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A MAJOR STUDY OF AMERICAN (FORD) COMPARED WITH JAPANESE (HONDA) AUTOMOTIVE INDUSTRY – THEIR STRATEGIES AFFECTING SURVIABILTY PATRICK F. CALLIHAN Bachelor of Engineering in Material Science Youngstown State University June 1993 Master of Science in Industrial and Manufacturing Engineering Youngstown State University March 2000 Submitted in partial fulfillment of requirements for the degree DOCTOR OF ENGINEERING at the CLEVELAND STATE UNIVERSITY AUGUST, 2010 This Dissertation has been approved for the Department of MECHANICAL ENGINEERING and the College of Graduate Studies by Dr. L. Ken Keys, Dissertation Committee Chairperson Date Department of Mechanical Engineering Dr. Paul A. Bosela Date Department of Civil and Environmental Engineering Dr. Bahman Ghorashi Date Department of Chemical and Biomedical Engineering Dean of Fenn College of Engineering Dr. Chien-Hua Lin Date Department Computer and Information Science Dr. Hanz Richter Date Department of Mechanical Engineering ACKNOWLEDGMENTS First I would like to express my sincere appreciation to Dr. Keys, my advisor, for spending so much time with me and providing me with such valuable experience and guidance. I would like to thank each of my committee members for their participation: Dr. Paul Bosela, Dr. Baham Ghorashi, Dr. Chien-Hua Lin and Dr. Hanz Richter. I want to especially thank my wife, Kimberly and two sons, Jacob and Nicholas, for the sacrifice they gave during my efforts. A MAJOR STUDY OF AMERICAN (FORD) COMPARED WITH JAPANESE (HONDA) AUTOMOTIVE INDUSTRY – THEIR STRATEGIES AFFECTING SURVIABILTY PATRICK F. CALLIHAN ABSTRACT Understanding the role of technology, in the automotive industry, is necessary for the development, implementation, service and disposal of such technology, from a complete integrated system life cycle approach, to assure long-term success. This dissertation provides a unique complete characterization of the system life (cycle) business major cost elements of the automotive industry; the subsystems, cost elements, interplay and interdependencies that affect the total real life cycle cost and value; the various stated product, organizational, and process initiatives intended to produce significant improvements in the American automobile industry, as compared to the Japanese. This dissertation adds a perspective, understanding, and new insights of the drivers of business/technology changes and challenges that are likely to occur over the next 5-10 years. Research was carried out by an extensive review of publications, technical journals, articles, government agency documents, industry publications, annual reports and company bulletins, data and announcements. Results were generated and compared with past industry leaders‘ efforts. iv TABLE OF CONTENTS Page LIST OF TABLES xii LIST OF FIGURES xiii CHAPTER I INTRODUCTION 1 1.1 Issues 1 1.2 Dissertation Goals and Objectives 5 1.3 Research Methodology 11 1.4 Organization of Dissertation 13 II AUTOMOTIVE HISTORY 16 2.1 Automotive Industry Historical Overview 16 2.2 Time Line of Developing Technologies 18 2.3 Mechanical/Hydraulic 18 2.4 Early Electrical Systems 21 2.5 Internal Combustion Engine (ICE) Design (Early Years) 23 2.6 Early Challenges 33 III FORD‘S EARLY HISTORY AND EARLY INNOVATION INTRODUCTION 36 3.1 Introduction 36 3.2 Pre-Henry Ford 37 3.3 Henry Ford 38 3.4 Standardization and Maintainability 40 v 3.5 Reliability 42 3.6 Innovation and Invention of Materials 43 3.7 Start of Mass Production (Model T) 47 3.8 Vertical Integration 48 IV OIL‘S EARLY HISTORY AND NEW REFINING 50 4.1 Introduction 50 4.2 Birth of the Industry 50 4.3 Early Oil Extraction in the U.S. 51 4.4 Oil and Automotive Connection 54 V GENERAL MOTORS MARKETING EXPLOSION AND MODEL CHANGES 65 5.1 Introduction 65 5.2 Background 67 5.3 Factors of Augmentation 68 5.4 Augmentation 69 5.5 Losing Share 73 5.6 Current (10-year) Status 73 VI JAPAN CULTURE AND EARLY JAPANESE AUTOMOTIVE INDUSTRY 79 6.1 Introduction 79 6.2 Cultural and Local Factors 79 6.3 Japan‘s Resource Situation 81 6.4 Japan‘s Motorized Vehicles Industry 82 6.5 Early Rise of the Implants 89 vi VII THE MANUFACTURING RE-VISION (The Toyota, Lean Way) 92 7.1 Introduction 92 7.2 Foundation of Toyota (Brief History) 93 7.3 Alternative to Mass Production 94 7.4 Start of Toyota Thinking 95 7.5 Toyota‘s Thinking of Quality & Reliability 99 7.6 Toyota Technology (Hybrid) 102 7.7 13-Year Statistics 103 VIII EARLY HONDA HISTORY 107 8.1 Introduction 107 8.2 Honda-Its Motorcycle and Roots 107 8.3 Honda-Entering the Automotive Industry 111 IX SYSTEM (PRODUCT) LIFE CYCLE ENGINEERING & MANAGEMENT 115 9.1 Introduction 115 9.2 Current System Environment 116 9.3 System Definition 118 9.4 System Eng Management & Product Development 120 X RELIABILITY ENGINEERING 139 10.1 Introduction 139 10.2 Reliability Explicitly Defined 140 10.3 Reliability Engineering 141 10.4 Maintainability and Logistics 152 10.5 Warranty, Costs and Replacements Parts 153 vii 10.6 Affects from Reliability Engineering 157 XI QUALTY ASSURANCE AND ENGINEERING 164 11.1 Introduction 164 11.2 History of Quality Methods 165 11.3 Post World War II Japanese Issues 167 11.4 Japanese Adoption and Modification 169 11.5 Quality Defined 172 11.6 Common Quality Philosophies 174 11.6.1 Total Quality Management (TQM) 174 11.6.2 Quality Function Deployment (QFD) 178 11.6.3 Kaizen 184 11.6.4 Six Sigma 187 11.6.5 Lean Six Sigma 192 11.6.6 Quality Tool Summary 194 11.7 Quality Results 195 XII ARCHITECTURE AND DEVELOPMENT OF THE PRODUCT/COMPLEX COMPLEX SYSTEM 200 12.1 Introduction 200 12.2 System Approach Structure 202 12.3 Model T Architecture 203 12.4 Developing Technology (1920s through 1930s) 204 12.5 1940s through 1950s Increasing Complexity 206 12.6 Architecture of the 1960s 208 12.7 Automotive Architecture, 1970s-1980s 209 viii 12.8 Automotive Architecture, 1990s to present 212 12.9 Additional Role of Electronics 215 12.10 Tire Example 218 XIII INCREASE OIL CONSUMPTION AND IMPORTED OIL DEPENDENCE (Recent History) 222 13.1 Introduction 222 13.2 US Oil Production Capability & Refinement 223 13.3 US Demand and Supply 230 13.4 An Energy Policy of the 1970s 235 13.5 Local Spills and Dumping 239 13.6 Emerging Market with Increase Energy Demands 239 13.7 Petroleum Supplies and Technology 241 XIV LABOR RELATIONS AND UNIONS 244 14.1 Introduction 244 14.2 Brief History of Unionization in US 244 14.3 Conditions Leading to Unionization 245 14.4 Gaining Momentum, Federal Support 247 14.5 Unionizing the Automotive Industry 248 14.6 Effects of Bargaining 250 XV MANAGEMENT AND EXECUTIVE COMPENSATION 258 15.1 Introduction 258 15.2 The Beginning Levels 258 15.3 Transition from Central to Decentralize Management 259 15.4 Management Changes (1960s and1970s) 262 ix 15.5 Modern Changes and Current State 263 15.6 Management Compensation Discussions 265 XVI MANUFACTURING LOCATIONS 270 16.1 Introduction 270 16.2 Part I-Establishment of Foreign Implants 272 16.3 Part II-Southern Regions Growth 276 16.4 Part III-Big 3 Plant Closures 285 XVII FORD MOTOR COMPANY 289 17.1 Introduction 289 17.2 Chapter Structure 292 17.3 Part I-Diversification 293 17.4 Part II-Key Indicator Trends 299 17.5 Part III-Dealer Network 319 17.6 Part IV-Price, Reliability and MPG 322 17.7 Part V-Recalls 329 17.8 Part VI-Management and Strategic Philosophies 336 XVIII HONDA MOTOR COMPANY 346 18.1 Introduction 346 18.2 Part I-Diversification 348 18.3 Part II-Key Indicator Trends 350 18.4 Part III-Dealer Network 364 18.5 Part IV-Price, Reliability and MPG 364 18.6 Part V-Recalls 369 x 18.7 Part VI-Management & Strategic Philosophies 370 XIX PAST INDUSTRIES, AND MANAGEMENT OF TECHNOLOGY 384 19.1 Introduction 384 19.2 Management of Technology (MOT) 385 19.3 Management of S-Curves, Discontinuity and Change 387 19.4 Movement of Technology Along the S-curve 392 19.5 Reasons for Failure 397 19.6 Past Industries 400 19.7 Current Innovation Leaders 411 XX FORD AND HONDA SUMMARY COMPARISON 420 20.1 Introduction 420 20.2 R&D, Quality and Reliability 420 20.3 Management 425 20.4 Financial Aspects 428 20.5 Summary 436 XXI SUMMARY AND CONCLUSION 439 21.1 Summary 439 21.2 Conclusion 448 21.3 Future Work 449 BIBILOGRAPHY 452 xi LIST OF TABLES Table Page I. U.S. and Japan Statistics 80 II. Japanese Implant Assembly Plants 90 III. Requirements Table 181 IV. Six Sigma Tools 192 V. Lean and Six Sigma Summary 193 VI. Lean and Six Sigma Synergies 194 VII. Resale Grade 197 VIII. Automotive Sensors 214 IX. Major Chinese Oil Refineries 227 X. Alan Mulally Benefits Open Termination 269 XI. Honda Assembly Plants 272 XII. Toyota North America Plants 274 XIII. Summary of Investments, Capacity & Associates 276 XIV. State Population 279 XV. Age Demographics 281 XVI. Big 3 Plant Closures 287 XVII. Ford Larger, +100,000, Recalls 331 XVIII. Ford Additional Cost for Safety Issues 335 XIX. Honda Engine Types and Power Information 375 XX. Ford and Honda Comparison 438 xii LIST OF FIGURES Figure Page 1. Technology S-curve with Discontinuity 3 2. Model T Architecture Concept 39 3. Model T Technology Architecture Evolution 40 4. U.S. Crude Oil Production 57 5. U.S. Crude Oil and Natural Gas Rigs 57 6. U.S. Refinery Capacity 58 7. Gas Prices 59 8. U.S. Vehicle Sales 59 9. Motor Vehicle Production 60 10. Crude Oil Prices 61 11. Crude Oil Consumption 62 12. Growth of Oil Uses 62 13. Crude Oil Imports 63 14.