Productivity calculations in the car industry

Car industry watchers will know that Fiat is one of the few car companies who have enjoyed a relatively successful decade. Fiat cars will be back on sale in America for the first time since 1983. Fiat’s return to America is the first visible result of what is intended to be an ever closer union with Chrysler, agreed on last year when the American giant was in bankruptcy (Fiat managed to grab 35% of the business). There’s an interesting article in The Economist, but if you read on you might like to mainly focus on some industry figures on productivity, which I’ve presented as some simple calculations.

Fiat hope to get back into one of the world’s largest markets and gain the economies of scale that will promote Fiat from a smallish European firm to the ranks of global carmakers. Its home market in Italy is too small, and its operations there too uncompetitive, to provide the basis for long-term survival. Merging with Chrysler should hopefully mean sharing development costs and technology.
The idea is that by merging Fiat with America’s weakest carmaker (each a struggling regional manufacturer with annual sales of barely 2m vehicles) they can produce a global competitor which can realistically aim to sell 6m, enjoying the same economies of scale as rivals like Volkswagen and Toyota.

Fiat have picked up some other international bits and pieces, leading a senior manager to say, “We’re a global octopus now.” That means Fiat-Chrysler has the means to move production wherever it is cheapest. This is just as well: the productivity gap between Fiat’s Italian factories and its foreign operations is significant.

This is the calculations part: can you work out labour productivity for the following four situations?

In Italy, 22,000 Fiat workers spread across five assembly plants make about 650,000 cars a year.

In Fiat’s huge Brazilian factory, just 9,400 workers turn out around 750,000 cars.

At its Polish plant 6,100 workers turn out 600,000 cars.

Chrysler has 50,000 workers in ten factories in America, Canada and Mexico turning out 1.6m cars.

Which production facilities have the highest levels of productivity? More significantly, can you suggest an explanation for the wide differences?

(Phil Abbot has more on this topic too with his blog Recession-proof production at Fiat).