Friday, January 28, 2011

The Impact of New Product Introduction on Plant Productivity in the North American Automotive Industry
INSEAD Working Paper 2011/14/TOM

Using 7 years of plant-level data for the North-American automotive industry, we empirically study productivity losses during new product launches. Using propensity scoring, we estimate an average productivity drop of 20% during the year of a new product launch, and we find that the manufacturers do not seem to launch products better over time. After controlling for the endogenous choice of launch plants, we identify several possible ways to mitigate this productivity decrease. Product flexibility in the body shop is found to mitigate more than a third of the productivity loss. Furthermore, a plant's previous experience with product launches and a plant's experience with the product platform are found to mitigate productivity losses even further. But while the positive impact of platform experience persists over time, the experience with launching other products in the same plant fades quickly. Our results suggest that launching products in exible plants with appropriate platform experience can together recover approximately $80 million per year per launch plant in lost productivity.