Freudenberg-NOK Chairman Addresses Economic Club of Detroit: To Cut Costs & Eliminate Warranty, Day Encourages North American Auto Industry to Mandate Lean Systems for Suppliers
11 December 2000
Freudenberg-NOK Chairman Addresses Economic Club of Detroit: To Cut Costs & Eliminate Warranty, Day Encourages North American Auto Industry to Mandate Lean Systems for Suppliers
DETROIT, Dec. 11 To protect market share and compete with
Japanese automakers in both quality and cost, domestic automakers should
mandate that their suppliers adopt lean systems, according to Joseph C. Day,
chairman & CEO of Freudenberg-NOK.
Day, who also serves as the second-term chairman of the Original Equipment
Suppliers Association, made his comments at the Economic Club of Detroit's
35th Annual Economic Outlook Luncheon held today at Detroit's Cobo Center.
"Warranty offers domestic automakers the biggest opportunity for total
cost reduction. Currently the Big 3 (domestic) automakers spend about $6
billion a year on warranty repairs ... or an average of $500 per new car
sold," Day said. "The Japanese vehicle industry has significant advantage, as
their warranty costs per new car sold are perhaps less than $75 per car."
The difference, Day said, is that the Japanese vehicle manufacturers
demand that their suppliers practice the lean business principles commonly
known as the Toyota Production System.
"With the Japanese automakers, either you learn and practice lean ... or
you're kicked out of their supply base," Day said. "Many of us in the supply
base have been preaching the same thing to the U.S. vehicle and supply
community, but to little avail. Until the U.S. automotive community mandates
lean processes from their suppliers, the costs won't come out, the quality
won't go up and the overall competitiveness of the U.S. auto community will
suffer."
Lean systems have proven to be the single most powerful and effective tool
an automotive supplier can use to improve productivity, quality and
responsiveness, according to Day. His company's ongoing practice of lean
systems is generating Six Sigma-level quality at its manufacturing plants and
is helping automakers to eliminate millions of dollars in warranty costs.
The Society of Automotive Engineers (SAE) has developed a lean self-
certification process that carmakers are now beginning to consider as a
prerequisite to being a supplier, and Day encourages the carmakers to utilize
the SAE certification process as an important first step in the adoption of
lean systems across the supply base.
In his remarks, Day also said that lower U.S. vehicle sales volumes
predicted for 2001 (between 15.8 million and 16.5 million units versus 17.5
million for 2000) could create turmoil for many suppliers, especially those
who allowed significant cost to creep into their operations as they scrambled
to serve the unprecedented vehicle production rates of 1999 and 2000.
"Extracting those costs now will be complex ... it will generate added
pressure and instability within the majority of component suppliers, and it
will create uncertainty in the continuity of supply, as too many companies
today only have EBIT (earnings before interest and taxes) levels modestly
above their debt service cost," he said.
Compounding the plight of automotive suppliers, Day said, is that they're
also being asked to assume more responsibility in terms of global supply,
engineering and development; to share in warranty responsibility; to adopt new
e-commerce technologies; to absorb skyrocketing health care costs and higher
labor rates; and to certify their plants to ISO 14001 environmental standards.
Still, Day said he feels the challenges that the U.S. auto industry faces
in 2001 are manageable, and that stronger industry partnerships and closer
cooperation in attacking warranty costs through mandated certification of lean
systems can help to create a positive outcome.
"I am hopeful that automakers and their suppliers will be able to work
together in 2001 to arrive at a solution which will allow the industry to cut
costs while still protecting each other's margins," Day said.
Plymouth, Mich.-based Freudenberg-NOK is part of the Freudenberg and NOK
Group Companies, which have total annual sales of nearly $7 billion. With
global automotive sales of approximately $4 billion, the Freudenberg and NOK
Group ranks among the 15 largest OEM automotive suppliers (per Crain's Detroit
Business) and is one of only eight in the top 100 that has global balance in
each of the three major automotive markets -- Asia, Europe and North America
(according to Automotive News).
Through a global network of facilities spanning 27 countries with some
25,000 automotive employees worldwide, the supplier group offers its
automotive customers globally integrated products, including sealing packages
for transmissions, engines, brakes, axles and steering, NVH (noise, vibration
and harshness) components and packages, and all rubber, plastic and PTFE
components for suspension, electrical and fuel systems.
The Freudenberg and NOK Group also offers an extensive portfolio of
precision-molded products for the aerospace, appliance, business machine,
fluid power, marine, medical, off-highway equipment and recreational vehicle
markets. For more information, visit the Freudenberg-NOK web site at
http://www.freudenberg-nok.com .