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Auto maker's innovative engine-making method puts more pressure on Ford, GM

JOHN LIPPERT

Bloomberg News, with files from Kae Inoue in Tokyo

Foundry workers at a Toyota Motor Corp. plant in Troy, Mo., laughed out loud in 2003 when an executive travelled from Japan and gave them a new assignment: Cut in half the cost of building V-6 engines for the company's Camry sedan by 2005.

"We were thinking they were either crazy or didn't really mean it," says Robert Lloyd, who, as president of Toyota's Bodine Aluminum Inc. unit, would be expected to deliver on the goal.

But back in Japan, 300 engineers were working on Toyota's secret weapon, a new technology for pouring molten aluminum into moulds to create engine parts. The new equipment, part of a larger Toyota cost-cutting program called Simple Slim, allows Toyota to use smaller and cheaper moulds.

The new engine technology is now in use not only at Bodine, but also at foundries in Japan and China. Partly as a result, the cost of building an engine for the redesigned Camry, which is scheduled to go on sale in March, will be about $1,000 (U.S.), half the cost of an engine for the previous generation of Camrys, says Gary Convis, executive vice-president for North American manufacturing.

Toyota's latest cost-cutting push is one more piece of bad news for executives at Ford Motor Co. and General Motors Corp. Around the world, Toyota is going from strength to strength, increasing sales and profit, streamlining production and ringing up healthy returns for investors. Its Tokyo-listed stock was up 51 per cent to an all-time high of ¥6,210 ($52.25) for the year ended on Feb. 3.

Together with Honda Motor Co. and Nissan Motor Co., Toyota has pushed GM and Ford to the wall. The three Japanese auto makers captured a combined 28.2 per cent of U.S. sales in 2005, an increase of two percentage points. Ford and GM captured a combined 44.8 per cent of sales, a 2.3-percentage-point decline.

Last year, the American auto giants became the biggest companies ever to have their debt downgraded to junk status by Standard & Poor's. And now they have to contend with innovations like Simple Slim.

"Toyota is already one of the most efficient producers," says Dan Luria, an analyst at the Michigan Manufacturing Technology Center in Plymouth, Mich. "If they can improve this much, that spells big trouble for everybody else."

The cost-cutting program has only increased the company's momentum. The Toyota City, Japan-based manufacturer had an operating profit of ¥482-billion in the October-December quarter on ¥5.3-trillion in sales.

Automotive profits for the American giants, meanwhile, are elusive.

Dearborn, Mich.-based Ford earned an operating profit of $84-million in the October-December quarter, or 0.2 per cent, on $41-billion in sales, while GM lost $1.6-billion, or minus 3.8 per cent, on $42.3-billion in sales, according to estimates from Merrill Lynch & Co. Inc.

Bodine Aluminum is an important part of that effort. Bodine uses dies to cast aluminum engine blocks, which make up the lower two-thirds of an engine, and cylinder heads, the top third, and then delivers them to Toyota factories for assembly into complete engines.

Every week, Mr. Lloyd receives a report that compares the quality of his work with that of Toyota foundries in Australia, China, Japan and the U.K. "We're one of the best," Mr. Lloyd says. "Not every day and not in every part, but we're right in there."

The bosses in Japan want both high quality and maximum production. Toyota plans to produce 1.83 million cars and trucks a year in North America by 2008, nearly double its production in 1998. Its assembly plants in Georgetown and elsewhere are on double shifts.

To keep up, Mr. Lloyd runs his Troy foundry on three shifts. And with Simple Slim in full force, he has to make allowances for construction workers who swarm through his facilities, ripping out old machines and installing new ones.

"It's like a war in here every day," Mr. Lloyd says of the Troy plant.

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I like Toyota's way of cutting cost, as suppose to Ford/GM's cutting cost a.k.a. layoffs and closing down their plants!!!