Wednesday, August 29, 2007

Assessments of the Auto Industry from the Chicago Fed

September's Chicago Fed Letter (Transitions: the State of the Automotive Industry) considers the state of the auto industry. The summary of a recent conference, the letter examines areas of difficulty and ways for improvement.

According to Frits Pil, associate professor, University of Pittsburgh, “The auto sector is just starting on the path toward customer responsiveness.” Pil advocates a build-to-order approach rather than the current build-to-forecast method. The flexibility of a build-to-order approach could increase the profit margin per unit with a more efficient supply chain, leaner stocks, and less need for financing incentives.

Susan Helper, professor, Case Western Reserve University, acknowledges a lack of skilled workers in the entire manufacturing sector and suggests something called the learning lean model. This approach "focuses on organizational flexibility and quality while also combining lower waste practices within manufacturing. It promotes changes in training practices, which results in a work force with higher skills." The lack of skilled workers may affect manufacturers' efforts to develop better fuel economy or alternative fuel technologies.

Kristin Dziczek, senior project manager, Center for Automotive Research sees labor relations as a core issue for the industry. While manufacturers are struggling to remain competitive, the UAW strives to maintain a middle-class standard of living for members.

To grow more competitive automakers must address flexibility, fuel efficiency, skill level of workers, and development of alternative fuels. And this, even as they struggle with labor relations.

As Helper observed,“United States automotive manufacturing is not dead yet." Well, that's reassuring.