GETTING UNDER THE

HOOD OF AUTOMOTIVE
LABOR COST PER VEHICLE

Daniel Hirsch
Jim Schmidt
Jennifer Wong
Getting Under The Hood Of Automotive Labor Cost Per Vehicle

The global automotive industry is facing significant new challenges to growth and
profitability — from tariffs in the United States to increasingly aggressive Chinese car
marketing outside of China and a simultaneous slowdown in sales of battery electric vehicles.
The heightened competition and complicated economics are putting pressure on automakers
worldwide to balance production, right-size capacity, and manage costs effectively to
stay competitive.

The current environment is shining a new light on labor cost per vehicle, which considers
both wages and productivity, and represents a key metric in determining an automaker’s
competitiveness and profitability. Because of the measurement’s increasing importance,
Oliver Wyman’s Harbour Report team recently completed an in-depth look at labor cost per
vehicle across more than 250 vehicle assembly plants worldwide, using publicly available data
and third-party sources. The new analysis also considers sourcing strategies in calculating labor
costs per vehicle.

Beyond labor cost per vehicle, the report goes on to examine conversion cost, which is calculated
by looking at direct and indirect labor costs, overhead including rent, energy consumption,
equipment maintenance, and production supplies, and depreciation. The focus on labor cost and
productivity provides a window into a plant’s competitiveness as labor typically represents 65%
to 70% of the total conversion cost.

Exhibit 1: Labor cost is a major component of conversion costs

Other
(Indirect Material, 35%
Depreciation, Energy)

65%
Labor Cost

Source: Oliver Wyman analysis

Based on the data, we created four groupings of car companies with similar labor-cost-per-
vehicle attributes but often with very different challenges beyond labor cost. The analysis
reveals substantial differences in labor productivity and wage rates among leading automotive
manufacturers, which could come into play as the competitive atmosphere intensifies.

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Getting Under The Hood Of Automotive Labor Cost Per Vehicle

Exhibit 2: Four main automaker archetypes based on labor cost per vehicle
In US dollars ($), 2024

Euro premiums 2,232

EV-only manufacturers 1,660

Mainstream model manufacturers 880

Chinese car manufacturers 585

Source: Oliver Wyman analysis, automotive manufacturer websites, original data source GlobalData, German Association of the
Automotive Industry (VDA), Liepin

HERE ARE DESCRIPTIONS OF THE FOUR ARCHETYPES

WE DEVELOPED

EURO PREMIUMS
With the highest labor cost per vehicle at an average of $2,232, this category includes a select
group of European car companies that produce premium automobiles, such as Mercedes-Benz,
BMW, Audi, and Jaguar Land Rover. The Euro premium category’s average labor cost per vehicle is
nearly $570 more than the next group.

Even though Volkswagen doesn’t often compete directly against these premium brands for
consumers, it is included with Euro premiums because most of the brand’s production is in
Germany, giving VW a similar labor cost per vehicle. Additionally, for many years, VW has
commanded a higher price point over mainstream models, especially in Europe.

The range of labor cost per vehicle is also wide with some of the manufacturers averaging closer
to $1,800 per vehicle and others above $2,900. On average, German car producers deal with a
significantly high labor cost per vehicle of $3,307— the product of strong labor unions and strict
regulation on working hours. In general, all members of the group also have sizable production
costs per vehicle, high capital depreciation, and a higher level of complexity in manufacturing
involving more independent parts. The impact of these attributes is compounded by lower labor
productivity coupled with elevated wage costs.

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Getting Under The Hood Of Automotive Labor Cost Per Vehicle

EV-ONLY MANUFACTURERS
The second group is composed of startup EV manufacturers. We include Tesla in this group —
even though it has grown beyond startup status — because it shares a similar labor cost per
vehicle. Like most startups, it also does not work with organized labor contracts and negotiated
wage rates and benefits. For a variety of reasons, including relatively low production rates
compared with mainstream producers, this group has relatively high production cost per vehicle
and relatively high labor costs per vehicle — twice the rate their primary competition among
mainstream producers must contend with. Competitive labor productivity is challenging for the
group — even with non-union wage rates — because of lower production volumes. But there is
also a wide range of labor costs per vehicle, with the lowest $1,502 and the highest $13,291. This
group’s competitive edge has been provided by subsidies and tax credits that encourage car
makers to build EV and battery plants and consumers to buy EVs. The Trump administration in the
US is working to eliminate incentives for EV production and consumer purchases, which would
eliminate this competitive advantage and could affect the group’s ability to reach scale.

MAINSTREAM MODEL MANUFACTURERS

The makeup of this group is broad, consisting of traditional automakers in France, Italy, the
United States, Japan, and South Korea — all with models that boast high production volumes at
affordable price points. With an average labor cost per vehicle of $880, this group is competitive in
terms of labor productivity and wages, with most maintaining diversified manufacturing networks
in both higher- and lower-cost countries. These car makers tend to maintain older factories with
lower depreciation, and their product complexity is lower than that of Euro premiums.

But there are also significant differences between mainstream members. Japanese automakers,
for instance, maintain a relatively low labor cost per vehicle in Japan of $769, which is on par with
newer plants in Eastern Europe. In 1982, when The Harbour Report® published its first report
comparing cost differences between US-based manufacturers and Japanese manufacturers
making cars in Japan, the average Japanese cost per vehicle was over 250% less than American
manufacturers. Today the difference is 200%, with labor costs per vehicle still representing some
of the gap. The average US labor cost per vehicle is $1,341, which includes the impact of the most
recent union negotiations in 2023 when the United Auto Workers strike brought historic gains for
automotive assembly line workers.

CHINESE CAR MANUFACTURERS

Chinese car companies have a low average labor cost per vehicle of $585, which is the product of
low wages and high efficiency among car manufacturers and the supply chain. That said, there
is a wide range of labor cost per vehicle between domestic Chinese manufacturers and Western-
affiliated joint car production operations located in China. That’s because Chinese-owned car
companies maintain larger workforces and lower productivity metrics than the joint ventures
between Chinese interest and Western car manufacturers which maintain workforces more
aligned with Western operations.

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Getting Under The Hood Of Automotive Labor Cost Per Vehicle

This group is clearly leading the market with the lowest overall conversion cost, excluding
depreciation, at one-quarter of what the highest cost per vehicle group achieves. Product
complexity is relatively low, and manufacturing technology at their mostly greenfield factories
matches the highest standard set by the industry. With a network of plants located in China,
wage rates are still relatively low, albeit increasing rapidly in coastal areas. Automation
resembles levels at most western Euro premium and mainstream factories, and productivity is
relatively competitive.

Exhibit 3: Ranges of labor costs per vehicle within each category

In US dollars ($), 2024

Average

Euro premiums 1,829 2,232 2,959

EV-only manufacturers 1,502 1,660 13,281

Mainstream model manufacturers 597 880 1,275

Chinese car manufacturers 323 585 929

Source: Oliver Wyman analysis, Automotive manufacturer websites, original data source GlobalData, German Association of the
Automotive Industry (VDA), Liepin

GLOBAL LABOR COST DISPARITIES

The analysis highlights substantial differences in labor costs among leading automotive
manufacturing countries. Perhaps surprising to some, China is no longer the lowest labor cost per
vehicle nation. Today, lower wage rates are paid in nations, such as Morocco and Romania, and
rising production volumes and productivity have pushed these new production centers into the
top slots for lowest labor cost per vehicle, along with Mexico.

Morocco, for instance, has become the low-cost production center for French manufacturers,
much in the same way the Detroit Three automakers have operated out of Mexico for the past 40
years. French car manufacturers now have more than half of their production outside of France.

Mexico has also become a strategic low-cost production base for German, Japanese, and South
Korean automotive manufacturers. This offshoring here and in places like Morocco has kept down
the labor cost per vehicle, especially for the mainstream category. But the competitive advantages
provided by Mexico’s relatively low production costs may be tempered by proposed Trump
administration tariffs.

Turkey, while still among the top five countries with the lowest labor cost per vehicle, has been
affected by high inflation, which pushed up wages to levels comparable with Japan. Monthly
wages in Turkey have tripled over the last three years.

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Getting Under The Hood Of Automotive Labor Cost Per Vehicle

Exhibit 4: Labor cost per vehicle by country

In US dollars ($), 2024

Production Trend
(2024 vs. 2019)

Morocco 106 29%

Romania 273 11%

Mexico 305 4%

Turkey 414 -5%

China 597 24%

Poland 663 -7%

Czech Republic 691 -2%

Japan 769 -7%

South Korea 789 -15%

Slovakia 830 4%

Spain 955 -17%

Canada 968 -30%

United States 1,341 -2%

France 1,569 -36%

Italy 2,067 -34%

United Kingdom 2,333 -31%

Germany 3,307 -13%

Source: Oliver Wyman analysis, Automotive manufacturer websites, original data source GlobalData, German Association of the
Automotive Industry (VDA), Liepin

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Getting Under The Hood Of Automotive Labor Cost Per Vehicle

PRODUCTION VARIABLES THAT INFLUENCE LABOR COST

PER VEHICLE
In addition to regional differences in labor cost per vehicle, here are several other factors that have
a significant impact on labor cost per vehicle and the total production cost per vehicle:

1. DESIGN COMPLEXITY
One very important factor affecting productivity and, thus, labor cost per vehicle is engineered
hours per vehicle — a metric reflecting the level and sophistication of engineering needed to
build a vehicle. This includes the estimated time needed for an optimal design and production
process to make a single vehicle. Often used as a key metric for benchmarking efficiency, the lower
the engineered hours per vehicle, the more efficient the design process. Working toward low
engineered hours per vehicle leads to lower production costs, faster development cycles, and if
executed properly, better productivity and lower labor cost per vehicle.

Exhibit 5: The range of design complexity is an important factor in the labor cost per vehicle.
Engineered hours per unit (EHPV), 2024

Euro premiums 8 32

EV-only manufacturers 7 28

Mainstream model manufacturers 6 12

Chinese car manufacturers 5 11

0 5 10 15 20 25 30 35

Source: Oliver Wyman analysis

Chinese automakers have significantly reduced their engineered hours per vehicle over the last
decade, keeping it lower than other competitors. Our analysis has revealed Chinese cars require
one-half of the engineered hours per vehicle of the Euro premiums. Additionally, most Chinese
plants benefit from being newer, greenfield factories that provide more manufacturing flexibility
and state-of-the-art layouts, equipment, and processes.

Chinese factories also are typically manufacturing a limited number of model variants, with a limited
number of propulsion technologies and independent parts compared with European premium car
makers. This strategy has advantages in terms of investments and flexibility and has led to lower
engineered hours per vehicle and labor cost per vehicle, which ultimately cuts overall production costs.

For decades, the majority of mainstream car makers have focused on lowering engineered hours
per vehicle, even as features and content continue to be added. This group is now not far away
from matching Chinese manufacturers, which has helped mainstream automakers cut their labor
costs per vehicle.

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Getting Under The Hood Of Automotive Labor Cost Per Vehicle

2. EXPANDING CONSUMER CHOICES DOESN’T COME CHEAP

Offering customers more choices may end up boosting sales, but it can reduce efficiency at
assembly plants and boost costs. One place this is being felt is with the increasing number of
powertrains — gas, diesel, hybrid, and all-electric— being offered and produced.

Efficient automakers utilize split lines and dynamic sequences to handle different powertrain
variants, but accommodating the added complexity often raises the labor cost per vehicle as well
as the overall conversion costs as it often requires a larger manufacturing footprint in the factory,
more equipment and higher energy consumption. There is a clear correlation between costs and
the number of independent parts per factory, with more parts resulting in higher costs.

Line balancing, complex logistics, and high space requirements contribute to very high costs
per vehicle. Unfortunately, the high complexity of the product no longer translates into higher
margins in the market, and producers of complex vehicles can no longer compensate for the
higher costs of their factories with increased margins.

3. ENERGY COSTS
Energy costs are not included in calculations of labor costs per vehicle, but they can greatly
enhance or detract from accomplishments in lowering labor costs per vehicle. Our research shows
significant variations in these additional costs per market. For instance, German and French
automakers face different situations when it comes to energy pricing. While natural gas costs in
Germany have been rising because of the invasion of Ukraine and adding to German automakers’
production costs per vehicle, French car company domestic production is benefiting from lower
rates from increased reliance on nuclear power and lower oil prices. Meanwhile, China keeps
energy costs down with continued reliance on coal, despite pledges to reduce carbon emissions.

4. SUPPLY CHAIN RESTRUCTURING

While also not directly part of labor cost per vehicle, disruption in the supply chain can affect it
by cutting productivity as workers wait for parts to arrive. Since the COVID-19 pandemic and the
semiconductor chip shortage earlier this decade, restructuring the supply chain has been a major
focus of the auto industry. Whether aimed at reducing risks or preventing logistical bottlenecks,
automakers are looking to dual-sourcing and near-shoring to bring stability to sourcing parts and
raw materials. Recently, the equation also includes determining the impact of threatened tariffs
and other geopolitical strains that could interrupt the supply chain.

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Getting Under The Hood Of Automotive Labor Cost Per Vehicle

RECOMMENDED STRATEGIES FOR EACH AUTOMAKER CATEGORY

Automakers globally face significant disparity in labor costs per vehicle with the competitive
advantages and disadvantages that go with the differences. There are strategies that each
archetype could pursue to better capitalize on advantages and temper disadvantages.

Euro premiums: The need to restructure

This group needs significant restructuring to achieve better focus in its product portfolio and
margin optimization and prepare for the prospect of a tariff war between major trading partners.
Since the group has relied heavily on China for both sales and lower cost production, Euro
premiums should consider redesigning their production footprint now to enhance efficiency and
profitability to offset potential tariffs.

To maintain attractive margins, the target labor cost per vehicle for the Euro premiums should be
closer to $1,500 — 33% lower than the current average. Since it would be difficult and unpopular
to cut wages, the goal should be to increase productivity by improving engineered hours per
vehicle. By collaborating with suppliers and stakeholders early in the product development
process, the major car companies can reduce complexity and identify cost-saving opportunities
before production begins. Early engagement with suppliers and even potential investment in key
ones can lead to innovative production footprints that mitigate the impact of increased costs.

EV-only manufacturers: Defining the path to scale

Emerging players in the EV sector, such as Rivian, are navigating the challenges of scaling up
their operations and establishing defined production systems. The pursuit of scale and efficiency
in production processes is critical for these companies as they strive to balance growth with
cost management.

This is true even for a more established player like Tesla, which is still looking to build its plant
in Mexico and struggles with low utilization at its Berlin facility. The journey towards achieving a
streamlined production system is essential for these startups to reduce labor costs and enhance
their competitive positioning in the market. Additionally, achieving more scale will benefit their
supply chain network, opening larger opportunities and savings achieved from more volume.

In the current market, one of the biggest challenges all EV producers face is the reduction of
governmental subsidies, often necessary for the establishment of new technology. In the US,
the expectation is for all tax credits and corporate subsidies to be reduced or wiped out by the
new administration. But subsidies in other parts of the world have been declining in recent years,
which puts newcomers at a disadvantage to more established EV brands.

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Getting Under The Hood Of Automotive Labor Cost Per Vehicle

Mainstream model manufacturers: Keep costs lower through

technology investment
Several mainstream car makers, such as Hyundai, Renault and Stellantis, leverage strong capital
depreciation and efficient manufacturing processes, including keeping engineered hours per
vehicle low, to keep costs down. The tradeoff has been cutting the number of changes from one
model year to the next and from one model to the next. While this strategy has kept production
costs down and labor costs per vehicle on par with other car companies in its peer group, it has
the downside of lower technology integration. Mainstream automakers — especially those in
Europe where Chinese car companies are beginning to make headway in the market — must
choose the right technologies for their markets to keep pace with Chinese models, especially
in software, infotainment systems, and autonomous driving. The highest cost reduction levers
for these producers lie within the supply chain through right-sourcing, which often involves
insourcing smaller parts and technologies.

Car makers in this group with rising labor cost per vehicle, such as the Detroit Three automakers,
need to continue investing in digital technologies to enhance their operational efficiency and
data-driven decision-making. By leveraging digital tools such as vision systems, digital twining
and automated logistics, manufacturers can optimize their production processes, improve labor
productivity, and maintain profitability despite external pressures.

Chinese car manufacturers: Establish brand value by winning the quality race
While costs are already low for these automakers, there are cost-saving potentials through
investments in quality. Improving the quality of their vehicles will be a key success factor in the
coming years to build their brand value and gain trust in the European and American markets,
which could mean a significant volume increase. Most quality issues are caused by suppliers
and design flaws that can be remedied through disciplined supplier performance processes.
Establishing a resilient supply chain and increasing product maturity will be top priorities. Years
ago, South Korean manufacturers had a similar challenge to increase brand value outside of
South Korea but overcame it. Hyundai Motor Group, which includes Hyundai and Kia, is now the
third-largest global car manufacturer.

CONCLUSION
As the automotive industry navigates a rapidly changing environment marked by proposed tariffs
and competitive pressures, Oliver Wyman’s labor cost per vehicle analysis will help automakers
with critical insights into pivotal cost levers. Looking ahead, we plan future releases and analyses
over the next months on other critical industry topics, including tariffs, sourcing, battery electric
vehicle demand, and Chinese expansion in the automotive sector.

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Getting Under The Hood Of Automotive Labor Cost Per Vehicle

METHODOLOGY
What is labor cost per vehicle?

From the desk of The Harbour Report®, the pre-eminent authority of automotive manufacturing
benchmarking, Oliver Wyman conducted a thorough analysis of workforce, wages, production
and sourcing of subassemblies and services for global car manufacturers in key regions of the
world, including North America, Europe, China, Japan, and South Korea. The findings in our labor
cost per vehicle study are based on extensive research, as well as our experience as trusted
advisers in the industry. The effort included researching vehicle assembly plants producing
cars, trucks and SUVs with internal-combustion engines, hybrid- and battery-electric propulsion
systems. The analysis is based on publicly available information as of year end 2024 unless
otherwise stated.

Oliver Wyman shall not have any liability to any third party in respect of this report or any actions
taken or decisions made in connection with the content of the report.

The opinions expressed herein are valid only for the purpose stated herein and as of the date
hereof. Information furnished by others, upon which all or portions of this report are based, is
believed to be reliable but has not been verified. No warranty is given as to the accuracy of such
information. Public information and industry and statistical data are from sources Oliver Wyman
deems to be reliable; however, neither Oliver Wyman nor any provider of source data makes any
representation as to the accuracy or completeness of such information and Oliver Wyman has
accepted the information without further verification. No responsibility is taken for changes in
market conditions or laws or regulations and no obligation is assumed to revise this report to
reflect changes, events, or conditions that occur subsequent to the date hereof. This report does
not include legal, tax or investment advice.

© Oliver Wyman 11
Oliver Wyman, a business of Marsh McLennan (NYSE: MMC), is a management consulting firm combining deep
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AUTHORS

Daniel Hirsch
Partner, Transportation and Advanced Industrials Practice, Germany
daniel.hirsch@oliverwyman.com

Jim Schmidt
Vice President, Transportation and Advanced Industrials Practice, US
jim.schmidt@oliverwyman.com

Jennifer Wong
Associate Director, Transportation and Advanced Industrials Practice, US
jennifer.wong@oliverwyman.com

Copyright ©2025 Oliver Wyman

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