Under threat of declining sales and stagnating vehicle markets at home and abroad, in the early part of the decade French auto makers focused on improving productivity while German companies concentrated on product portfolio expansion. Both countries, however, still lag behind the Japan and the U.S. (Exhibit 4).
Assault from Abroad
In the early 1990s, French and German auto manufacturers were under major assault, particularly from the Japanese. Relaxed EU import limitations and far higher Japanese productivity sent a stern message to local manufacturers: improve productivity or risk losing market share in vehicle markets at home and abroad. Responding to the threat, France and Germany followed distinctly different approaches to shoring up their industries.
France Gets Lean
France made up ground by shedding inefficiencies. French companies adopted lean manufacturing techniques - such as eliminating superfluous administrative tasks - improved procurement, and simplified auto designs. In slashing costs, however, French auto makers did not sacrifice quality. Manufacturers actually developed even more advanced safety and comfort features.
In this way, French companies managed to improve processes and product quality at the same time. The result: labor productivity in the French automotive industry grew annually at an impressive 15 percent from 1996 to 1999, outstripping the Germans.
Germany Goes for Quality
German auto makers, with markets growing in the U.S. and at home in the early '90s, felt themselves in a more comfortable position and took a less radical approach to the Japanese threat than their French counterparts. The Germans chose to focus on their strength: product quality. Hoping to build an attractive product portfolio, manufacturers introduced new models for the mass and niche markets.
But innovations came at the cost of productivity. German companies outsourced R&D and part of production, increasing process complexity and leading to a ballooning of the labor force. Overall, the German automotive industry increased its labor force between 1996 to 1999 by 110,000 - in stark contrast to France, which reduced its labor force by 20,000 over the same period.
Finding the Balance
Successfully weighing the needs of standardization against the needs of the customer is the key to improving productivity. But the industry needs incentives, and the government can provide them in two ways: removing barriers to competition, such as import tariffs, or reducing its ownership in the industry. With those protections gone, the national industries will have all the incentive they need to improve productivity as soon as possible. Launch this chapter (PDF - 244 KB)
