Time for Detroit to work out that less is more

November was another month of dismal sales for US carmakers, heaping more doubt on the industry's apparent attachment to booms followed by busts.

General Motors and Ford, the two biggest US carmakers, say overcapacity is forcing them to shut factories and fire thousands of workers. Trimming operations to reduce costs is unavoidable. But Detroit also should be abolishing the manufacturing practices that led to this mess.

For starters, the US industry could stop making more cars than can be sold - and then pushing them on indifferent shoppers, with deep discounts that wipe out profits.

Another favorite tactic has been to sell cars cheaply to rental fleets, reporting them as retail sales, and then buying them back later at even lower prices. Eventually they're sold yet again as "slightly used".

History shows that overbuilding not only leads to losses, it also has contributed to the slide in market share.

"The Big Three's philosophy is one of the tail wagging the dog," said Michael Robinet, an analyst specialising in production planning at CSM Worldwide in Michigan.

Contrast the Detroit-based carmakers, as in so many other areas, with Toyota, which tends to build fewer vehicles than the market demands. Plant capacity is tightly controlled, growing a bit less than demand.

As Toyota's US market-share increased slowly over 40 years, it was able to maintain strong pricing, leading to fatter profits.

It also helps that Toyota's vehicles are highly rated for quality, style and durability. Even so, executives of the Tokyo-based carmaker talk openly about the virtues of keeping cars in short supply.

By investing more conservatively in new plant capacity and foregoing peak demand, Toyota (and its Japanese rivals Honda and Nissan) have minimised the idle time in factories that kills profits.

The theory is called "heijunka" in Japanese, which means "levelling", and is integral to Toyota's production system.

In the northern autumn last year, GM, Ford and DaimlerChrysler introduced their 2005 models with the usual high hopes for strong demand. About six months later it was obvious, as had been the case in most years, that Detroit's production forecast had been too optimistic.

- BLOOMBERG