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OM in the News: US Auto Makers Shift to Full Capacity

August 20, 2013
Chrysler plant in Detroit

Chrysler plant in Detroit

Supplement 7 discusses a variety of tactics for matching capacity to demand. This Wall Street Journal (Aug. 17-18, 2013) article describing how more U.S. auto plants are cranking out cars around the clock provides a perfect example of these to use in class. After years of layoffs, plant closures and bankruptcies, U.S. auto makers are pushing factories to the limits. At GM, Ford, and Chrysler, more flexible union agreements now allow the companies to build cars for 120 hours a week or more while paying less in overtime pay.

Nearly 40% of car factories in North America now operate on work schedules that push production well past 80 hours a week, compared with 11% in 2008. “There has never been a time in the U.S. industry that we’ve had this high a level of capacity utilization,” says one industry expert. In 2005, the industry had 925,700 employees. In 2012, the workforce stood at 647,600.

Changes in union labor contracts have been critical to running auto factories harder. The Detroit Three now can schedule work at night and on weekends without paying as much in overtime as they would have in the past. Adding a third shift, as many plants have done, also reduces overtime. Overtime pay also starts after 40 hours a week, not after 8 hours a day as in the past. And a newly hired Detroit factory worker now earns about $15/hour versus $28/hour for veteran workers.

In Toledo, Chrysler is building all the hot-selling Jeep Wranglers it can. The plant has been running nearly round the clock, churning out about 800 Jeeps a day and using overtime to staff production lines 20 hours a day, 6 days a week for the past 2 years. Temporary workers fill in when regular employees aren’t available. Ford has gone a step further, adding a 4th crew of workers at some plants to keep those factories running 152 hours out of the 168 hours in a week.

Discussion questions:

1. How are automakers increasing capacity with fewer workers?

2. Why is capacity adjustment such an important OM issue?

One Comment leave one →
  1. Phillip Flamm permalink
    August 20, 2013 5:45 pm

    This seems to be a perfect opportunity for automotive manufacturers to expand the use of robotics (i. e. Honda’s use of robotics). With plenty of demand pressure it seems less likely that the UAW would resist expanded use of robotics.

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