Toyota and Honda have advantages over GM and Ford

NEW YORK (Fortune) -- An enormous gap still separates the performance of Detroit automakers from their foreign competitors - and it isn't all their fault.

The stupefying $12.7 billion loss that Ford Motor Co. reported Thursday for 2006 comes one year after General Motors' equally horrendous $10.6 billion loss for 2005.



But for all the bad decisions these companies have made by not listening to their customers, they aren't entirely to blame. Structural inequities between the U.S. and Japan - notably in labor costs and currency - account for a big chunk of Detroit's problems.

Ford: Biggest loss ever
The evidence can be seen in a report prepared by the Detroit consulting firm Harbour-Felax, first released back in October and updated for Fortune. For anyone who makes a living from the domestic auto industry, it is depressing reading. An enormous and persistent gap separates the home team from the import companies - large enough to question the continued survival of the U.S. companies.

In the case of Ford (Charts), which recently hocked its corporate assets to help fund $17 billion in negative cash flow over the next 24 months, it raises questions whether the automaker can shrink the difference before its money runs out.

According to the latest calculations, the gap between Japanese and American carmakers' profits average out to about $2900 per vehicle, and the home team does not have the advantage.

Cost issues
A big reason is the cost of labor. As analyzed by Harbour-Felax, labor costs the Detroit Three substantially more per vehicle than it does the Japanese.

Health care is the biggest chunk. GM (Charts), for instance spends $1,635 per vehicle on health care for active and retired workers in the U.S. Toyota (Charts) pays nothing for retired workers - it has very few - and only $215 for active ones.

Other labor costs add to the bill. Contract issues like work rules, line relief and holiday pay amount to $630 per vehicle - costs that the Japanese don't have. And paying UAW members for not working when plants are shut costs another $350 per vehicle.

Here's one example of how knotty Detroit's labor problem can be:

If an assembly plant with 3,000 workers has no dealer orders, it has two options. One is to close the plant for a week and not build any cars. Then the company still has to give the idled workers 95 percent of their take-home pay plus all benefits for not working. So a one-week shutdown costs $7.7 million or $1,545 for each vehicle it didn't make.

GM execs put brakes on labor-savings hopes
If the company decides to go ahead and run the plant for a week without any dealer orders, it will have distressed merchandise on its hands. Then it has to sell the vehicles to daily rental companies like Hertz or Avis at discounts of $3,000 to $5,000 per vehicle, which creates a flood of used cars in three to six months and damages resale value. Or it can put the vehicles into storage and pay dealers up to $1,250 apiece to take them off its hands.

Chrysler experienced the vicissitudes of over-production last year when it built cars without dealer orders and was forced to store them in open-air lots all around Detroit while it frantically sought buyers. It damaged relations with its dealers and was eventually forced to cut production anyway.

the exchange rate is another uncontrollable factor that plays into the hands of the import brands. When the yen got cheaper in 2005, Harbour-Felax figures it was worth $1,054 per vehicle to Japanese manufacturers

On the revenue side, it is easier to apportion blame. The lack of pricing power by American producers, brought on by poor quality, unimaginative marketing and sales to rental fleets, cost them nearly $1,000 per car. When everything is added up, the average Japanese automaker reports revenue of $24,289 per vehicle - $2,692 more than the average domestic manufacturer.

All in all, the report paints a bleak picture. While Nissan (Charts) was making $1800 per vehicle during the first half of 2006, and Toyota and Honda (Charts) racked up $1,400 apiece, nine-month results for Ford saw them losing $1,400 per vehicle - a number that will go up when the fourth quarter's loss is tallied - while DaimlerChrysler (Charts) dropped $1100 and GM $333.

But cut Ford and the others a little slack. They have gotten themselves in a deep hole but they weren't the only ones doing the digging.

Honda Recalls 81,000 Accords

Honda Motor Co. is recalling 81,000 of its 2004-2005 Accord sedans because of issues that could cause an air bag-related sensor to fail, the company said Wednesday.

Honda said in a Jan. 9 letter to the government that the wiring harness for the seat position sensor, which detects the driver’s seating position and adjusts the air bag inflation pressure accordingly, was attached in the wrong location and may have been overtightened.

Honda said the sensor wire could break and cause the air bag warning light to be illuminated and prevent the sensor from working properly. When the sensor fails, the air bag system automatically moves to full inflation pressure, which could increase the risk of injury for smaller drivers in a frontal crash, the Japanese automaker said.

Honda spokesman Chris Naughton said the company was not aware of any injuries or incidents connected to the recall.

The recall is expected to begin in early February, and dealers will replace the seat position sensor wiring subharness, Honda said.

Honda and Toyota

I saw this on a web site.

I buy Honda & Toyota. I could car less about status. I started buying
them because they work well and are reliable beyond any American car
I've ever owned. I've owned twice as many Arerican vehicles as
foreign vehicles. That's because the American vehicles did not last
as long and they weren't as reliable. They also didn't function as
well as the Hondas or Toyotas I've purchased. I've owned 4 Toyotas.
The 3rd one I've had since it was new in 1986. It still runs great,
it looks good, it's reliable still and it will get 29 MPG on the
highway. There aren't any high performance cars I'm aware of that
will do that. My last Toyota is a 1994 Toyota 4 WD P/U. It has been
just as reliable as my Supra. I also have a 2006 Honda Civic that
will get better gas mileage than they advertise if I drive it right.
Even my Supra is rated at only 25 MPG on the highway, but I can get 29.
I've never been sorry I switched. I think American cars are much
better than they used to be, but dollar for dollar I haven't been
convinced I want to buy one yet. I did however come close this last
time, but I'm still waiting.

10 Reason Why You Should Not Buy a Honda

#1. Honda is a Japanese company so when you buy a car from them your money goes to Japan. When you buy a car from GM your money stays in America.

#2. You shouldn't buy a Honda just because you think it is more reliable. Honda does have good lasting vehicles but so does GM. And I have several examples of GM with lots of miles. I have seen many GM's with 1 million miles on them and I have never seen a Honda with 1 million miles.

#3. Don't buy a Honda because you think it is a better value because it is not. You can get a GM for less money because GM has bigger rebates on their vehicles.

#4. Don't buy a Honda because you think it gets better gas mileage. GM has many models that get over 30 MPG and the new Silverado 1500 crew cab 2wd with a V8 gets 22 MPG.

#5. Don't buy a Honda because you think it has better quality. GM vehicles quality keeps getting better and better. They have improved many of their interiors and they are really nice.

#6. GM has many more features then Honda. Such as Onstar, XM radio,etc.

#7. GM has been very important to America and the US auto industry. Honda hasn't

#8. If GM were to go bankrupt it would be a great loss to our military. GM has built many vehicles and other military equipment for America during wars such as World War 1 and 2. GM actually closed their plants and only built military vehicles during the wars. And Honda will not build military vehicles for the US because they are from Japan.

#9. When you buy a Honda you can only buy certain package such as LX, EX models, etc. Where on a GM you can get any option you want. Like if you want 1 option but not another that is the way you can get it. It is not in package where you can't choose each individual option. So a GM gives the customer more choices.

#10. GM has a better warranty then Honda. GM has a 5 year/ 100,00 mile warranty and Honda doesn't.