Harbour-Felax Group Study Reveals Eight Percent Gap in Vendor Tooling Spend Between New Domestic Automakers and Detroit Three Automakers

Honda, Toyota Rank Best-in-Class Followed Closely by General Motors

TROY, Mich., March 9 -- A landmark study, Vendor Tooling: The Not-So-Missing Link, released today by automotive industry analyst Laurie Harbour-Felax, president, Harbour-Felax Group reveals that the New Domestic automakers (Honda Motor Co., Nissan North America, Toyota) on average pay eight percent less than the Detroit Three automakers (Chrysler, Ford Motor Co., General Motors) on vendor tooling. Data also shows that New Domestic tooling costs were lower than those of the Detroit Three 62 percent of the time. According to the study, Honda currently operates best-in-class, followed in order of rank by Toyota, General Motors, Nissan, Ford and Chrysler.

Vendor tooling, defined as tools that produce vehicle parts that are not produced at the automotive manufacturer, is rapidly increasing as a percentage of the total cost of the vehicle. The study, based on a sampling of more than $1 billion of previously-unseen tooling audit data, examines the life cycle for vendor tooling at the Big Six North American automakers including product development, sourcing and production practices.

"Until now, vendor tooling has been overlooked as a major contributor to the profit-per-vehicle gap," says Harbour-Felax. "This study indicates that vendor tooling is the link between automaker product and process, providing a unique insight into larger industry issues."

The current economic climate has created a substantial decrease in demand, highlighting both inefficiencies and inflexibilities in the product development and process life cycle, resulting in excess production capacities. The results are stark, profit losses of $830 for New Domestic automakers* and $4,089 for Detroit Three automakers on every vehicle sold in 2008. Today, the profit-per-vehicle gap between New Domestics and Detroit Three automakers is $3,259.

"Both Honda and Toyota have intelligently managed the vendor tooling life cycle, as our study shows," says Harbour-Felax. "And while the Detroit Three have been greatly criticized in the past six months, General Motors is best positioned of the Detroit Three to capitalize on the market rebound, having reduced the structural costs in vehicle development in addition to corporate restructuring."

Such changes to deep-rooted vendor tooling practices are critical to shrinking the profit-per-vehicle gap that exists and saving the OEMs and troubled supply base. Several best practices are currently in use, which should be adopted industry-wide. These include:

  --  Early involvement of Tier One and tooling vendor suppliers on programs
  --  Mutually agreed upon standards and guidelines for tooling request for
      proposal process
  --  Reduction in the magnitude and number of engineering changes
      throughout the product development process
  --  Collaboration to reduce overall cost through process improvements

According to Harbour-Felax, to successfully drive down vendor tooling cost, suppliers and OEMs must work together more effectively. Historically, the Detroit Three have been focused on price, which has created an adversarial relationship with suppliers. By valuing the involvement of the supplier early in the product development process, as the New Domestics have done, a trusting and collaborative environment is created and the result is lower cost for all and a healthier supply base.

Since the release of Harbour-Felax Group's 2006 study Automotive Competitive Challenges-Going Beyond Lean, great strides have been made at the OEMs through the commonization of vehicle platforms and body architectures, control of labor costs and realignment of breakeven points.

"The purpose of this study is to shed light on best practices that will lead the domestic automotive industry into the next decade," says Harbour-Felax. "It will take a seismic shift in the traditionally competitive cost landscape that exists between Detroit Three automakers and suppliers, but the industry-wide results are guaranteed to lessen the profit gap, a reality critical to Detroit's existence."

Vendor tooling is a critical area of focus because it equals several billion dollars of spend each year and if Detroit Three automakers can generate a slight 10 percent savings in vendor tooling costs, they could save nearly enough money to fund a complete new vehicle program, says Harbour-Felax, who predicts a significant market rebound by 2012.

Harbour-Felax Group

The Harbour-Felax Group partners with companies and their suppliers to transform their operations and develop a roadmap for maintaining sustainability in today's automotive and manufacturing communities. A team of highly skilled and experienced consultants, the Harbour-Felax Group and their partners have real-world experience in all aspects of manufacturing. The Harbour-Felax Group analyzes a company's operations compared to its competitors, identifies existing gaps, develops a road map to correct those gaps and implements a sustainable transformation process to achieve success. On the Web, www.harbourfelax.com

*New Domestic profit loss estimate is based on 2008 annual earnings estimated by Honda, Nissan and Toyota. This is the first time that these companies have recorded a loss-per-vehicle in North America.