Part of what was supposed to happen in Detroit this year was that the new UAW contract was going to lower costs for the Big Three. This would bring their cost to produce a vehicle more in line with Toyota (TM).
That plan may have worked, but it assumed that Toyota was not a moving target. It turns out that the assumption was wrong. Toyota says it will cut about $2.9 billion in costs this year, most of them directly related to building a car.
According to The New York Times "since 2005, Toyota has been working on a new cost-saving strategy dubbed "VI" for Value Innovation, which seeks to lump some of the tens of thousands of components in a car into modules and systems." The company hopes total savings over the next five years will be $9 billion. Most of this comes from the new program for sourcing and assembling car parts.
With the US car market falling, the ability to keep costs very low becomes more critical. GM (GM) and Ford (F) thought they were gaining an advantage. In a way, they have. But, the competition is doing even better.
Douglas A. McIntyre
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