffusion are also limited by

business and labor battles over the process of union recognition.

The ability and willingness of employers to open and maintain

non-union facilities and the frustrations experienced by workers

and union when trying to unionize facilities in the face of strong

managerial resistance continue to strain labor-management

relations. These tensions make it difficult for union leaders to be

unwavering champions of cooperation and innovation in relations with management. The cooperative relations and trust

required to sustain workplace innovations within and across

companies are not likely unless there is a de-escalation of labormanagement conflict in new plants and new union organizations. The full benefits of these workplace innovations will not

be realized until these larger conflicts

are reduced.

3. Economic pressures. Economic pressures for downsizing,

outsourcing, cost controls, and short-term performance compete

 5 Commission on the Future of Worker-Management Relations, Fact Finding

Report (Washington, D.C.: U.S. Departments of Commerce and Labor, 1994).

 6 Thomas Kochan, Paul Osterman, and Martin M. Perline, “The Mutual Gains

Enterprise: Forging a Winning Partnership among Labor, Management, and

Government,” Relations Industrielles 50, no. 4 (1995).

The cooperative relations

and trust required to

sustain workplace

innovations within and

across companies are not

likely unless there is a

de-escalation of labormanagement conflict

in new plants and new

union organizations.
48 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

with long-term perspective. The diffusion of human resource

innovations is constrained by the fact that these innovations

have clear, immediate costs but uncertain long-term payoffs and

by the relative unimportance of human resource policy in the

strategic decision-making of American corporations.

Implications of the Key Issues in Manufacturing

Plants and Human Resource Practices

Changing Labor-Management Relations,

Workplace Innovations, and Human Resource Practices

Lean production is a composite of practices. For example, it links manufacturing policies with human resource/labor-management practices.

The combination of these manufacturing and human resource practices

produces the highest levels of manufacturing performance (quality,

productivity, flexibility) in plants around the world.7

 Plants that invest

heavily in automation and advanced technologies without changing their

human resource practices perform poorly relative to those that take an

integrated approach to technology and human resources.

By 1990, Japanese-owned plants in Japan and the United States had

implemented more integrated human resource and manufacturing

systems than U.S.-owned plants, which, in turn, had implemented more

of these practices than European plants.

In 1990, as today, there was wide variance in U.S. practices. Many plants

were still characterized by traditional labor-management and human

resource management systems. The unionized transplants, such as

NUMMI, had gone far in implementing lean production and labormanagement systems jointly in a unionized environment. Some nonunion Japanese plants had also implemented many of these features.

Saturn, a new GM division, had implemented a unique co-management

system jointly with the UAW.

From 1989 to 1994, U.S. plants continued to progress in adopting lean

production practices and the associated labor-management and human

resource practices. The latter practices have not moved as rapidly as in

European plants, but the European plants had farther to go in achieving

The combination of these

manufacturing and

human resource practices

produces the highest

levels of manufacturing

performance (quality,

productivity, flexibility)

in plants around the

world.

 7 James P. Womack, Daniel T. Jones, and Daniel Roos, The Machine That Changed

the World (New York: Harper Perennial, 1990).
The U.S. Automobile Manufacturing Industry 49

OFFICE OF TECHNOLOGY POLICY

lean practices. The performance gap between Japanese-owned plants in

Japan and in the United States and U.S.-owned plants has narrowed but

remains significant. Finally, the variance of performance within regions is

often as great or greater than the variance between regions. Specifically, the

survey data suggest the following:

1. Inventory has been reduced considerably in U.S. and European

plants and in Japanese North American transplants. In the

United States, inventory reductions have been achieved more

through reductions in supplier stocks than from internal plant

buffers.

2. U.S. plants have increased their use of teams, job rotation, and

suggestion systems. However, the diffusion of these practices

among Big 3 U.S. plants is proceeding at a much slower pace

than in Europe. Japanese plants in Japan and in the United

States continue to lead the world in the adoption of these human

resource practices.

3. There is modest increase in the diffusion of human resource

practices such as contingent compensation, investment in

training, and reduction in status differences in the United States,

rapid growth in Europe (and in Australia), and continued use of

these practices in Japanese plants in Japan and the United States.

These overall trends mask considerable variation across companies

and individual facilities in the United States. Ford, for example, has

followed a cautious, steady incremental change process that has built on

its experiences in joint ventures with Mazda (in the United States and

abroad). It has made less use of teams than GM or Chrysler but focused

more heavily on use of various total quality management tools and

methods (e.g., statistical process control).

Chrysler has a number of traditionally structured plants and a half dozen

Modern Operating Agreement (MOA) plants in which the full range of

lean production human resource practices are implemented for all workers through a joint union-management oversight and governance process. Chrysler also has several plants where many of these features are

implemented without the full union-management governance process

(Progressive Operating Agreement plants). Some case studies suggest

that Chrysler MOA plants benefit significantly from this arrangement

relative to its non-MOA plants.8

U.S. plants have

increased their use of

teams, job rotation, and

suggestion systems.
50 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

GM probably has the widest variation in experiences and practices.

Considering the Saturn Corporation experiment and the NUMMI facility

(owned jointly with Toyota), GM and the UAW have gone farthest among

the Big 3 in experimenting with very different models of labor-management relations. Saturn, for example, has co-management structures and

processes throughout the organization—from the shop floor to the strategic advisory committee that serves as Saturn’s link to the GM parent, and

across functional areas—from human resources to sales, marketing, and

supplier relations. Yet GM also has many traditional plants and a large

number of hybrid facilities that contain elements of both traditional and

lean production manufacturing and work practices.

Even given this wide variation, the U.S. auto industry is farther along

than many industries in the United States in introducing and diffusing

workplace innovations. In Saturn, NUMMI, Chrysler’s MOA plants, and

certain other facilities, the auto industry also has some of the most visible

models of transformed union-management relations that serve as benchmarks for other industries. At the same time, the auto industry continues

to have many rather traditional or only partially modified union-management relations and collective bargaining activities, as well as a growing non-union foreign transplant segment.

This diversity mirrors the diversity of practices and the mixed levels

of support for workplace innovations among management and leaders

throughout American industry. Overall, the United States has experienced a significant expansion in employee participation and associated

workplace innovations over the past 20 years. In the past decade, the

labor movement has become more willing to support these innovations

and has recently endorsed the principles of workplace innovation and

labor-management partnerships. Yet, despite the growing support for

workplace innovations, our best estimates indicate that only one-fifth to

one-third of American workplaces are engaged in significant employee

participation or related forms of workplace innovation.9

Other Issues in Human Resource Practices

In the mid-1980s, the UAW national leaders were advocates for new joint

governance and more team-oriented approaches to plant relations. In the

1990s, however, they have been less committed to the approaches found

8 Malcolm Lovall, Susan Goldberg, Larry Hunter, Thomas A. Kochan, John Paul

MacDuffie, Andrew Martin, and Robert McKersie, Report on the Chrysler-UAW

Modern Operating Agreement (MOA) Experiment (Washington, D.C.: U.S.

Department of Labor, 1991).

9 Thomas Kochan and Paul Osterman, (1994).

Overall, the United

States has experienced

a significant expansion in

employee participation

and associated workplace

innovations over the past

20 years.
The U.S. Automobile Manufacturing Industry 51

OFFICE OF TECHNOLOGY POLICY

at NUMMI, Saturn, and other plants. This fact is best illustrated by the

series of plant-level strikes at several GM plants over issues such as

contracting out, staffing levels, production standards, and related local

issues. Thus, the future rate of diffusion of these workplace innovations

remains uncertain.

Another important development in the U.S. auto industry in the 1980s

and 1990s is the emergence of a significant and quite successful set of

non-union transplant assembly plants. The only foreign-owned assembly

plants that are unionized in the United States are joint ventures between

GM, Chrysler, or Ford and a Japanese company. Toyota, Nissan, and

Honda are operating their wholly-owned, non-union assembly plants in

the United States. Toyota did so even after experiencing a high level of

success in its NUMMI joint venture with GM and the UAW. Mercedes

Benz and BMW are currently opening non-union assembly plants in the

United States.

Moreover, a large number of new foreign- and domestic-owned auto

parts suppliers have opened plants in the United States in the past 15

years and kept them operating on a non-union basis. Thus, while the Big

3 (Saturn at GM, several renovated or newly opened plants at Chrysler,

and selected Ford plants) have moved to governance systems that expand the role of the union, a significant portion of the industry is moving

away from unionism altogether. This trend adds more diversity to the

industry and a good deal of frustration and bitterness on the part of the

UAW.

Experimentation Case Studies

Twice in this century, the automotive industry has served as birthplace

and proving grounds for fundamental innovations in the organization

and execution of production. At the opening of the century, Henry Ford,

the architect of the mass-production system, sifted through scores of

ideas and performed thousands of experiments in the 20-year process of

developing his system of production. Roughly a half century later, Taiichi

Ohno, over a period of approximately 17 years (1948 to 1965), followed a

similar path of constant experimentation, discovery, and innovation in

developing the Toyota Production System. This tradition of constant

experimentation in the search for improvements continues today in the

auto industry—at the level of individual processes as well as at the level

of the system of production.

Moreover, a large number

of new foreign- and

domestic-owned auto

parts suppliers have

opened plants in the

United States in the past

15 years and kept them

operating on a non-union

basis.
52 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Such experimentation is the lifeblood of a healthy industry. Conversely,

maintaining a stable system in a dynamic industry is almost a sure recipe

for disaster. Few enterprises can expect shelter from Schumpeter’s

“winds of creative destruction” in today’s world of increasingly open

borders and tightly linked international economies. Organizations must

experiment and grow to survive.

Given this mandate for learning, most automotive companies today are

actively exploring possibilities for improvement. In this section, we

mention a few of the more visible experiments of the past decade.

General Motors Seeks New Paths

No company in the world mastered Henry Ford’s system of mass production the way Ford’s crosstown rival did. GM leapt ahead of Ford in

the 1930s and raced to become the world’s largest industrial concern.

However, by the 1970s, as it sat on top of the world, GM had become

frozen in the paradigm it mastered. The path to renewal has been slow

and arduous.

A number of GM plants have been very innovative in taking up the

corporation’s search for improvement in a world that has changed so

dramatically since the early 1970s. Among these are the NUMMI plant in

Fremont, California, a joint venture between GM and Toyota; the Saturn

plant in Spring Hill, Tennessee; GM Europe’s Opel plant in Eisenach,

Germany; and the CAM-I plant in Canada.

NUMMI

GM’s manufacturing plant in Fremont, California, closed its doors in

1982 because of poor quality, low productivity, and dismal labor relations. Two years later, the plant re-opened as the New United Motor

Manufacturing Inc., under joint ownership of Toyota Motor Corporation

and GM, using new management and labor policies but 80 percent of the

UAW members who had worked there previously. IMVP researcher John

Krafcik10 studied the before-and-after of the Fremont plant and discovered that, with Japanese lean methods, the new NUMMI plant doubled

the productivity of the old plant, cut worker absenteeism by 90 percent,

and cut the rework area in half with the installation of the “pull cord”

system (in which workers on the assembly line pull the cord when a

defect is detected, halting the system and allowing mass-produced errors

to be eliminated). A low-tech operation, the NUMMI plant proved that a

10 John F. Krafcik, Learning from NUMMI (Cambridge, Mass.: IMVP and

Massachusetts Institute of Technology, 1986).

Experimentation is the

lifeblood of a healthy

industry.
The U.S. Automobile Manufacturing Industry 53

OFFICE OF TECHNOLOGY POLICY

plant did not have to be on Japanese soil with Japanese workers in order

to be lean and successful. The plant demolished many myths about the

nontransferability of lean production to the United States and to American workers.

Saturn

Also in the mid-1980s, GM’s decision to create a “different kind of a car

company” from the ground up resulted in the Saturn Corporation. The

Saturn plant in Spring Hill, Tennessee, provides a case study of a close

labor-management partnership on the factory floor. Saturn has also

created a unique partnership among the company, its dealers, and the

car-buying public. Saturn leapt to the upper echelons of the closely

watched J.D. Power customer satisfaction surveys (recently rated third

behind Lexus and Infiniti) and sets the standard for other dealerships on

many dimensions.

On the labor relations side, Saturn is a highly visible experiment with a

new model of labor-management relations and organizational governance—one that challenges and departs from many of the customs, legal

doctrines, and adversarial patterns of traditional U.S. industrial relations.

Both the workers and the management at Saturn agreed from the start

that they would distance themselves from the bureaucracies of GM and

the UAW. It was an alliance between workers and management that has

been pathbreaking in U.S. labor relations. The GM employee contract is

seven inches thick, but Saturn’s labor contract or “Memo of Understanding” is a scant 28 pages, covering everything including how the plant is

managed. The agreement eliminated a number of sacred cows, such as

the right to strike during the term of contract.

Eisenach

GM Europe’s Opel plant at Eisenach is an example of a European enterprise embracing the principles of lean production.11 In 1989 the Eisenach

plant, located in the then-moribund German Democratic Republic, was a

morass of inefficiency producing an obsolete vehicle called the Trabant.

GM purchased the Eisenach plant and brought in the best of lean expertise

through the Kaizen Institute of Europe, a Japanese-based institute that

teaches the values and methodology of lean enterprise. A new manufacturing plant was built in 1991–92, and intensive worker training introduced

lean manufacturing methods. Problems were solved along the way, and

lean principles were learned, built up, and implemented. The new plant is

With Japanese lean

methods, the new

NUMMI plant doubled

the productivity of the

old plant, cut worker

absenteeism by 90

percent, and cut the

rework area in half with

the installation of the

“pull cord” system.

Saturn has also created

a unique partnership

among the company,

its dealers, and the

car-buying public.

11 See discussion of Eisenach GM plant in Paul Ingrassia and Joseph B. White,

Comeback: The Fall and Rise of the American Automobile Industry (New York,

1994).
54 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

already competitive with Japanese companies, is a vanguard plant for Opel

and the rest of the European auto industry, and is on an upward curve of

efficiency and quality.

Toyota Tinkers with Success

Toyota Motor Kyushu

As the present decade opened, one of the biggest concerns among the

major Japanese auto companies was that they would run out of labor to

staff their factories in Japan, which seemed to face limitless demand for

their automobiles. In 1993, two million Japanese 18-year-old males—the

primary raw material for Japan’s auto factories—entered the workforce. In

2010, only 1.2 million 18-year-old males will enter the workforce—a 40

percent drop. In 1990, just before Japan’s “bubble economy” burst, the

auto industry got a taste of what a labor shortage might be like. With much

new found affluence and the growth of the financial and other service

sectors, young Japanese began voting with their feet—against working in

auto plants. The industry discovered that, despite the famed worker

involvement through the kaizen process, car making, even in the highly

touted lean production system, was, at its core, strenuous and unpleasant

work. Some concluded that the greatest threat to the Japanese auto

industry was the coming labor crunch.

One solution to such a labor crunch would be to import more labor or

cars into Japan to make up for any impending shortfall. (For example,

Toyota has planned to import a small number of U.S.-made Chevrolet

Cavaliers and Pontiac Sunbirds.) Another strategic option would be to

reduce the labor content in automobiles through greater automation. A

third would be to make automobile manufacturing jobs more attractive

to Japanese citizens, competing more effectively on the labor market and

shifting the labor shortfall to some other sector. The latter strategy is

closely associated with the “humanization” movement, whose

roots are primarily European. The movement was epitomized by the

Uddevalla plant and its craft production environment with hours-long

work cycles for many laborers rather than the repetitive 60-second cycle

common in Japanese plants.

Toyota attempted to address the anticipated labor shortfall using both

greater automation and by making the jobs more labor-friendly. Toyota

launched a new manufacturing company inside Japan—Toyota Motor

Kyushu—and endowed it with new, automated, state-of-the-art, workerfriendly technology.12 Built at a cost of $1.5 billion and in continuous

operation since 1992, the plant does stamping, body assembly, painting,

and final assembly, in addition to making bumpers, instrument panels,

As the present decade

opened, one of the biggest

concerns among the

major Japanese auto

companies was that they

would run out of labor

to staff their factories in

Japan.
The U.S. Automobile Manufacturing Industry 55

OFFICE OF TECHNOLOGY POLICY

and suspension systems. Subsequently, due to an increase in the value of

the yen and a stubbornly stagnant Japanese economy, the domestic labor

shortage has turned to a surplus, perhaps reducing the strategic value of

this plant.

Toyota Motor Motomachi

The Toyota Motomachi plant uses a different style of human resource

practices in the assembly of the new four-wheel drive RAV4.13 Innovations include noise control, ergonomic interior design, and minimal use

of robotics. The assembly line has a conventional overhead conveyor but

is subdivided into five parts with buffer zones in between, relieving

considerable stress on the workers. Automation has been cut back by

two-thirds and is used only on rolling devices that move engines and

gearboxes into position for human assembly. Toyota’s rationale for

reducing automation came from its own studies, which revealed that

automation had reduced the number of line workers but had increased

maintenance personnel.

Producing 428 cars a day, the Motomachi plant may well have set a new

benchmark for productivity, with a reported ten man-hours per vehicle.

Though the success of the plant is attributable to Toyota management

skills, some key ideas have been adopted from U.S. competitors, particularly Chrysler and Ford, which have also been reducing the number of

parts in new models through value engineering techniques. Toyota plans

to have each new model built with 70 percent of the parts common to

earlier models. This plan has already saved Toyota nearly a half billion

dollars. Supplier involvement in the design and engineering of full

subassemblies has contributed considerable savings to Toyota, and more

savings are expected in coming years.

These examples, selected from two of the largest automobile companies,

are but the tip of an enormous iceberg of experimentation in the industry.

Every auto company in the world—large and small—is striving to find

competitive advantage through innovations in products, technology, and

systems management.

12 C.H. Fine, “The World’s Quietest Factory,” draft, Massachusetts Institute of

Technology, Sloan School of Management, Cambridge, Mass., 1995.

13 See [Toyota City], “The Kindergarten That Will Change the World,” The

Economist, March 4, 1995, 63–64.

Toyota’s rationale for

reducing automation

came from its own

studies, which revealed

that automation had

reduced the number of

line workers but had

spawned a whole

new generation of

maintenance personnel.
The U.S. Automobile Manufacturing Industry 57

OFFICE OF TECHNOLOGY POLICY

AUTOMOTIVE COMPONENTS SUPPLY CHAINS

Supply Chain Policies

The world’s automotive manufacturing sector consists primarily of

about 20 very large multinational corporations. The automotive

supply sector, however, comprises thousands of firms ranging in size

from a few employees to more than 100,000. Drawing conclusions about

such a large and diverse sector is much more difficult than for the manufacturing sector.

Best practice in automotive supply chain management involves close,

trusting relationships with long-standing suppliers that are intimately

involved with the development and production of the components

and subsystems they provide. The work of Kim Clark and Takahiro

Fujimoto14 sheds much light on how outsourcing product development

activities through “black box parts” reduces overall project lead time and

engineering resources required for product development. In the past five

years, Chrysler has aggressively incorporated those findings into its

modus operandi, GM has largely rejected that philosophy, and Ford has

settled somewhere in between.

On the surface, the advice to improve partnerships along the supply

chain, drawn largely from Japanese practices, seems to have significantly

helped Chrysler on its return to growth and profitability. At the same

time, GM insists on exerting extreme price pressure on its suppliers and

aggressively negotiating division of the returns to innovations in supplied parts and subsystems. Some believe that this posture was responsible for the company’s slow recovery from the recession of the early

1990s. However, GM estimates savings of $4 billion per year from this

approach. GM is relying on its strong technical capabilities and its ability to

bargain suppliers down on price to achieve its cost reductions. Chrysler, on

the other hand, is encouraging its supplier-partners to find more ways to

cut costs through cooperation and incentives to split gains.

14 Kim Clark and Takahiro Fujimoto, Product Development Performance (Boston:

Harvard Business School Press, 1991). Kim Clark, “Project Scope and Project

Performance: The Effect of Parts Strategy and Supplier Involvement on

Product Development,” Management Science 35, no. 10 (1989): 1247–63.

Takahiro Fujimoto, “The Origin and Evolution of the ‘Black Box Parts’

Practice in the Japanese Industry,” Working Paper No. 94-F-1, University of

Tokyo, Faculty of Economics, January 1994.

Best practice in

automotive supply

chain management

involves close, trusting

relationships with longstanding suppliers that

are intimately involved

with development as

well as production of

the components and

subsystems they provide.
58 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

In Japan, the rise of the yen has driven significant amounts of automotive

assembly off the islands, delivering a quadruple shock to the Japanese

supply base. First, domestic demand for Japanese-made parts is declining

due to the decline in domestically assembled vehicles. Second, Japanese

manufacturing plants are looking offshore to import cheaper parts (and

in some cases severing those long-term partnerships). Third, demand

from non-Japanese manufacturing plants is declining due to the increasing cost disadvantage of Japanese domestically produced parts. Fourth,

competitors of Japanese suppliers (in North America, for example) are

growing stronger as they hone their lean production skills by supplying

the growing demand for North American-made parts from the Japanese

transplant production. Conversely, North American automotive suppliers

are enjoying a quadruple bonanza thanks to the same four phenomena:

(1) rising North American production volumes, (2) growing opportunities to export to Japan, (3) reduced competition from Japanese-based

(yen-dominated) suppliers, and (4) increased rate of learning from Japanese transplant customers. For the near future, U.S. automotive suppliers

should continue to reap gains as long as they continue to improve and

the yen does not lose significant value against the dollar.

Key Issues in Supply Chain Relationships

Arm’s Length vs. Partnership in Supplier Relations

We discuss here two kinds of supplier-assembler relations. The first is a

short-term, arm’s-length relationship with minimal flow of information

between supplier and assembler. This type of contractual relationship has

traditionally characterized most supplier-assembler relations in the massproduction system, particularly in the United States. One of the features

of 1980s lean production is a relatively long-term relationship between

assembler and supplier, characterized by a rich flow of information

between the two. These partnership relationships, the second type of

supplier relation, tend to continue indefinitely or carry the implicit

promise of renewal at the end of a specified contract. The partnership

relationship is exemplified in the Japanese-style multifirm organizations

called keiretsu.

When supplier responsibility for product development and investment is

not an issue, the arm’s-length relationship is often sufficient and partnership relations would be superfluous. Furthermore, while Japanese-style

partnerships have economic benefits, they are costly to set up and maintain and may reduce a customer’s ability to switch away from inefficient

suppliers. But when the supplier’s responsibility includes involvement in

One of the features of

1980s lean production

is a relatively long-term

relationship between

assembler and supplier,

characterized by a rich

flow of information

between the two.
The U.S. Automobile Manufacturing Industry 59

OFFICE OF TECHNOLOGY POLICY

the development of new or altered parts, Japanese-style partnerships

become increasingly advantageous to both parties and tend to result in

superior performance all around. Partnering firms (1) share more information and are better at coordinating interdependent tasks; (2) invest in

relation-specific site, human, and physical assets that lower inventories,

improve quality, and speed product development; and (3) rely on trust to

govern the relationship, which is a highly efficient governance mechanism that minimizes transaction costs for both parties.15

The Challenge of Moving from Arm’s Length to Partnership

Assembler-supplier partnerships are important vehicles for speeding

product development, sharing risks and resources, and accessing technology and knowledge.16 Though U.S. firms have moved toward adopting

keiretsu-style partnerships, the process has often been slow due to

entrenched attitudes and long-standing suspicion between suppliers and

assemblers from decades of competitive bidding and short, arm’s-length

contracts.

But there are deeper economic and social factors that increase the

resistance to supplier-assembler partnering in the U.S. auto industry.

The Japanese community-oriented culture inherently fosters more

goodwill among firms than the American culture of “rugged individualism” and social heterogeneity. These cultural differences may explain

why partnering between companies is taking time to become established in the United States.

Many U.S. firms have now acknowledged that the Japanese system has a

number of advantages over arm’s-length relationships in automotive

supply chains. Whether U.S. industry will widely embrace these practices or develop hybrids of Japanese and U.S. strategies to achieve tighter

and more productive supplier-assembler relationships remains to be

seen. However, the case of Chrysler, discussed later in this section, offers

strong evidence that American firms can successfully and profitably

implement the partnership model.

15 Susan Helper, “Supplier Relations and Investment in Automation: Results of

Survey Research in the U.S. Auto Industry,” Sept. 1991; Sako, 1992; Dyer,

forthcoming.

16 Toshihiro Nishiguchi and Jeffrey H. Dyer, “Strategic Industrial Sourcing: The

Japanese Advantage,” Administrative Science Quarterly 40, no. 1 (1995).

Many U.S. firms have

now acknowledged that

the Japanese system has

a number of advantages

over arm’s-length

relationships in

automotive supply

chains.
60 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Slow Adoption of Innovative Human Resource Practices

among U.S. Suppliers

As with the adoption of partnership relations with customers, the record

with respect to adoption of partnership with employees is mixed. On the

positive side, 92 percent of supplier plants had quality circles, and on

average, 56 percent of those firms’ employees had attended a meeting in

the six months before the survey was mailed in summer 1993. On the

other hand, 38 percent of the plant managers who responded to the

survey said they did not know (even within 10 percent) how many

suggestions workers had made in the past year. Those who did know

said half of the suggestions had been implemented on average.17

Slow Adoption of Innovative Practices with Second-Tier Suppliers

Supplier relations with second-tier suppliers are sluggish and well

behind the lean advances being made in supplier-assembler relations.

Only about one-third of U.S. suppliers offer multiyear contracts or technical assistance to a majority of their own suppliers. Moreover,

only 40 percent have a majority of suppliers who participate in product

design or produce just-in-time.

Supply Chain Management

Future Directions for Big 3 Supply Chains

Only 29 percent of U.S. suppliers had relationships with their most

important customer that could be classified as partnership relationships.18 GM has actively moved away from partnership relationships

with its suppliers. The average length of contracts GM offers has fallen

about 40 percent, from 1.8 years in 1989 to just over one year in 1993. GM

also has set up a system of worldwide competitive bidding, saving an

estimated $4 billion per year in the prices it paid for parts between 1992

and 1994.

Despite the advantages to GM, some suppliers say they will refuse

to supply new technology to GM due to its policy requiring quotes

from prospective suppliers and complete technical information on the

product and its manufacture, free of any claims of confidentiality.19 Such

17 Susan R. Helper and Laura Leete, “Human Resources Policies and

Performance in the Auto Supply Industry,” working paper, Case Western

Reserve University, Cleveland, Ohio, 1995.

18 Susan R. Helper and Mari Sako, “Supplier Relations in Japan and the United

States—Are They Converging?” Sloan Management Review, Spring 1995.
The U.S. Automobile Manufacturing Industry 61

OFFICE OF TECHNOLOGY POLICY

a one-way partnership relationship is unpalatable to some suppliers.

GM officials acknowledge that this policy means that GM will have to

continue doing most of its product development in-house in order to

ensure apples-to-apples comparisons among supplier bids. This strategy

could result in GM’s losing the advantages of supplier participation in

product development.

On the other hand, the U.S. auto industry has made some significant

strides toward partnership relationships since 1989, even taking into

account the GM experience. For example, 80 percent of U.S. suppliers

now provide their customers with detailed information on the steps they

use in their production process—up from 50 percent in 1989. These new

U.S. figures are equal to the percentages in Japan’s supplier-assembler

partnership relationships. The information suppliers provide is crucial to

the adoption of techniques such as value analysis/value engineering, in

which the production process is streamlined to eliminate waste. Similarly,

the participation of U.S. suppliers in product design now matches the

Japanese. U.S. suppliers now far outpace the Japanese in the percentage

of the sales that come from products not produced five years ago: United

States, 20 percent; Japan, 5 percent.20

Chrysler continues to devolve responsibility onto its suppliers. For

example, TRW is working to integrate the passenger-side air bag into the

instrument panel designed with another supplier, even though it means

that TRW will no longer deal directly with the automaker on this product. However, most parts are still not provided in particularly large

systems, meaning that the manufacturing plant must accommodate a

great deal of complexity. The median supplier to the Big 3 assembles only

four parts to make the component it supplies to the automaker; in contrast, the median Japanese-owned supplier to a Japanese assembler

located in the United States assembles 12 parts.21

Several of the Japanese-owned assemblers (Honda and Toyota in particular) have established intensive technical assistance programs for their

U.S.-based suppliers. For example, in Honda’s BP program, a team

including Honda technicians, supplier managers, and supplier workers

studies one process for several months and makes suggestions to im19 Automotive Industries, July 1994.

20 Helper and Sako, “Supplier Relations.”

21 Susan Helper, “Supplier Relations and Performance in the U.S., Japanese and

European Automotive Industries” (paper presented at the IMVP Research

Briefing Meeting, Berlin, 1994).

On the other hand, the

U.S. auto industry has

made some significant

strides toward partnership relationships since

1989. For example, 80

percent of U.S. suppliers

now provide their

customers with detailed

information on the

steps they use in their

production process—up

from 50 percent in 1989.
62 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

prove it. This process has led to 30 to 40 percent improvements in quality

and productivity in that area for each of the few dozen suppliers that

have tried it.22

Case Study: Chrysler’s Supplier Logistics

Chrysler Corporation has significantly restructured its outsourcing

through a streamlined and geographically more accessible system of

third-party logistics services.23 In all, Chrysler has considerably reduced

the number of logistic providers. For example, the number of truckload

suppliers has been reduced from 250 to 30, coordinated by only one lead

truckload provider. The number of less-than-truckload suppliers has

been reduced from 25 to just one. Chrysler has 2,600 suppliers shipping a

total of 34,000 parts from 3,300 locations. The corporation has 38 facilities,

three logistics centers, and 15 manufacturing plants. At both its Belvidere

and Sterling Heights manufacturing plants, Chrysler has reduced the

number of locations of supplier shipment points by around 40 percent

and has significantly reduced the average distance from supplier point to

manufacturing.

Chrysler’s plant in Bramalea, Ontario, offers an insight into creative

utilization of existing facilities. Because it is manufacturing beyond its

original capacity, the Bramalea plant is outsourcing more than most auto

plants, integrating direct supplier sourcing (40 percent of volume) with

flow-through warehousing (45 percent of volume) and a sequence center

(15 percent of volume). The sequence center, which is 25 minutes away,

supplies 14 different commodities (600 of the total of 4,600 parts) in order

of assembly. The order (“broadcast”) is sent out 45 minutes before the

first commodity is to be assembled and three hours before the last. All

inbound logistics activities have been outsourced to one lead logistic

provider, Customized Transportation Inc., which operates a dedicated

system for Chrysler. Its activities include transport, the warehouse and

center described above, and outbound flow of returnable containers,

dunnage, and other garbage. The plants at Sterling Heights and Belvidere

have also been assigned one lead logistic provider.

22 John Paul MacDuffie and Susan Helper, “Creating Lean Suppliers: The Honda

Way,” working paper, Case Western Reserve University, Cleveland, Ohio,

1996.

23 “Professor Sten Wandel Speaks on Third Party Logistics Services,” IMVP

News, Fall-Winter (1994–95): 11ff.

Chrysler Corporation

has significantly

restructured its

outsourcing through

a streamlined and

geographically more

accessible system of

third-party logistics

services.
The U.S. Automobile Manufacturing Industry 63

OFFICE OF TECHNOLOGY POLICY

DISTRIBUTION, RETAILING, AND POSTMANUFACTURING

INDUSTRIES24

Automotive distribution and retailing were once given little attention because they were viewed as adjunct to the core business of

engineering and manufacturing vehicles. However, in the past several

decades, the pressures on the industry to make its factories and product

development processes more efficient have spilled over into the distribution and retailing (postmanufacturing) sectors—cutting profit margins and

causing significant restructuring in the distribution and retail industry

base.

This restructuring, although quite significant, has attracted much less

attention than the manufacturing sector’s changes because it involves no

dramatic dislocation of people, jobs, or economic base. These downstream segments of the supply chain are experiencing a shift from being

capital intensive (focused on inventory investment) and people intensive

(sales forces) to being more information intensive (having the right

vehicle in the right place at the right time). Due to greater flexibility of

labor and capital in the postmanufacturing markets, this conversion from

physical logistics to information logistics is shifting the power and

leverage in the supply chain toward economic agents that are highly

entrepreneurial and flexible.

These economic forces have reduced the number of dealers in the United

States (now approximately 22,000) and are expected to continue doing so.

More important than the absolute dealer count is the trend toward

segmentation of the many industries that make up distribution. Preliminary research reveals early development of a number of new business

structures and methods. Following are brief discussions

of key trends emerging in this diverse industrial segment.

Key Issues in Distribution, Retailing, and Postmanufacturing

Unlike the small group of relatively tightly organized supply chains, the

postmanufacturing sector is a much looser collection of organizations that

are not so centrally focused around the automaker. Since most of these

organizations are driven directly by customer behavior rather

than assembly scheduling, their activities are constantly shifting and

24 This section is based on the research of Martin Anderson, Associate Director,

IMVP.

Due to greater flexibility

of labor and capital in

the postmanufacturing

markets, this conversion

from physical logistics to

information logistics is

shifting the power and

leverage in the supply

chain toward economic

agents that are highly

entrepreneurial and

flexible.
64 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

appear to be far more random than activities organized in the production

portion of the value chain. Industrial performance in the postmanufacturing sector is determined by a set of loose linkages, constantly

negotiated among a wide variety of independent companies, including

automakers, parts suppliers, dealers, transportation companies, information services companies, advertising and marketing organizations, consumer groups, fleet owners, vehicle auctions, financial providers, and

independent service and repair organizations. Since much of the control of

this portion of the value chain occurs within the jurisdiction of state laws,

local policy issues are often far more important at this end.

If an automaker wants to improve its premanufacturing efficiency, it can

focus suppliers on relatively homogenous performance measures

throughout the linked production chain, such as manufacturing hours

per vehicle or quality targets. If an automaker wants to improve its

postmanufacturing inventory management, however, it faces a much

more complex array of players and relatively few homogenous measures

of performance.

IMVP site interviews show that interdealer transfers (cars shipped between dealers to match local demand patterns) can range from as low as

5 percent to as high as 50 percent of sales within a single brand, depending on the dealer and the region. This finding indicates that both dealer

and region can represent significant factors for profitable and efficient

distribution.

Dealers within a single brand may create dramatically different positions

with their customers. Some may adopt a Saturn-like “no haggle” posture;

others may openly publicize the fact that they negotiate prices. There are

high performers and low performers in all of these categories. Early

research shows that diversity proliferates in this system that many have

considered to be uniform.

Thus, improving the distribution system will be quite different from

improving the factories in the supply chain. Inventory control—a strategic pillar of distribution—requires orchestrating the behavior of car

salespeople, dealer-owners, market data companies, transport companies, national and local advertising and promotion channels (television,

radio, print, on-line), capital suppliers, and others. None of these players

are owned by the automaker, and many are not contracted directly to the

auto company.

A central issue is now emerging in automotive distribution—how to

create incentives and commercial relationships among a number of

A central issue is now

emerging in automotive

distribution—how to

create incentives and

commercial relationships

among a number of

players with different

agendas in order to meet

new competitive

mandates for improved

distribution performance.
The U.S. Automobile Manufacturing Industry 65

OFFICE OF TECHNOLOGY POLICY

players with different agendas in order to meet new competitive mandates for improved distribution performance.

The principal U.S. auto industry challenges of the past 15 years were (1)

to reduce the quantity of work required to make a car, (2) to reduce the

defects in each car, (3) to reduce the resources required to develop a new

car and bring it to market, and (4) to reduce the overhead of running the

supply and manufacturing system. The massive response to these challenges has stemmed the growth rate in production costs by reducing

waste in each factory and by better coordinating relations between

factories in the supply chain. Now, at a time of growing global competition, the next challenge is to reduce wasted effort and cost

in distribution. Given the relative diffusion of organizations in the

postmanufacturing sector, this new challenge raises a number of related

issues:

n How to better capture and process customer requirements

n How to better link rapidly changing customer requirements to

a comparatively less flexible production system

n How to better match specific vehicles to customer requirements

n How to speed delivery after the purchase agreement is concluded

n How factories and automotive manufacturing companies can

best cope with rapidly diversifying types of retail and distribution channels

n How manufacturers might best relate to the growing number of

multibrand retailers

n What major strategic changes will occur in the core franchise system, given the potential created by new information technologies

n The implications of global changes in postmanufacturing practices

The Major Role of Distribution and Retailing in the Automotive

Value Chain

Automotive marketing, distribution, and retailing represent approximately 20 to 30 percent of the value of a new car, depending on company,

dealer type, and the level of sales incentives applied to the product line.

Automotive markets generate more than $1.5 trillion in revenue worldAutomotive marketing,

distribution, and

retailing represent

approximately 20 to

30 percent of the

value of a new car.
66 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

wide every year, of which approximately $500 billion is generated in the

North American region. Almost one-third of this value is directly created

by retailing of new and used vehicles, service and repair, and related

postmanufacturing activity.

Perhaps more important, many of the keys for a successful manufacturing company are held by players in the postmanufacturing sectors.

Retailers, customer researchers, forecasters, distributors, financial

sources, and others define what the manufacturing sector should make

and how and when it should make it, because they have direct contact

with the wishes of the ultimate customer. Manufacturing organizations

that do not heed the information embedded in the complex postmanufacturing networks suffer poor sales, high inventories, and tarnished

reputations with customers. In the past, with less competitive markets,

auto companies could afford the often hidden costs of high retail inventories. Now, all manufacturers must find new ways to limit these costs by

understanding customer needs and by listening carefully through the

various layers of retailing and distribution.

Making Distribution Lean

Factories are beginning to address the problems of sluggish auto distribution

pipelines. Having learned the lessons of just-in-time inventory in manufacturing, virtually every car company is trying to extend such streamlining

into the distribution and retail portion of the value chain. With tens of

billions of dollars tied up in slow-moving inventory, the potential payoff has

become clear. The challenge is to coordinate the diverse collection of organizations to collectively recapture some of that cost.

The most common innovation is to change the structure of field inventory to more closely align the slower, less flexible factory manufacturing

schedule with the rapid changes in customer demand, while simultaneously reducing total field inventory. Rover and other European companies have been innovative with various forms of stock pooling and order

processing. Most American-based factories are launching similar efforts.

Perhaps most widely publicized are the Cadillac experiments that pool

all the Cadillac inventory in a region (e.g., Florida) for availability to any

dealer in the region.

The central thrust of these efforts is to allow individual vehicles to remain

unclaimed until the “sales moment,” to allow them to “float” flexibly

through the stocking system. Doing so can dramatically increase the

likelihood that an individual vehicle will reach an exact match buyer. In

the traditional system, production units are usually locked into a specific
The U.S. Automobile Manufacturing Industry 67

OFFICE OF TECHNOLOGY POLICY

delivery path before or shortly after manufacturing, and they queue up in

field inventory or sell at a discount (or both) because they are not precisely

matched to a specific buyer.

Most observers expect major innovations in physical inventory distribution and the supporting information infrastructure during the next five

years. Some companies clearly envision a form of “produce to order” in

the car business within 10 years.

The Role of Information Technology in Selling Cars

As in all of retailing, the information technology revolution portends

dramatic change in the automotive industry. Electronic data systems

provide the mechanism for much of the new and used car supply industry. Increasing information systems and controls have kept dealers in

business as margins have become very thin. Major advances in technology will allow better matching of factory production and changing

consumer tastes, resulting in leaner distribution patterns.

The postmanufacturing businesses are beginning to show a huge appetite

for new electronic services, and it is reasonable to expect that this growth

will fuel corresponding growth in the computer and electronics sector.

Given the potential of new information technology systems demonstrated by both the factories and advanced dealers, the auto retailing

sector seems destined to become a significant electronic systems market

during the next ten years.

Information technology for the postmanufacturing business falls into the

following categories:

n Technologies that enhance the existing business structure

n “Spec-ing” systems that allow salespeople to match factory options to customer needs more accurately and to create a

more accurate demand forecast

n In-house training and service management systems that

connect factory engineering expertise to all technicians in a

within-brand dealership

n Customer outreach systems linked to factory-sponsored

advertising and marketing

n Technologies that will accelerate current trends toward

nontraditional distribution structures

Most observers expect

major innovations in

physical inventory

distribution and the

supporting information

infrastructure during

the next five years.

Some companies clearly

envision a form of

“produce to order” in

the car business within

10 years.
68 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

n Customer relation systems (via the Internet or similar customeroriented media) that allow brokers or order takers to become

viable economic organizations (reducing significantly the role

of traditional dealerships in many transactions)

n Analogs to shop-by-phone or catalog channels

n Retail systems that allow mega-dealers to solidify their multibrand

positions (similar to the systems that support mega-retailers like

Wal-Mart)

An automobile is such a major purchase for most people that it will

always require some form of physical retailing by dealers. However, auto

retailing can adopt many dimensions of the mail-order or direct-sell

computer business. A consumer information industry has already arisen

in the auto sector over the past three decades. Now any customer can

find the information needed to negotiate the purchase of

a new or used car without visiting a dealer or using any factorysponsored information. This freedom allows customers to shop independently before going to a dealer.

There are many more window-shoppers for cars than there are buyers,

although these window-shoppers do represent future buyers. Increasing

numbers of customers are window-shopping through information

sources, many of which are being rapidly converted to the electronic

media. Through on-line services, the Internet, toll-free numbers, and

cable television, shoppers now have enhanced opportunities early in

their decision cycle to find information and be guided to the choice of an

appropriate vehicle, comfortably in advance of the time they actually

make their purchase.

In short, there are now many more ways to retail cars than setting up

a street corner dealership, running television commercials, and hoping

someone comes in to buy a car currently on the lot. Now buyers can be

identified well in advance, and their shopping experience can be tailored to

their personal buying style and timing. The implications are considerable for

the rest of the automotive industry in terms of forecasting, production

scheduling, inventory and financial control, and even product planning.

Independence and Diversification of North American

Dealerships

Much postmanufacturing activity, especially in North America, is not

controlled by the automakers. Industry players in distribution and

Auto retailing can adopt

many dimensions of the

mail-order or direct-sell

computer business.
The U.S. Automobile Manufacturing Industry 69

OFFICE OF TECHNOLOGY POLICY

retailing often act quite independently from the factory as they market

automobiles. Moreover, distributors and retailers often work with more

than one car manufacturer at the same time. Although dealerships carry

factory brands, the dealer may not be as dependent on the factory as an

automotive component supplier is; a distribution organization can

potentially source its products globally—from any auto producer in the

world.

A unique, often confusing, characteristic of the retail sector in North

America is the delicate balance of power between factory and dealer

created by a network of state laws and the franchise contract. The dealer

needs a franchise contract from the manufacturer to sell that

manufacturer’s cars. The manufacturer’s control is not insignificant:

Along with the franchise requirement, the factory can control the location

and style of prospective dealerships. However, in most states the dealers

enjoy protections from the factory. Moreover, the rise of mega-dealers is

resulting in an increasing retail power over the factory.

Estimates of the used car market vary significantly, but it is clearly much

larger than the new vehicle market in terms of number of units sold per

year. Because new car margins for dealers have become significantly

lower than used car margins, used car sales often subsidize the new car

sector. Service and repair are labor-intensive industries that create significant local employment. Used car auctions have become multibillion

dollar industries and are responsible for building a national infrastructure of used car supply that rivals the supply power of new carmakers in

many ways.

Many dealers have emerged as major stand-alone businesses and are

beginning to redefine the postmanufacturing markets. An increasing

number of dealers have annual revenues in excess of $1 billion. Many

more have annual revenues in the hundreds of millions of dollars. These

powerful corporations are responding to customers and are creating

multibrand shops that cross over many factories. They can

also negotiate for large blocks of high-quality used cars, which

further insulates them from any one automaker.

The best known example of this new type of mega-dealership is the

growing and successful used car chain CarMax. Owned by Circuit City,

the $6 billion publicly traded consumer electronic company, CarMax is a

chain of no-haggle dealerships with inventories of about 1,000 top-of-theline used cars at each location. Circuit City uses inventory control and

computer technology to control costs and to guide and inform customers

about the products offered.

Estimates of the used

car market vary

significantly, but it is

clearly much larger than

the new vehicle market in

terms of number of units

sold per year.
70 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

There are five CarMax stores operating on the East Coast, with projections for 50 U.S. dealerships by the year 2000. Eventually CarMax and

similar operations may be players in the new car business as well:

Chrysler has already agreed to sell CarMax a new car dealership in the

Atlanta area.

Other dealers specialize in certain forms of retailing by selecting customer niches. For example, companies are emerging that specialize in

leasing specific classes of autos such as sports cars. These retailers are

counting less on volume and more on developing strong customer

relations for repeat business.

The most notable specialty segmentation is that represented by the

Saturn Corporation. The foundation of Saturn’s success is that its entire

value chain, from raw material through used cars, is coordinated to

provide a pleasurable buying and driving experience for its customers.

While other companies and many retailers have instituted high customer

satisfaction policies, no other company has yet completed such an extensive systemwide overhaul as Saturn.

Other dealers are experimenting with selling by phone or catalog-style

retailing. Some dealers associate with buying clubs (e.g., those formed by

unions, employers, the American Automobile Association, or other

groups) and thereby get access to “pre-sold” customers who do not want

to spend much time shopping. One dealer takes telephone orders; another sets up shop on the Internet. The amount of electronic retailing has

soared since mid-1994, and new technologies have made possible a

whole new structure for the auto retailing industry.

One Example of Retail Innovation: The Saturn Corporation

The Saturn Corporation has developed partnering relationships with its

dealers, a lean concept previously untested by the Big 3. In less than three

years, Saturn established itself as one of the strongest brands in the

compact car segment while foreshadowing the revolution in automotive

retailing in the United States. Saturn’s distribution and retailing system

has achieved high market share and customer satisfaction since its

inception in 1985.25

25 J. Chris Koenders and Wujin Chu, “A Case Study of Saturn’s Distribution

Strategy” (paper presented at the IMVP Research Briefing Meeting, June

1993).

The foundation of

Saturn’s success is that

its entire value chain,

from raw material

through used cars, is

coordinated to provide

a pleasurable buying

and driving experience

for its customers.
The U.S. Automobile Manufacturing Industry 71

OFFICE OF TECHNOLOGY POLICY

Saturn’s innovative marketing strategy began with the objective of taking

market share away from Japanese imports in the United States. Saturn’s

market planning team examined retailing best practices in a number of

companies, both automotive and nonautomotive. They saw a customerpull instead of dealer-push marketing strategy as the solution.

To achieve customer satisfaction, Saturn fostered relatively few

dealerships—fewer than 200 in 1993 (only 10 to 20 percent of the number

of dealerships for other major manufacturers’ divisions in the United

States)—thereby encouraging high unit sales per store, with Saturn

allowing the retailer to add satellite outlets as demand increased. Moreover, Saturn’s partnerships with its retailers empower those companies to

be involved in the decision-making councils of the Saturn Corporation.

Saturn retailers have avoided the pitfalls of undesirable salespeople by

hiring completely new personnel in a rigorous screening process. Low

turnover in sales personnel has been indicative of the success of this

method. By following a consistent pricing policy, Saturn dealers eliminate

the stressful negotiating process in which customers can feel “had” by

dealers. Customers are shown a sheet with a grid illustrating the

retailer’s price schedule according to model and options. Consistent

pricing appears to withstand cyclical fluctuation between strong and

weak demand periods. Saturn’s distribution strategy allows the company

to respond better to market fluctuations, mainly because it is in closer

touch with the market. Fewer layers of management, along with information technology and the integration of retailers into the decision-making

bodies of the corporation, ensure that feedback is immediate and appropriate action can be taken quickly.

Saturn’s distribution system has clearly been highly successful, but it

must be adopted in full by the retailer in order to work; the components

of this system are interrelated and have been constructed to function as a

single coherent strategy. Its considerable competitive success is directly

attributable to the unanimous embracing of these principles by Saturn

and its retailers.

Urban Multibrand Retailers

Another form of retail innovation, multibrand retailers may be as important as the Saturn innovation, although less publicized to date. This type

of innovation is sparked by individual car dealers that have become

successful enough to gain independent financial resources.

In some ways, multibrand dealers are the opposite of the Saturn apSaturn’s partnerships

with its retailers

empower those companies

to be involved in the

decision-making councils

of the Saturn

Corporation.
72 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

proach. Saturn seeks to form a deeper partnership between a fairly

narrow single brand and a dedicated body of single-brand dealers.

The other form of innovation assumes that it is best to strengthen a

multibrand position while obtaining a firm position with a large retail

buying population. This is the most effective distribution and retailing

model in almost all nonautomotive industries and might be considered

the Wal-Mart or Circuit City approach.

In this case, the innovative dealer organization will become highly responsive to the customer since a key to the business is a large and loyal customer

population. This approach leads to many innovations such as roving demo

cars driven to customers’ work or homes, easy-order toll-free numbers, a

wide variety of financial purchase or lease options, and a host of other

customer-driven systems that vary by region and market style.

On the supply side, this kind of organization will try to get the best

vehicles from a large number of factories, just as Circuit City tries to get

the best-selling televisions from a number of television manufacturers.

This strategy involves setting up systems that help the factory (i.e., the

dealer itself becomes a desirable customer) and matching the factory

supply to customer demand by creating sophisticated forecasting and

inventory management systems.

Conclusions

The postmanufacturing sector of the auto industry has always been

important but has received little attention from auto manufacturing

executives. However, distribution has become so critical to overall strategy that the sector is receiving much more attention than ever before. The

sector is extremely diverse and is not necessarily amenable to the same

tight coordination that auto manufacturers are building into their

premanufacturing supply chains. However, linking the distribution

sector to the manufacturing sector is the key to attaining better responsiveness to customers and to achieving competitive advantage.

Innovators like CarMax are introducing a totally different dimension—

strong independent companies that are not tied to any particular manufacturer and that have the muscle to negotiate attractive conditions with

several manufacturers. The manufacturers will have to adapt to this new

reality if they are to profit from the economies possible in the distribution

system.

Linking the distribution

sector to the manufacturing sector is the key

to attaining better

responsiveness to

customers and to

achieving competitive

advantage.
The U.S. Automobile Manufacturing Industry 73

OFFICE OF TECHNOLOGY POLICY

REGULATION OF AUTOMOBILES TO MEET

SOCIAL OBJECTIVES

Mobility, Economic Development, and the Automobile

Mobility and Transportation Congestion

I

ncreased mobility and economic development have progressed in

unison, and advances in transportation and associated infrastructure

have been leading indicators of a nation’s prosperity. The automobile, as a

source of increased individual mobility, has been a particularly significant

factor in bringing about economic growth and social change.

The automobile has reconfigured urban landscapes and influenced

lifestyles in the United States and in other parts of the developed world.

The United States and the other developed countries rely primarily on

the automobile to provide personal mobility. Figure 14 shows the significant increase in auto travel in the United States, Europe, and Japan since

the 1970s.26 Although the United States is considered the most autooriented society, Europe and Japan are now adopting the same orientation, and auto ownership is increasing at a faster rate in these areas than

in the United States.

26 Lee Schipper and Maria Josefina Figueroa, “People on the Move: A

Comparison of Travel Patterns in OECD Countries,” Draft, International

Energy Studies, Energy Analysis Program, Lawrence Berkeley Laboratory,

University of California, Berkeley, Calif. (1994).

Although the United

States is considered the

most auto-oriented

society, Europe and Japan

are now adopting the

same orientation,

and auto ownership is

increasing at a faster rate

in these areas than in the

United States.

Figure 14. Per Capita Travel
74 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

27 David Bayliss, “UITP Public Transport Panorama,” Draft, London Transport

Planning, June 1, 1995.

A massive increase in automobile usage is also occurring in developing

countries, where mobility is absolutely essential to the development

process. As figure 15 shows, developed countries typically have 300 to

600 cars per 1,000 population, but many large developing countries have

fewer than 10 cars per 1,000 population. While the market for automobiles in the developed countries will continue, the major growth will

occur in the developing countries.

However, a number of factors, including traffic congestion resulting from

aging, overloaded roads, are reducing society’s ability to maintain, let

alone improve, mobility. Society’s ability to address and resolve these

concerns is critically important to the future of the automotive industry.

Congestion has advanced from an urban concern to a regional concern

that affects entire metropolitan areas. From 1982 to the present, the

percentage of urban areas in the United States with major congestion

problems increased from 22 percent to nearly 50 percent, and it is still

increasing. According to an Organization for Economic Cooperation and

Development survey of 114 U.S. cities, congestion is severe to very severe

in 33 percent and a worsening problem in 68 percent of the surveyed

locations.

Nor does it appear that public transportation systems can provide either an

alternative to reliance on the auto or a means of resolving congestion. These

systems provide mobility primarily to individuals without access to an

automobile (typically the young, old, poor, and handicapped). Even the

best systems in the United States cannot satisfy more than a relatively

small fraction of mobility needs. In spite of large capital and operating

subsidies, public transport’s worldwide share of travel has not increased

and is not likely to increase in the future. David Bayliss, chief planner for

London Transport, has just completed a global assessment of public transportation systems. He concludes that, even if the current rate of growth of

metros continues, this “would barely keep up with the growth of urbanization and would mean that the metros’ share of the rapidly expanding

urban travel market would slowly fall.”27

The Information and Communications Revolution and Future

Mobility Needs

Information and communication technologies will greatly affect both the

need to travel and the means of travel and may address transportation
The U.S. Automobile Manufacturing Industry 75

OFFICE OF TECHNOLOGY POLICY

congestion. These new technologies will enable the development of

intelligent transport systems (ITS) in which the guideway (road), the

driver, and the vehicle are integrated to enhance individual mobility and

help to control congestion.

Drivers will be able to request information on the best routes based on

travel conditions. A visual display will give the driver navigation instructions. In addition, since the information system is aware of the status and

location of all cars, various transportation system management strategies

can be used to optimize the flow of vehicles. These strategies may include traffic light synchronization, ramp metering (and other forms of

flow control), and electronic toll collection.

Information and

communication

technologies will greatly

affect both the need to

travel and the means

of travel and may address

transportation congestion.

Figure 15. Passenger Cars per 1,000 Population
76 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

ITS provides a framework to operate a dynamic, coordinated system of

mobility services, responding to both consumer demands and social

concerns. Most projects focus on the middle range of the capacity spectrum—improving areawide traffic flow, with potential improvements in

capacity estimated to be 10 to 30 percent. At the high end of the spectrum

are vehicle control strategies that significantly increase the vehicle capacity of roadways. These strategies include “car following,” which will

reduce the space between cars, and “lane control,” which will allow more

lanes to be used in a right of way. Vehicle control strategies can also

improve safety through object detection and collision avoidance systems.

At the low end of the spectrum are the control of roadway capacity

through pricing or traffic rationing policies. The real-time control system

allows these policies to be implemented on an as-needed basis.

ITS may provide a foundation for a new vision of mobility for the 21st

century. However, implementation of an ITS strategy will be most effective if it can be coordinated nationally and internationally. With numerous technology choices and significant new market opportunities, extensive entrepreneurial activity and experimentation will motivate the

innovation process. At the same time, the public sector has a significant

stake in these systems, both as the owner of the roadways and as the

potential operator of resulting traffic management systems. Furthermore,

the need for system compatibility extends across national borders, making some international coordination necessary.

ITS represents an interesting market opportunity for automotive companies. BMW, Daimler-Benz, and Volkswagen have teamed with Bosch and

several other firms to implement ITS in German cities. General Motors

has been an active participant in several ITS projects in the United States.

As these examples suggest, ITS may provide automobile manufacturers

an opportunity to expand their business to include providing broader

mobility services.

Safety Concerns and the Automobile

The level of safety achieved by today’s vehicles far exceeds what was

available several decades ago. While government regulation has played

an important role, changes in consumer preferences and in public attitudes have also been important factors. The cumulative impact of government regulations requiring seat belts, padding, reinforcements, and a

myriad of other features has made vehicles much safer in the event of a
The U.S. Automobile Manufacturing Industry 77

OFFICE OF TECHNOLOGY POLICY

crash. In addition, our transportation infrastructure, particularly the

interstate system, incorporates more safety features.

Auto safety has also improved as a result of consumer demand for safety

features that go beyond current regulations, such as air bags and antilock

braking. In other words, safety sells—even though safety regulations

have added about $1,000 to the average selling price of passenger cars

since 1980. Finally, society’s attitudes toward intoxicated drivers, a major

cause of traffic accidents, have hardened quite dramatically over the past

few decades; a drunk driver is more likely to be viewed today as a callous criminal than a wayward reveler.

Environmental Concerns and the Automobile

In many ways, the automobile epitomizes the environmental challenge of

today. It is a large consumer of a critical and limited fossil energy resource; in many countries it is the largest contributor to man-made

greenhouse gas emissions and brings large amounts of lead into contact

with people; it is the prime cause of urban smog; it is noisy and contributes to congested cities; and its manufacture produces an array of emissions, including those from the mining and production of steel and the

painting of auto bodies. In spite of great strides in the technical performance of individual vehicles, many problems remain.

The environmental challenges the automobile industry faces today are

radically different from those it has confronted over the past three decades. These differences arise from major changes in their technological,

economic, and political context, and their resolution will require a serious

reexamination of the corporate and governmental institutions with which

the automobile industry must interact.

Automobile Technology and Environmental Initiatives

Automobile technology has followed a trajectory of ever-increasing

utility and complexity, both in general and with regard to the environment. Today’s automobiles are vastly cleaner, more efficient, and less

harmful to the environment than their 1970s counterparts.28 A whole

series of environmental issues (such as the automobile recycling crisis of

the 1960s; the need to reduce airborne emissions of lead, hydrocarbons,

carbon monoxide, and nitrogen oxides; the need to increase fuel

economy; and more recently the global banning of chlorofluorocarbons) have

28 See Motor Vehicle Manufacturers Association Auto Industry Statistics.

Auto safety has also

improved as a result

of consumer demand

for safety features

that go beyond

current regulations,

such as air bags and

antilock braking.

Today’s automobiles

are vastly cleaner,

more efficient, and

less harmful to the

environment than their

1970s counterparts.
78 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

been largely resolved through technologies that enable automakers

to provide an economical product with equivalent (if not better)

performance while meeting environmental objectives. Today the industry

faces environmental challenges that raise complex and controversial

issues and which can best be resolved with the full involvement of both

government and industry. Today, the industry faces environment challenges that raise complex and controversial issues and that can best be

resolved with full involvement of both government and industry.

Zero-emission vehicle

Although there is no such thing as a zero-emission vehicle (pollution will

be created somewhere by the construction, use, and disposal of

the vehicle), a number of initiatives bear this rubric. Spurred by the

California clean air standards, the zero-emission car initiatives exemplify

technology-forcing regulation. In spite of researchers’ best efforts, electric

battery technology critically limits even the most advanced electric car to

roughly 100 miles between charges. With advanced battery technologies

still years away from production, automakers must rely on lead-acid

batteries, with the concomitant introduction of more lead, rather than

less, into the automobile materials cycle. Furthermore, the influence of

such vehicles on net air quality is increasingly in question, particularly in

light of the continuing, documented air quality improvements arising

from the replacement of old vehicles with newer ones.

Weight reduction

Reducing the weight of the automobile has been a design strategy since

the onset of the Corporate Average Fuel Economy standards, both by

reducing vehicle size and by reducing weight through material substitution. However, material substitution is not a simple process. Changes in

materials require changes in manufacturing technology, which is constrained by the economics of large-volume production. Henry Ford’s

assembly line would have been infeasible had he chosen to employ the

traditional automobile material of his era, wood. It was his choice of

steel, which could be formed and joined in seconds, that made his assembly line feasible and cost-effective.

Today, considerable efforts are aimed at finding ways to process lightweight materials within the current automaker production line target of

75 vehicles per hour. Many advanced materials are available and are used

in applications ranging from sporting goods to advanced aerospace

vehicles. However, none of them are fabricated in ways even remotely

compatible with the rates of automobile manufacture.
The U.S. Automobile Manufacturing Industry 79

OFFICE OF TECHNOLOGY POLICY

Vehicle recycling

Recycling in the United States is entirely a private industry undertaking,

composed of a large and profitable infrastructure of dismantlers, shredders, and nonferrous metal processors supplying used parts and secondary metals. Recycling has emerged as an environmental issue for the

automobile over the past five years, primarily in response to European

initiatives, but it is actually a relatively old issue—one that has already

been resolved once. For cars that are recycled (90 percent of the total

manufactured), roughly 75 percent of the vehicle’s mass is recovered and

reused. But this means that 32.5 percent of all material that goes into

automobiles in the United States is not recovered (most of it becomes

landfill).

Today’s automobile recycling research is focused on the unrecycled

content of the vehicle, particularly its polymeric content. An adjunct

issue is the remaining 10 percent of cars that are not recycled at all.

Automobile plastics are currently employed to improve vehicle safety (in

interiors) and to reduce vehicle weight to save fuel and reduce emissions.

These crucial materials largely become landfill because of

the complexity of the plastic blends and the difficulty of recovering them

through recycling. However, some analysis suggests that the benefits of

reductions in weight and fuel consumption of composites, even if not

recycled, may outweigh the costs of lower recycling rates.

These environmental initiatives illustrate the key technological problem

facing the automobile industry today. In each case, there are critical

tensions among the technologies available to meet the initiative, the cost

of their implementation, and their impact both on traditional measures of

vehicle performance and on these newer indicators of performance. For

example, if cars are to be largely composed of polymer composites, how

are they going to be recycled? If the zero-emission vehicle is going to use

batteries, how are the toxic heavy metals usually associated with batteries kept out of the environment? And how is vehicle safety maintained,

when the vehicle’s mass is reduced by 50 percent? Is the reduction of

landfill consumption through increased recycling worth the net increase

in energy used to run recyclable vehicles?

Diverse Approaches to the Regulation of

Auto Manufacture and Use

As the preceding discussion indicates, increased mobility, via the automobile, has caused serious social concerns—allocation of scarce land

For cars that are recycled

(90 percent of the total

manufactured), roughly

75 percent of the vehicle’s

mass is recovered and

reused.
80 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

resources for transportation infrastructure, depletion of finite energy

resources, and detrimental environmental and safety impacts. Governments have responded to these concerns in many different ways. They

have limited new roadway construction, invested in public transport

systems, attempted through transportation system management practices

to squeeze more out of the existing infrastructure, implemented vehicle

inspection and maintenance programs, and, in some cases, introduced

auto use disincentives, such as increased fuel taxes, auto-free zones, and

road pricing. A few metropolitan areas have considered more draconian

measures such as limited bans on driving if severe pollution conditions

develop.

The approach to regulation of the automobile varies significantly by

country, reflecting different social priorities. Vehicle recycling is a high

priority in Germany but of far less concern in the United States. Noise

pollution from automobiles is a higher priority in Europe than in the

United States. On the other hand, urban air pollution is a higher priority

in the United States, particularly in areas such as Los Angeles, than in

other countries.

One example of the diversity of approaches is the use of gasoline taxes as

a means of controlling auto use. The price of gasoline is $3 to $5 per

gallon everywhere in the world except the United States, where the price

is $1 to $1.50 per gallon. The United States has relied on the Corporate

Average Fuel Economy regulations aimed at automobile manufacturers

to improve fuel economy rather than on an increased gasoline tax focused primarily on drivers.

U.S. auto regulations tend to focus on new cars to achieve social objectives. An example is urban air pollution. It is estimated that less than 10

percent of the vehicles are producing 75 percent of the pollution. Removal of these “clunkers” is far more cost-effective than additional

regulations on new cars. There are several ways to remove old vehicles.

France and Spain have used vehicle buyback programs giving credits for

trading in clunkers, and private industry has implemented “cash for

clunkers.” Devices to detect the highest polluting vehicles could also be

used on the roadway instead of, or to supplement, vehicle inspection

programs.

The differences in national approaches to regulation lead to a serious

design problem for the manufacturers, which are under increasing

competitive pressure to make their products for international markets.

Conflicting national and regional regulations discourage such global

The United States

has relied on the

Corporate Average Fuel

Economy regulations

aimed at automobile

manufacturers to

improve fuel economy

rather than on an

increased gasoline tax

focused primarily on

drivers.
The U.S. Automobile Manufacturing Industry 81

OFFICE OF TECHNOLOGY POLICY

approaches and may inhibit the competitiveness of the manufacturers.

Indeed, national regulatory requirements might be used not to achieve

social objectives but as a trade barrier to favor local manufacturers.

Harmonization of international regulatory approaches and standards will

help auto manufacturers adapt to globalization of markets. Furthermore,

the regulatory process would be improved by requiring the consideration

of interrelated social objectives, since regulatory actions to achieve one

social objective, such as reducing air pollution, might have adverse

effects on other social objectives.

Finally, there are alternatives to the command-and-control regulatory

approach embedded in many U.S. regulations. The creation of publicprivate research collaborations in the PNGV project reflects a novel

approach to the technological challenge of controlling the environmental

impact of the automobile. Market-driven strategies such as road pricing

and emissions trading are also gaining more support. Company-based

initiatives to improve the product and production process are also attractive alternatives to government-imposed regulations.
82 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

SUMMARY AND CONCLUSIONS

This study synthesizes our understanding of a complex global industry. It seeks to identify important trends,29 competitiveness issues, and

topics relevant to public policy. The most important points are these:

1. The automotive business is played out on a worldwide stage.

Supply chains are long and complex, and there are many important players both upstream and downstream of the major manufacturers. Furthermore, long supply chains exist within the

major manufacturers as well. Consequently, competition can be

thought of as occurring between supply chains (e.g., Nissan’s vs.

Ford’s), with the added complexity that these chains may share

common elements (e.g., component suppliers, dealerships, or

even jointly developed products). Competition may also occur

within supply chains (e.g., a manufacturer and component

supplier each may want to add significant and unique value to

the vehicle’s electronics capabilities). Speed and flexibility

(agility) in detecting shifts in market opportunities and

reconfiguring the supply chains to respond to the opportunities

will be the important rent-earning assets.

2. Although private sector companies dominate many aspects of

the industry in the developed world, governments have historically played, and will likely continue to play, major roles in

shaping the industry. The U.S. government has significantly

influenced the emissions, economy, and safety features of cars.

The government of China will likely decide which companies

will be allowed to participate in the development of China’s

automotive industry as well as the rules of that development.

3. Although the auto industry is often referred to as “mature,”

dramatic changes in product and market leadership, technology,

distribution channels, and even the geography of production

have occurred in the past two decades.

4. Sales volume is likely to continue its exponential growth in

developing countries, and comparatively flat demand will

continue in the developed world. As a result, much of the new

29 Industrial history is littered with predictions that look foolish in hindsight.

Therefore, some of the projections based on current trends are bound to be

wrong.

Supply chains are long

and complex, and there

are many important

players both upstream

and downstream of the

major manufacturers.
The U.S. Automobile Manufacturing Industry 83

OFFICE OF TECHNOLOGY POLICY

investment and perhaps many product innovations will occur in

the developing world. Therefore, production volumes, real

wages, and working conditions are likely to improve significantly in the developing world. Developing countries such as

Korea hope to become significant exporters, above and beyond

satisfying their burgeoning domestic markets.

5. Severe competition is likely in every segment of the supply

chain, driving innovation in business models and causing

continued turbulence in the standings of different players.

Global sourcing is not likely to disappear; however, it will be

tested as to when it is optimal for the entire manufacturing-todelivery process. In some cases, tight links with longtime partners may give better overall performance than use of lowest cost

global suppliers.

6. Especially in the developed world, public sector pressures to

make vehicles safer and more environment-friendly are unlikely

to abate. These pressures will drive research and innovation in

powertrains, fuels, electric vehicles, and lightweight materials.

Given the twin pressures of government regulation and product

competition, car companies that can develop and implement

innovations in their supply chains are likely to benefit significantly in finding low-cost ways to meet requirements and put

customer-desired features on the

vehicles.

7. Cost competition will continue to encourage World Car concepts

that amortize development efforts over more production units.

Government regulations that are not harmonized across borders

will continue to limit (at least to some degree) the attainable

gains from this strategy, giving companies ample reason to

lobby for improved regulatory coordination.

8. Predicting industry concentration trends is very difficult. For

every argument for consolidation, there is another to support the

contention that new competitors will surface. The economics of

development and manufacturing support concentration, but the

splintering of the distribution chain, the geographic dispersion

of market demand, and the possible radical shifts

in technology (e.g., nonferrous electric vehicles) may encourage

disaggregation.

Especially in the

developed world, public

sector pressures to make

vehicles even safer and

more environment

friendly are unlikely to

abate. These pressures

will drive research

and innovation in

powertrains, fuels,

electric vehicles, and

lightweight materials.
84 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

9. The industry will continue as a knowledge-intensive industry, as

opposed to just cutting, forming, and joining metal. Consequently, intellectual asset development—in manufacturing,

marketing, engineering, etc.—will increase as a key competence

for all firms. Strategies that jettison intellectual capital

in response to cost pressures are likely to lead to ruin in the

longer term. Firms should continue to experience significant

returns on improved human relations throughout the organization and into the supply chain.

10. As in many other industries, electronics will continue its inexorable march into the product. Designers have myriad ideas for

increased electronic control of the vehicle, and consumers seem

to like such features. The continued shrinkage in cost and size of

electronic components also makes them attractive. More broadly,

the use of electronics will increase for control of the entire transit

system, as well as on board the vehicle. These trends are likely

to shift more economic power to the suppliers and integrators of

automotive electronics technology.

11. Finally, we expect that the automotive industry will continue to

be thought of around the world as “the industry of industries,”

due not only to its sheer size in the economy of nations, but also

to the high-dimensional complexity it exhibits. On so many

dimensions—product complexity in design and manufacture,

number of product attributes important to customers, process

technology variety, supply chain size and complexity, rate of

globalization, intensity of government involvement, complexity

of labor relations, and impact on the landscape of human lives—

the automobile industry presents a scope of management challenges whose complexity dwarfs that of most other industries.
The U.S. Automobile Manufacturing Industry 85

OFFICE OF TECHNOLOGY POLICY

APPENDIX A: THE U.S. SUPPLIER BASE AND MEXICO:

A CASE EXAMPLE OF GLOBALIZATION30

For decades, the auto industry in the United States was concentrated

near the Great Lakes. In 1975, half of all U.S. auto production (both

parts and assembly) occurred in just 16 of over 3,000 U.S. counties. By

1990, however, these 16 counties accounted for only one-third of a similar

level of automotive employment.31 A significant amount of automotive

employment has moved out of the United States entirely: As of 1994, the

top 15 U.S.-owned suppliers to North American manufacturing plants

employed 130,000 people in Mexico.32 Much more employment has

moved a shorter distance—to the Japanese transplant cluster just south of

the Great Lakes region.

However, this trend has positive aspects. For example, suppliers located

outside the old geographical “agglomeration” tend to have more partnership-like relations with their manufacturer customers: The suppliers are

significantly more likely to trust their customers and treat them fairly

and also more likely to provide their customers with information about

their process steps.

Negative aspects of this geographical shift include farther travel for

parts, which reduces the ability to implement JIT and causes more traffic

congestion. It has also meant a drop in employment in the areas where

the supply industry was once dominant. While overall employment in

the auto supply sector (SICs 3714 and 3465) remained relatively constant

between 1975 and 1990, Wayne County, Michigan, lost 18,000 jobs in this

sector over the same 15 years—more than one-third of its total 1975

employment level.33

Despite the growth in employment in Mexico, the Mexican supply sector

has a long way to go to be world-class. Mexican-owned suppliers, which

are typically small shops (maquilas) without sophisticated quality assurance or product development techniques, find it difficult

to attain cost and technology advantages over competing foreign suppli30 See Kaye Husbands, “The Competitive Advantage of the Mexican Auto Parts

Industry: Past Strategies, Current Capabilities, Future Outcomes,” Draft

Proposal, Williams College, Williamstown, Mass., 1995.

31 Helper, 1993.

32 Automotive News, March 13, 1995.

33 County business patterns data cited in Helper, 1993; Herzenberg, 1992.

Suppliers located outside

the old geographical

“agglomeration” tend to

have more partnershiplike relations with their

manufacturer customers.
86 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

ers. Only a few large Mexican automotive suppliers that are associated

with an industrial group or that are engaged in a successful strategic

alliance with a foreign firm are likely to be competitive in price, quality,

delivery, and service. Some of the reasons for this problem follow.

n Smaller scale of production in Mexico. Mexican parts plant

managers and corporate executives report that their input costs

are often significantly higher than those of their foreign

competitors and that it is difficult to create low-cost products

because of lower production volumes in their plants compared

with foreign plants.

n Inefficient use of labor. Though manufacturing techniques of

Mexican suppliers take advantage of relatively lower labor costs

by using relatively more labor-intensive processes than their U.S.

competitors, the employee turnover rate is much higher in

Mexico (six times that in the United States). Training costs and

missed learning curve economies therefore elevate the cost of

operation.

n Incomplete integration of statistical process control (SPC). SPC

is not prevalent among Mexican suppliers, and many of the firms

that use SPC have not used it to adjust their production processes. For example, many companies claiming to have JIT in fact

have significant stores of material or have shipping bottlenecks.

n Absence of CAD/CAM. Most Mexican suppliers get involved in

the middle of the product development process or even later,

partly because of the lack of CAD/CAM systems, other product

development tools, integrated information commerce, or the human capital necessary to contribute to the product development

and engineering processes.
The U.S. Automobile Manufacturing Industry 87

OFFICE OF TECHNOLOGY POLICY

Human Resource Management Issues34

Though Mexico is often considered a prime location of low-cost auto

production in North America due to low Mexican wages, recent evidence

based on a simulation study suggests otherwise.35 Because of the low

wages (about $2 per hour before peso devaluation, including fringe

benefits in maquiladoras), low education (typically sixth grade), and high

turnover (90 to 100 percent), it is difficult to implement lean production

policies such as quality circles and worker suggestion systems that

produce continuous improvement.36

Supplier Issues

The use of Mexican suppliers depends not only on their capabilities but

also on their strategic fit in the auto manufacturer’s global supplier

network. The head of supplier management at a U.S. manufacturer in

Mexico indicated that 97 percent of its Mexican suppliers are certified at

the basic level, but none of those suppliers is likely to receive full-service

supplier status; once the company has one or two traditional suppliers

that can design a given product it is not necessary to certify yet another

supplier at that level. Only Mexican suppliers that have already earned

world-class status and that can compete with foreign suppliers on price,

quality, and deliverability will be part of the global supplier network at

the first tier. Of these suppliers, few, if any, will gain status as full-service

systems integrators. The other suppliers that remain in business will

most likely become second- or third-tier suppliers to OEMs or producers

for the aftermarket.

34 Husbands, “Competitive Advantage.”

35 Ibid.

36 Helper, 1995.

Though Mexico is often

considered a prime

location of low-cost auto

production in North

America due to low

Mexican wages, recent

evidence based on a

simulation study

suggests otherwise.
The U.S. Automobile Manufacturing Industry 89

OFFICE OF TECHNOLOGY POLICY

APPENDIX B: REGULATORY POLICY AND

HARMONIZATION

The type and meaning of regulations affecting the automobile industry

vary widely from one region or country to another. For regulatory

control to produce maximal benefits, there should be interregional agreement on the standards and metrics of regulation (or at the very least a

method of translating the metrics of one regulatory system to another).

Firms with assets devoted to multinational business such as the world

auto industry will benefit from regulatory harmonization that maximizes

the use of their assets.37 They will oppose divergent regulations that

inhibit effective use of assets. On the other hand, firms with investments

specific to a given domestic market may fight regulatory convergence,

which threatens their investment by making entry easier for outsiders

and will support heterogeneous regulations. Firms with investments

featuring low “asset specificity” (i.e., those assets that are mobile or have

valuable alternative uses) may relocate to less restrictive regulatory

environments. Such movements facilitate heterogeneous regulations in

what might be termed a “competition in laxity” among regulating regions.

Dominant, established firms in concentrated markets are well positioned

to shape regulatory environments to their advantage. With higher market

shares, they can capture a larger proportion of regulatory benefits. Because

of their size and wealth, they may have greater resources to achieve their

regulatory goals through lobbying, funding, research, public relations, and

differential absorption of regulatory costs.

Dominant producers in highly concentrated industries or markets are

likely to fight for regulations that provide (1) direct monetary subsidies,

(2) constraints or subsidies on substitutes or complements of commodities produced, (3) price fixing, and (4) control over entry by new rivals.

Environmental justifications for regulation may foster profits by legitimating principles for regulation and by adding environmentalists to

regulatory coalitions.

37 Oye and Maxwell, 1994.

For regulatory control

to produce maximal

benefits, there should be

interregional agreement

on the standards and

metrics of regulation (or

at the very least a method

of translating the metrics

of one regulatory system

to another).
The U.S. Automobile Manufacturing Industry 91

OFFICE OF TECHNOLOGY POLICY

BIBLIOGRAPHY

Manufacturing Systems

Fine, C. H. “The World’s Quietest Factory.” Draft, Massachusetts Institute

of Technology, Sloan School of Management, Cambridge, Mass., 1995.

Fisher, Marshall, Anjani Jain, and John Paul MacDuffie. “Strategies for

Product Variety: Lessons from the Auto Industry.” Paper presented at the

IMVP Research Briefing Meeting, June 1994.

Fujimoto, Takahiro, and Takashi Matsuo. “An Evolutionary Process of

Toyota’s Final Assembly Operations: The Role of Ex-post Dynamic

Capabilities.” Working paper, Faculty of Economics, University of Tokyo,

October 1995.

Ingrassia, Paul, and Joseph B. White. Comeback: The Fall and Rise of the

American Automobile Industry. New York, 1994.

Ittner, Christopher D., and John Paul MacDuffie. “Exploring the Sources

of International Differences in Manufacturing Overhead.” Paper presented at the IMVP Research Briefing Meeting, June 1994.

Levine, David, and Susan R. Helper. “A Quality Policy for America.”

Contemporary Economic Policy 10, no. 13 (1995).

Lieberman, Marvin, and Lieven Demeester. “Inventory Reduction and

Productivity Growth: Evidence from the Japanese Automotive Sector.”

Paper presented at IMVP Research Briefing Meeting, June 1995.

Lieberman, Marvin, Lieven Demeester, and Ronald Rivas. “Inventory

Reduction in the Japanese Automotive Sector, 1965–1991.” Paper presented at the IMVP Research Briefing Meeting, June 1995.

MacDuffie, John Paul, Kannan Sethuraman, and Marshall L. Fisher.

“Product Variety and Manufacturing Performance: Evidence from the

International Automotive Assembly Plant Study.” Paper presented at the

IMVP Research Briefing Meeting, June 1993.

Shimokawa, Koichi. The Japanese Automobile Industry: A Business History.

London: The Athlone Press, 1994.
92 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Suarez, Fernando F., Michael A. Cusumano, and Charles H. Fine. “An

Empirical Study of Manufacturing Flexibility in Printed-Circuit Board

Assembly.” Paper presented at the IMVP Research Briefing Meeting, June

1993.

Suarez, Fernando F., Michael A. Cusumano, and Charles H. Fine. “Flexibility and Performance: A Literature Critique and Strategic Framework.”

Draft, Massachusetts Institute of Technology, Sloan School of Management, 1991.

[Toyota City]. “The Kindergarten That Will Change the World.” The

Economist (March 4, 1995), 63–64.

Industrial Relations and Management Systems

Anderson, Shannon W. “A Framework for Assessing Cost Management

System Changes: The Case of Activity-Based Costing Implementation at

General Motors, 1986–1993.” Paper presented at the IMVP Research

Briefing Meeting, June 1995.

Clark, Kim B., and Takahiro Fujimoto. “Heavyweight Product Managers.” McKinsey Quarterly no. 1 (1991): 42–60.

Freeman, Steven. “Identity Maintenance and Adaptation: A Multilevel

Analysis of Response to Loss.” Paper presented at the IMVP Research

Briefing Meeting, January 1996.

Helper, Susan R., and David Hochfelder. “‘Japanese-Style’ Relationships

in the Early Years of the U.S. Auto Industry.” Paper presented at the

IMVP Research Briefing Meeting, June 1995.

Helper, Susan R., and Richard J. Parkin. “The Effects of Downsizing on

Long-Term Corporate Performance.” Paper presented at the IMVP Research Briefing Meeting, June 1995.

Hirschsohn, Philip. “The Struggle over Human Resource Development:

Integrating the South African Auto Industry into the International

Economy.” Paper prepared for Special Seminar of the International

IR/HR Research Network on Autos, 10th World Congress of the International Industrial Relations Association, Washington, D.C., May 31–June 4,

1995.
The U.S. Automobile Manufacturing Industry 93

OFFICE OF TECHNOLOGY POLICY

Kochan, Thomas, Paul Osterman, and Martin M. Perline. “The Mutual

Gains Enterprise: Forging a Winning Partnership among Labor, Management, and Government.” Relations Industrielles 50, no. 4 (1995).

Krafcik, John F. Learning from NUMMI. Cambridge, Mass.: IMVP and

Massachusetts Institute of Technology, 1986.

Lee, Daechang. “Incentive Effects of Promotions on Employee Participation: The Case of Korean Auto Workers.” Paper presented at the IMVP

Research Briefing Meeting, June 1995.

Lovall, Malcolm, Susan Goldberg, Larry Hunter, Thomas A. Kochan, John

Paul MacDuffie, Andrew Martin, and Robert McKersie. Report on the

Chrysler-UAW Modern Operating Agreement (MOA) Experiment. Washington, D.C.: U.S. Department of Labor, 1991.

MacDuffie, John Paul, Larry W. Hunter, and Lorna Doucet. “What Does

Transformation Mean to Workers? The Effects of the ‘New Industrial

Relations’ on Union Employees’ Attitudes.” Working paper, Jones Center

on Management Policy, Strategy, and Organization, Wharton School,

University of Pennsylvania, 1996.

MacDuffie, John Paul, and Thomas A. Kochan. “Do U.S. Firms Invest

Less in Human Resources? Training in the World Auto Industry.” Industrial Relations 34, no. 2 (1995).

MacDuffie, John Paul, and Frits Pil. “Transferring Japanese Human

Resource Practices: Japanese Auto Plants in Japan and the U.S.” Paper

presented at the IMVP Research Briefing Meeting, June 1994.

Neely, J. III, Fred Kofman, and Shannon Anderson. “Implementing ABC

in the Automobile Industry: Learning from Information Technology

Experiences.” Paper presented at the IMVP Research Briefing Meeting,

June 1993.

Novak, Sharon, and Charles Fine. “Culture Clash: The Corporate Socialization Process Meets Non-Congruent Organization Subcultures.” Working paper, Massachusetts Institute of Technology, Sloan School of Management, January 1996.

Parkin, Richard J., and Susan R. Helper. “Layoffs and Worker Efforts:

Theory and Evidence from the North American Automotive Supplier
94 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Industry.” Paper presented at the WEA International Conference, July

1995.

Rubinstein, Saul, Michael Bennett, and Thomas Kochan. “Fact Finding

Report.” Washington, D.C.: Commission on the Future of Worker Management Relations, U.S. Departments of Commerce and Labor, May 1994.

Rubinstein, Saul, Michael Bennett, and Thomas Kochan. “The Saturn

Partnership: Co-Management and the Reinvention of the Local Union.”

Paper presented at the IMVP Research Briefing Meeting, June 1994.

Product Development

Aoshima, Yaichi. “Inter-Project Technology Transfer and the Design of

Product Development Organizations.” Paper presented at the IMVP

Research Briefing Meeting, June 1994.

Aoshima, Yaichi, and Michael Cusumano. “The Technological Characteristics of New Products and Inter-Project Movement of Project Managers.”

Paper presented at the IMVP Research Briefing Meeting, May 1992.

Clark, Joel P. “Manufacturing Cost Implications of Product Design Alternatives.” Viewgraphs presented at the IMVP Research Briefing Meeting,

May 1992.

Clark, Kim. “Project Scope and Project Performance: The Effect of Parts

Strategy and Supplier Involvement on Product Development.“ Management Science 35, no. 10 (1989): 1247–63.

Clark, Kim, and Takahiro Fujimoto. Product Development Performance.

Boston: Harvard Business School Press, 1991.

Ellison, David J., Kim B. Clark, Takahiro Fujimoto, and Young-suk Hyun.

“Product Development Performance in the Auto Industry: 1990s Update.” Paper presented at the IMVP Research Briefing Meeting, June

1995.

Eppinger, Steven D., Daniel E. Whitney, Robert P. Smith, and David A.

Gebala. “A Model-Based Method for Organizing Tasks in Product Development.” Research in Engineering Design 6 (1994): 1–13.
The U.S. Automobile Manufacturing Industry 95

OFFICE OF TECHNOLOGY POLICY

Hyun, Young-suk. “The Road to Self-Reliance: New Product Development of Hyundai Motor Company.” Paper presented at the IMVP Research Briefing Meeting, June 1995.

Nishiguchi, Toshihiro. “Competing Systems of Auto Components Development.” Paper presented at the IMVP Research Briefing Meeting, June

1993.

Nobeoka, Kentaro. “Reorganizing for Multi-Project Management:

Toyota’s New Structure of Product Development Centers.” Paper presented at the IMVP Research Briefing Meeting, June 1995.

Nobeoka, Kentaro, and Michael A. Cusumano. “Multi-Project Strategy,

Design Transfer, and Project Performance: A Survey of Automobile

Development Projects in the U.S. and Japan.” Paper presented at the

IMVP Research Briefing Meeting, June 1994.

Nobeoka, Kentaro, and Michael A. Cusumano. “Multi-Project Strategy

and Market-Share Growth: The Benefits of Rapid Design Transfer in New

Product Development.” Paper presented at the IMVP Research Briefing

Meeting, June 1994.

Novak, Sharon, and Charles Fine. “Fitting Teams to the Task: Product

Development vs. Operations Improvement at Saturn and NUMMI.”

Working paper, Massachusetts Institute of Technology, Sloan School of

Management, February 1996.

Okano, Hiroshi. “Target Cost Management and Product Development at

Toyota.” Paper presented at the IMVP Research Briefing Meeting, June

1995.

Schrader, Stephan, and Jan Göpfert. “Structuring Manufacturer-Supplier

Interaction in New Product Development Teams: An Empirical Analysis.”

Draft, Massachusetts Institute of Technology, Sloan School of Management, December 1994.

Scott, Gregory K. “IMVP New Product Development Series: The Chrysler

Corporation.” Paper presented at the IMVP Research Briefing Meeting,

June 1994.

Scott, Gregory K. “IMVP New Product Development Series: The Ford

Motor Company.” Paper presented at the IMVP Research Briefing Meeting, June 1994.
96 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Scott, Gregory K. “IMVP New Product Development Series: The General

Motors Corporation.” Paper presented at the IMVP Research Briefing

Meeting, June 1995.

Sei, Shoichiro. “Stamping the Foundation for Systemization: The Real

Meaning of Toyota Production Systems.” Draft, IMVP Research Briefing

Meeting, June 1993.

Smith, Robert P., and Steven D. Eppinger. “Characteristics and Models of

Iteration in Engineering Design.” Paper presented at the IMVP Research

Briefing Meeting, June 1993.

Whitney, Daniel E. “Electro-Mechanical Design in Europe: University

Research and Industrial Practice (1992 Visits).” Paper presented at the

IMVP Research Briefing Meeting, June 1993.

Whitney, Daniel E. “State of the Art in Japanese Car Methodologies for

Mechanical Products: Industrial Practice and University Research (1991

Visits).” Charles Stark Draper Laboratory, Inc., 1992.

Supplier Performance and Relations

Anderson, E. G. Jr., Charles H. Fine, George Gilboy, and Geoffrey G.

Parker. “Upstream Volatility in the Supply Chain: The Machine Tool

Industry as a Case Study.” Paper presented at the IMVP Research Briefing Meeting, June 1995.

Bensaou, M., and N. Venkatraman. “Configurations of Inter-Organizational Relationships: A Comparison between U.S. and Japanese

Automakers.” Paper presented at the IMVP Research Briefing Meeting,

June 1993.

Fine, Charles H., George Gilboy, Kenneth Oye, and Geoffrey Parker. “The

Role of Proximity in Automotive Technology Supply Chain Development: An Introductory Essay.” Paper presented at the IMVP Research

Briefing Meeting, June 1995.

Fine, Charles H., George Gilboy, and Geoffrey G. Parker. “Technology

Supply Chains: An Introductory Essay.” Paper presented at the IMVP

Research Briefing Meeting, June 1995.
The U.S. Automobile Manufacturing Industry 97

OFFICE OF TECHNOLOGY POLICY

Fujimoto, Takahiro. “The Origin and Evolution of the ‘Black Box Parts’

Practice in the Japanese Industry.” Working Paper No. 94-F-1, University

of Tokyo, Faculty of Economics, January 1994.

Fujimoto, Takahiro, Toshihiro Nishiguchi, and Shoichiro Sei. “Managing

Japanese Direct Investments in Europe: The Case of the Automobile and

Auto Parts Industries.” Paper presented at the IMVP Research Briefing

Meeting, June 1994.

Haimson, Joshua. “Just In Time, Supplier Proximity and Productivity in the

U.S. Auto Industry.” Draft, IMVP Research Briefing Meeting, June 1993.

Helper, Susan. “Incentives for Supplier Participation in Product Development: Evidence from the U.S. Auto Industry.” Draft, November 1991.

Helper, Susan. “Strategy and Irreversibility in Supplier Relations: The

Case of the U.S. Automobile Industry.” Business History Review 65, no. 4

(1991).

Helper, Susan. “Supplier Participation and Worker Participation: Is There

a Linkage?” Paper presented at the IMVP Research Briefing Meeting,

June 1994.

Helper, Susan. “Supplier Relations and Investment in Automation:

Results of Survey Research in the U.S. Auto Industry.” September 1991.

Helper, Susan. “Supplier Relations and Performance in the U.S., Japanese

and European Automotive Industries.” Paper presented at the IMVP

Research Briefing Meeting, Berlin, 1994.

Helper, Susan. “Supplier Relations in the Auto Industry: A Limited

Japanese-U.S. Convergence?” Paper presented at the IMVP Research

Briefing Meeting, June 1994.

Helper, Susan R., and Laura Leete. “Human Resources Policies and

Performance in the Auto Supply Industry.” Working paper, Case Western

Reserve University, Cleveland, Ohio 1995.

Helper, Susan, and David I. Levine. “Long-term Supplier Relations and

Product-Market Structure.” Journal of Law, Economics & Organization 8, no.

3 (1992).
98 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Helper, Susan R., and Mari Sako. “Supplier Relations in Japan and the

United States—Are They Converging?” Sloan Management Review, Spring

1995.

Herzenberg, Stephen, and David Campbell. “Unnatural Selection in the

Auto Parts Industry: Survival of the Fattest?” Draft, IMVP International

Policy Forum, May 1992.

Husbands, Kaye. “The Competitive Advantage of the Mexican Auto Parts

Industry: Past Strategies, Current Capabilities, Future Outcomes.” Draft

proposal, Williams College, Williamstown, Mass., 1995.

Husbands, Kaye. “Strategic Alliances in the Mexican Auto Parts Industry.” Working paper, Department of Economics, Williams College,

Williamstown, Mass., June 1994.

Lieberman, Marvin. “The Diffusion of ‘Lean Manufacturing’ in the

Japanese Automotive Sector, 1965–1991.” Viewgraphs, April 1993.

MacDuffie, John Paul, and Susan Helper. “Creating Lean Suppliers: The

Honda Way.” Working paper, Case Western Reserve University, Cleveland, Ohio 1996.

Monden, Yasuhiro. “Japanese Target-Costing System of Parts Supplier

Committed to the Development Phase of the Automaker.” Draft, IMVP

Research Briefing Meeting, June 1993.

Nishiguchi, Toshihiro. “Fairness, Rationality and Integration: Success

Factors Towards a New Organizational Model.” Paper presented at the

IMVP Research Briefing Meeting, May 1992.

Nishiguchi, Toshihiro. “Governing Competitive Supplier Relations: New

Auto Industry Evidence.” Draft, IMVP Research Briefing Meeting, June

1993.

Nishiguchi, Toshihiro. “Intercorporate Governance: Golden Roads Toward the Best-Practice Supplier Relations.” Paper presented at the IMVP

Research Briefing Meeting, June 1995.

Nishiguchi, Toshihiro, and Jeffrey H. Dyer. “Strategic Industrial Sourcing:

The Japanese Advantage.” Administrative Science Quarterly 40, no. 1

(1995).
The U.S. Automobile Manufacturing Industry 99

OFFICE OF TECHNOLOGY POLICY

Nobeoka, Kentaro. “Alternative Component Sourcing Strategies within

the Manufacturer-Supplier Network: Benefits of Quasi-Market Strategy

in the Japanese Automobile Industry.” Discussion Paper Series #54, RIEB,

Kobe University, October 1995.

Nobeoka, Kentaro. “The Influence of Customer Scope on Supplier’s

Performance in the Japanese Automobile Industry.” Discussion Paper

Series #56, RIEB, Kobe University, December 1995.

Sako, Mari. “Suppliers’ Associations in the Japanese Automobile Industry: Collective Action for Technology Diffusion.” Paper presented at the

IMVP Research Briefing Meeting, June 1995.

Sako, Mari, Richard Lamming, and Susan Helper. “Supplier Relations in

the UK Car Industry: Comparisons with Europe, Japan and the USA.”

Paper presented at the IMVP Research Briefing Meeting, June 1995.

Takeishi, Akira, and Michael A. Cusumano. “Professor Sten Wandel

Speaks on Third Party Logistics Services.” IMVP News, Fall–Winter

(1994–95): 11ff.

Takeishi, Akira, and Michael A. Cusumano. “What We Have Learned and

Have Yet to Learn from Manufacturer-Supplier Relations in the Auto

Industry.” Paper presented at the IMVP Research Briefing Meeting, June

1995.

Globalization and Emerging Economies

Amsden, Alice. Asia’s Next Giant: South Korea and Late Industrialization.

New York: Oxford University Press, 1989.

Amsden, Alice, and Jong-Yeol Kang. “Learning To Be Lean in an Emerging Economy: The Case of South Korea.” Draft, IMVP Research Briefing

Meeting, June 1995.

Cusumano, Michael. “Japanese Technology Management: Innovations,

Transferability, and the Limitations of ‘Lean’ Production.” Draft, IMVP

Research Briefing Meeting, June 1993.

Ferro, José Roberto. “Current Developments of the Brazilian Automobile

Industry.” Paper presented at the IMVP Research Briefing Meeting, June

1995.
100 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Ferro, José Roberto. “The Diffusion of Lean Production in Brazil.” Paper

presented at the IMVP Research Briefing Meeting, June 1993.

Florida, Richard, and Martin Kenney. “The Globalization of Japanese

R&D: The Economic Geography of Japanese R&D Investment in the

United States.” Economic Geography 70, no. 4 (1994).

Graves, Andrew P. “Fuel, Environment and the Economy: Automobiles

and the Voice of Society.” Parliamentary Brief 2, no. 10 (1994).

Graves, Andrew P. “Global Competition and the European Automobile

Industry: Opportunities and Challenges.” Draft, IMVP Research Briefing

Meeting, June 1993.

Kochan, Thomas A., and Russell Lansbury. “Employee Relations in the

International Automotive Industry in an Era of Global Change.” Paper

presented at the IMVP Research Briefing Meeting, June 1995.

Kochan, Thomas A., and B. Whipple. “Auto Case 2 Demo: Presentation

1.” Paper presented at the IMVP Research Briefing Meeting, June 1995.

Roos, Daniel. “The Future of Individual Mobility.” Viewgraphs presented

at the IMVP Research Briefing Meeting, June 1995.

Shimokawa, Koichi. “From the Ford System to the Just-In-Time Production System: A Historical Study of International Shifts in Automobile

Production Systems, and Their Transformation.” Paper presented at the

IMVP Research Briefing Meeting, June 1994.

Shimokawa, Koichi. “Making It Work: The Real Challenge of Globalization for Japan’s Automobile Industry.” Draft, IMVP Research Briefing

Meeting, June 1993.

Shimokawa, Koichi. “Restructuring and Global Strategy of the Japanese

Automobile Industry and Its Perspective.” Paper presented at the IMVP

Research Briefing Meeting, June 1995.

Smitka, M. “The Decline of the Japanese Automotive Industry: Causes

and Implications” Draft, IMVP Research Briefing Meeting, June 1993.

Yang, Xiaohua. “Global Linkages and the Constraints on the Emerging

Economy: The Case of the Chinese Automobile Industry.” Paper presented at the IMVP Research Briefing Meeting, June 1994.
The U.S. Automobile Manufacturing Industry 101

OFFICE OF TECHNOLOGY POLICY

Yang, Xiaohua. Globalization of the Automobile Industry: The United States,

Japan, and the People’s Republic of China. Westport, Conn.: Praeger Publishers, 1995.

Retailing and Distribution

Chu, Wujin. “Achieving Customer Satisfaction through Service Quality

Excellence in the Automobile Industry.” Paper presented at the IMVP

Research Briefing Meeting, June 1993.

Chu, Wujin, and Preyas Desai. “Channel Coordination Mechanisms for

Customer Satisfaction.” Marketing Science 14, no. 4 (1995).

Harbour, Malcolm. “Project Evolution, Activities and Research Summary.” Paper presented at the IMVP Research Briefing Meeting, June

1995.

Koenders, J. Chris, and Wujin Chu. “A Case Study of Saturn’s Distribution Strategy.” Draft, IMVP Research Briefing Meeting, June 1993.

Environment and Mobility

Bayliss, David. “UITP Public Transport Panorama.” Draft, London Transport Planning, 1 June 1995.

Ehrenfeld, John R., and Jennifer Nash. “Defining the Social Agenda:

Developing Consensus towards Durable Goods Recycling—A Report on

the MIT March 1993 Durables Recycling Conference.” Paper presented at

the IMVP Research Briefing Meeting, June 1993.

Field, Frank R. III. “Materials Trends and Policy Implications of Proposed

Recycling Standards for the Automobile Industry” Viewgraphs presented

at the IMVP Research Briefing Meeting, May 1992.

Field, Frank R. III. “The Recycling of Automobiles: Conflicting Environmental Objectives in a Competitive Marketplace.” Paper presented at the

IMVP Research Briefing Meeting, June 1994.

Field, Frank R. III, John R. Ehrenfeld, Daniel Roos, and Joel P. Clark.

“Automobile Recycling Policy: Findings and Recommendations.” Paper

presented at the IMVP Research Briefing Meeting, June 1994.
102 The U.S. Automobile Manufacturing Industry

OFFICE OF TECHNOLOGY POLICY

Klein, Hans K. “The Organization of Large System Development: The

Case of Intelligent Vehicle Highway Systems.” Draft, IMVP Research

Briefing Meeting, May 1992.

Maxwell, James, Lola Matysiak, Jane Hammer, and Frank Field. “German

Policy for Automobile Recycling and the Industry Response.” Draft,

IMVP Research Briefing Meeting, June 1993.

Maxwell, James, Sandra Rothenberg, and Alfred Marcus. “When the CEO

Turns Green: Company Responses to Executive Environmentalism.”

Paper presented at the IMVP Research Briefing Meeting, June 1993.

Roos, Daniel. “Changing Contexts and the Motor Vehicle Industry.”

Draft, IMVP Research Briefing Meeting, May 1992.

Rothenberg, Sandra, and James Maxwell. “Extending the Umbrella of

Social Concern: Volvo’s Strategic Approach to Environmental Management.” Corporate Environmental Strategy 3, no. 2 (1995).

Rothenberg, Sandra, James Maxwell, and Alfred Marcus. “Issues in the

Implementation of Proactive Environmental Strategies.” Draft, IMVP

Research Briefing Meeting, June 1993.

Schenck, Brian, Sandra Rothenberg, and James Maxwell. “The Measurement of Environmental Performance and Management at Automobile

Assembly Plants: IMVP’s Environmental Practice Survey.” Draft, IMVP

Research Briefing Meeting, June 1993.

Schipper, Lee, and Maria Josefina Figueroa. “People on the Move: A

Comparison of Travel Patterns in OECD Countries.” Draft, International

Energy Studies, Energy Analysis Program, Lawrence Berkeley Laboratory, University of California, Berkeley, Calif. (1994).