NEW LESSONS FROM JAPAN'S CARMAKERS Research from MIT shows why these companies are even better than you thought -- and how their techniques can be applied.
By ALEX TAYLOR III ALEX TAYLOR III, a member of FORTUNE's board of editors, writes about the auto industry worldwide.

(FORTUNE Magazine) – The autumn of 1990 finds Detroit's Big Three racing to catch up with Japan's premier automakers. General Motors is pushing out the first models made by Saturn, its seven-year, $3 billion effort to build a small car as good as the Toyota Corolla or Honda Accord. Ford Motor is hurrying the development of multivalve engines and electronic transmissions that can compete with Japanese power trains. Chrysler is struggling with new models that it hopes will keep Honda and Toyota from overtaking it in U.S. sales. While Japanese automakers prosper, Detroit could lose an astonishing $4 billion this year on U.S. car sales. - THREE RESEARCHERS at MIT can say, ''We told you so.'' Back in 1984, James P. Womack, Daniel T. Jones, and Daniel Roos concluded that U.S. automakers -- as well as Europe's mass producers -- were failing. All relied on techniques of mass production little changed since their invention in 1913 by Henry Ford. As the researchers put it, these methods ''were not competitive with a new set of ideas pioneered by the Japanese companies.'' Some people curse the darkness. The MIT folks established the International Motor Vehicle Program, raised $5 million from manufacturers, suppliers, and governments worldwide, and sent 53 researchers out to discover exactly how Toyota, Nissan, and Honda do it. They enlisted the help of nearly 100 car company employees, scholars, and union and government officials and sent researcher John Krafcik through 90 assembly plants in 17 countries -- no pleasure cruise, as any auto specialist can testify. Their findings are newly published in The Machine That Changed the World (Rawson Associates, $22.50). Because the automobile industry is so big and complex, most researchers focus on a single aspect of the business. The MIT analysis ranges over the entire spectrum of automotive disciplines, from research and product development to manufacturing and sales and marketing. The three authors' signal achievement is to tie all of this together in a new and coherent thesis about automotive production. They back up their conclusions with unique statistical measures that are authoritative, extremely timely, and highly revealing. For example, they discovered that one Japanese manufacturer can build a luxury car with 19 man-hours of labor -- the same amount of time that an upscale European automaker spends fixing its expensive sedans at the end of the assembly process. The Japanese achieve identical levels of productivity and quality in luxury cars with one-sixth the European manpower. To obtain cooperation for their groundbreaking study, the authors promised anonymity to the 23 companies they studied. The most important statistical findings are grouped by continent so that differences among individual automakers are invisible. There is no way for the reader to learn, as FORTUNE did, that Toyota is the superefficient Japanese luxury car-maker in the example above and Mercedes-Benz the labor-rich European one. The study's only other major drawback is literary. The authors failed to coin a properly descriptive -- and memorable -- term for Japan's automaking system. They call it ''lean production'' to distinguish it from mass production. But that doesn't do credit to the system's success in technology adoption, customer satisfaction, and other areas. Naming the process after its inventor, Toyota production genius Taiichi Ohno, would have been the sensible choice.

The hallmarks of the Ohno system are teamwork, communication, efficient use of resources, elimination of waste, and continual improvement. It extends upstream from the factory to the research lab and design center, as well as downstream to the dealer and the showroom. In the U.S. and Europe, systematic auto processes mostly start and stop on the factory floor. Not all of Japan's automakers are equally efficient, but the top tier perform remarkable feats. Not only do they build cars with half the man-hours and one-third the defects in half the factory space of traditional mass producers, but they also get by with one-quarter of the finished unit inventories (built-up cars) and one-tenth of in-process inventories. In the Eighties they developed new models in an average of 46 months rather than 60 months. That makes them worldclass in every measurable area of automotive production. Americans, who buy Japanese cars 30% of the time in 1990, are increasingly aware of the advantages of the Ohno system. Europe, where the Japanese are restricted to only 11% of the market, is about to get a wake-up call. The MIT researchers found that except for manufacturers in such developing nations as Brazil and Taiwan, Europe's mass producers (Fiat, Volkswagen, Peugeot, and Renault) are the world's least efficient automakers. The average European plant requires 35.5 man-hours to build a car, vs. 24.9 hours in the U.S. and 16.8 hours in Japan. Taking longer to build a car doesn't necessarily make it any better. In European plants, assembly defects average 76.4 per 100 cars, vs. 52.1 per 100 cars in Japan. Given these findings, it is easy to understand why the European Community is vigorously devising new barriers to the sale of Japanese cars that will extend to 1998. THE BOOK'S FINDINGS are only slightly less glum for American producers. The MIT team has assembled the first documentary evidence that the Ohno system is transportable. It does not, as Detroit has long believed, depend on Japanese workers and Japanese suppliers. The key is management, which can be any nationality. The Japanese-owned factories in North America operated by Toyota, Honda, and Nissan were designed in Japan but are largely staffed, supplied, and managed by Americans. They are only 25% less efficient than similar plants in Japan, and part of that inefficiency comes from their newness; they haven't yet developed a complete network of high-quality suppliers like those that serve Japanese plants. But they are still more productive than the average Big Three plant. The authors break their self-imposed rule on anonymous sources to identify Ford as the Western company most adept at manufacturing the Ohno way. The plant in Atlanta that makes the Ford Taurus and Mercury Sable is nearly as efficient as the best plant in Japan, and a Ford factory in Mexico produces better quality. Ford's success is attributed to its close ties to Mazda, as well as to the financial crisis it underwent in the early 1980s, which forced wrenching organizational changes. The company still lags, however, in product development and customer satisfaction. GM got a firsthand look at the Ohno system at Nummi, its California joint- venture plant with Toyota. But America's No. 1 carmaker failed to disseminate what it learned. For the ghoulish, the book provides a detailed post-mortem of GM's disastrous $7 billion program to develop new midsize cars, which started in 1981. By the time the last model, a Buick Regal sedan, finally reached the market in the summer of 1990, the program was more than three years behind schedule, had produced two body styles instead of three (a station wagon was dropped), and occupied four assembly plants instead of seven. The book asserts that an unnamed GM executive caused much of the program's delay by ordering a total redesign of the cars in 1985 so they wouldn't look so much like the Taurus (GM denies that a total redesign ever happened). MIT estimates that the failed program cost GM 700,000 units in annual sales during the 1980s. That represents seven lost points of market share and about $10.5 billion in revenue.

Product development under the Ohno system eliminates most such problems. Engineers, planners, and market researchers work closely together so they can agree on what the car will look like. Designs are frozen early in the process to prevent costly changes and delay. Engineering time is cut in half, and new models emerge quickly. One of the great strengths of the Ohno system is that it pulls the independent car dealer into the development and production process. Almost all cars are built to customer order and delivered to buyers within ten days to three weeks, so manufacturers stay in close touch with the market instead of building cars for inventory. In Japan dealers expect to keep customers for life. They develop elaborate databases about buyers' product preferences and perform small personal services, such as mailing birthday cards. Warranties may even be ignored; vehicles are repaired free to build customer loyalty. THE AUTHORS stop short of predicting dire consequences for auto manufacturers that ignore the Ohno system, but the implications are clear. Adopting it won't be easy. First, the authors say, the system requires a creative or financial crisis, such as Ford endured: ''GM and the European mass producers, by contrast, have had periods of low profits and crises from other causes but have never had the sense that their approach to production is doomed. So they seem to be dying the death of a thousand cuts.'' Another key requirement is having a Japanese-style competitor located nearby to provide object lessons. ''We have found again and again,'' say the authors, ''that middle management and rank-and-file workers in a mass-production company begin to change only when they see a concrete example nearby. The ability for outsiders to see the system in action, understand its logic, and verify its performance is critical to Western acceptance.'' Think of this book as another step in the decade-long process of getting the attention of recalcitrant mass producers. Now it is up to them to adopt the Ohno system -- or come up with an even better system for automotive production. The MIT book resonates with proof that their survival depends upon it.

BOX: EXCERPT: We believe that the fundamental ideas of lean production are universal -- applicable anywhere by anyone. Thus we pay little attention to the special features of Japanese society, which some observers credit for Japanese success, but which we believe are of secondary importance.