American Big 3, Japanese Big 3 Profit Gap Widens to $3,814

American Big 3, Japanese Big 3 Profit Gap Widens to $3,814

The profit-per-vehicle gap between the American Big Three and the Japanese Big Three automakers soared 32 percent between 2005 and 2006 to $3,814, according to a new report.

The results of the report, done by financial firm Stout Risius Ross and its managing director, Laurie Harbour-Felax, were revealed at the Center for Automotive Research Management Briefing Seminars being held this week in Traverse City, Michigan.

Reasons for the widening cap are a lack of commonizing parts and platforms as well as lower sales and market share of the domestic brands. Of the Big Three, GM made the most improvement.

The key factor for the growing gap is lack of communization of parts and architectures by the General Motors, Ford and Chrysler, which are making strikes in that regard but lag Toyota, Honda and Nissan.

The report also points out sales drops and market share losses by the Big Three indicate their designs are not meeting today’s consumer expectations while quality perception of the domestic brands continues to be poor. For the first time in history, the Big Three achieved less than 50 percent combined market share in July, according to Edmunds.com.

Other challenges facing the domestic Big Three include the fluctuating U.S. economy, increased raw material costs and the impact of foreign currency.

GM Improves Most

The report reveals GM has made the most significant strides in improving profit per vehicle. New vehicle designs that customers like and significant cost reductions in purchasing, product engineering and process engineering contributed to the improvement as did increased sales outside of North America.

“GM continues to improve in the key areas that will allow them to be successful,” said Harbour-Felax.

Supplier Pressure Intensifies

She sees the pressure on suppliers intensifying. “Suppliers must act now before they become victims of unavoidable industry change,” she said.

In recent years, more than 30 major automotive suppliers have filed bankruptcy since 1999; other smaller companies face some form of liquidity crisis. Merger and acquisition activity has increased approximately 250 percent among announced transactions between 2001 and 2006.

Outside pressures that will continue on suppliers include domestic overcapacity, low-cost country opportunities, OEM purchasing shifts, interest of foreign buyers, communizing components and the OEM’s shift towards preferred suppliers.

“These pressures will continue to impact consolidation and challenge suppliers as they evaluate their businesses and make critical decisions that impact their companies,” said Harbour-Felax. “Ultimately, however, suppliers' success will be dictated by collaboration and speed of execution.”

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.