Why Japanese Cars Earn $2400 More Profit Each

The Stalwart submits: A latest auto industry report says that Japanese cars make $2,400 more profit per car than US ones. Most interesting was that beyond cost efficiencies and less onerous healthcare obligations, Japanese cars also just plainly sell for higher prices.

Toyota Motor Corp. (TM), Nissan Motor Co. (NSANY) and Honda Motor Co. (HMC) persuaded buyers to pay an average $24,289 per vehicle, 12 percent more than U.S. automakers, the Harbour-Felax Group study said. The Japanese paid $1,400 less per vehicle on health care, and their workers spent more time on the job.

We summarize the article's cost breakdown below:

Japanese spent $1,400 less per car on health care benefits. The majority of the US disadvantage comes from paying healthcare benefits to retireees, of which GM has 338,000 to support.

Toyota spends $348 per car on warranty costs vs. $500 for GM (GM) and Chrysler (DCX)

US automakers spend $138 more per car on longer holidays

They also spend $70 more per car on worker absenteeism

Japanese spent $133 per car on 30 minutes of break time/day vs. $203 per car on 46 minutes of break time for US counterparts.

Another major cost advantage for Toyota has been the use of standardized parts.

Toyota saved $1,000 per vehicle over the last five years by designing components such as hinges and air bags so they can be used on a wide variety of cars and trucks, Harbour-Felax said. In an August speech, she said one U.S. automaker, which she didn't name, offers 81 varieties of side-view mirrors, compared to two for its more efficient Japanese rival.

Currency has also been an advantage.

Today's yen-dollar exchange rate widens Toyota's advantage over domestic automakers by $1,054 per vehicle

Healthcare we can blame on unions and Japan's public healthcare system. But cost inefficiencies from using non-standardized parts and lower average selling prices seem much less excusable for US automakers. Fixing just these two things alone could close the gap.

Comment on this article

Comments

[Paul Meisel:]

I didn't see this report yet, but it makes sense for a couple reasons:
1. Laurie is one of the best informed industry observers and has good insight into the data
2. These variances are roughly the same in order of magnitude as they were 20 years ago when I worked on these studies.

The sad fact facing auto industry management is that they have known about this problem for 20 years and have been unable to impact them -- because of shrinking share, inability to significantly change their labor contracts, and a national unwillingness to address the health benefits issues.

Combinations of existing companies won't fix the problem. In total, there are too many factories, too many employees, too many retirees, and health costs are too high in the US.

2006 Oct 04 09:06 AM

[Paul Meisel:]

The following I received by e-mail from a conservative business man and engineer I know:

"Think of the benefits EVERYONE would have if we had a single payer plan similar to Medicare but everyone would pay based on their income.

The current system of; insurance company / employer controlled health care is a TOTAL mess and a tremendous waste of time and money.

Every time I visit a doctor I make it a point of discussing with them the fact that for every 15 minutes of time I spend with them, I spend at least an hour or two reading paperwork and statements etc. ... or on the phone with the insurance company trying to get the cost coverred or trying to find out what they will/will not pay. The doctors complain about the current system as well and how it wastes their time. Add to this all the time the doctor's staff has to spend on this insurance crap and then just try to picture all the clerical time, mailing, paper work etc that is going on behind the scenes at the hospitals and insurance companies and it becomes pretty clear that the "medical" time spent between you and the doctor is minimal compared to all the cost put into the system by the insurance companies themselves.

A Federal program, available to all, single payer, pay based on your ability, is the only way to go."

Whenever we look at US competitiveness, health care is the moose head in the middle of the table that no one discusses.

2006 Oct 04 02:49 PM