Auto Manufacturing Tango Begins in North America

Auto Manufacturing Tango Begins in North America

By Bill Visnic

Withering vehicle demand and a dollar battered on world currency markets means 2008 will see many automakers beginning a high-stakes dance to make more efficient use of production capacity in North America.

The efforts are most critical for Detroit’s Big Three automakers – General Motors Corp., Ford Motor Co. and Chrysler LLC. Each is struggling to rationalize fading market share with a 2008 vehicle-sales forecast projected to be the U.S.’s lowest in a decade or more.

Underutilized plant capacity is an immense black eye for the bottom line in the best of economic environments, much less a 2008 expected to flirt with full-blown recession and what some believe is a dangerously weak currency.

Each of the Big Three recently won momentous labor-cost concessions from the United Auto Workers union, but that won’t change the fact each still must markedly downsize their manufacturing footprints.

Big Three = Big Heartburn

Chrysler’s situation seems particularly tenuous. Late last year, it announced it will discontinue several slow-selling models, and some analysts expect the ax will swing on others.

Chrysler has taken similar drastic action at the assembly-plant level: last November, it announced it will eliminate shifts in five North American plants to combat falling sales. Last week, Chrysler began to make good on the promise by cutting the third shift at its Belvidere, Il, plant that makes the Dodge Caliber, Jeep Compass and Jeep Patriot compact cars. The cutback is doubly ominous because these compacts are comparatively new, while demand in the segment is sizzling in sympathy with rising gasoline prices.

GM, meanwhile, announced a positive production move, saying it has added the Chevrolet Malibu to the mix at its underutilized plant in Orion, MI. Demand for the shapely and well-executed Malibu has reached fever pitch, and it was known GM was eying Orion to augment the Malibu’s home plant in Kansas City, MO.

But GM is staring down the barrel of a loaded gun in the form of slowing demand for full-size pickups and SUVs. And with some oil-industry watchers this week forecasting $4-a-gallon gasoline by this spring or summer, GM’s heavy capacity devoted to the full-sizers looks ominous.

And Ford is in the midst of its own capacity rationalization, which comprises elements of both GM and Chrysler’s pain. Ford, too, has too much capacity devoted to trucks and full-size SUVs. And like Chrysler, Ford currently has precious few models in the showroom likely to appear to gas price-conscious customers.

Under terms of its original Way Forward plan, Ford closed or had plans to close 16 facilities in the U.S., including its Wayne (MI) Assembly and Stamping plant and its Ohio Assembly Plant in Avon Lake. But in the new labor agreement, Ford capitulated regarding Wayne and Avon Lake, agreeing to refit those plants – as well as its Louisville (MO) assembly, Kentucky Truck, and Kansas City (MO) Assembly plants – with new flexible body lines, an expensive commitment (some estimates put it at $2 billion) that prepares those plants to be more adaptable to future market demand and virtually assures those sites’ long-term futures.

Ford’s Twin Cities (MN) assembly plant, currently producing the slow-selling Ford Ranger and Mazda B-series compact pickup trucks, slated for closure in 2008, will have Ranger production extended for one year.

Many analysts believe the moves do not cut capacity nearly enough to align with Ford’s projected near-term market share of around 14 percent.

Weak Dollar = Opportunity For Outsiders

The battered dollar is expected to stay battered, and that’s a good thing for automakers based in Asia or Europe. Many have concrete plans to take advantage by either hiking manufacturing capacity or building new plants in North America. This despite the fact only about 75 percent of total North American capacity currently is utilized.

That won’t stop several automakers from adding more. A brief snapshot:

• Toyota Motor Corp. will come on line this year with a second plant at its large  Woodstock, Ontario manufacturing site. The new assembly plant will assemble the RAV4 compact crossover and bring Toyota’s North American assembly capacity to 2.2 million units.

And Toyota targets a 2010 opening for its next U.S. plant in Blue Springs, MS. That site is earmarked for the next-generation Highlander, another crossover that appears acutely targeted for the increasingly economy-concerned U.S. buyer.

• Kia Motors goes on stream in 2009 with its West Point, GA, assembly plant, its first-ever in North America (although one could argue Hyundai Motor Co.’s Alabama assembly plant should be counted, as both are part of the Hyundai group). The Kia plant will build the next-generation Sorento SUV and a yet-unnamed second model.

• Honda Motor Co. Ltd., already an auto-manufacturing powerhouse second perhaps only to Toyota in the U.S., has been quietly putting the finishing touches on an all-new manufacturing plant in Greensburg, IN. The plant is scheduled to open this fall with a capacity of 200,000 units. The company has said only that the site is committed to production of 4-cylinder-powered vehicles – another move that couldn’t be better-timed.

• BMW AG, one of the best at the currency-hedging game, isn’t relying only on those actions to beat the beleaguered dollar. The company is investing some $3 billion to expand its Spartanburg, SC plant to boost capacity by almost 50 percent in the next four years. BMW is eying Spartanburg’s output at around 200,000 units, a giant leap from today’s capacity of about 140,000.

• Although it’s well known there is no “sure thing,” we’d take even money, at least, that the Volkswagen Group will pull the trigger this year on an all-new manufacturing plant in the U.S.

Key VW executives have hinted the company will bring production here to battle the effect of the strong euro. But there’s another factor: VW has ambitious plans to tackle Toyota for auto-industry dominance. That strategy won’t get off the ground unless VW has manufacturing capacity on the ground in the world’s largest car market.

Photos
1 - GM workers in Orion Twp., Mich., celebrate the addition of the Chevrolet Malibu. (Photo by GM)

2 - A Jeep Compass goes through final assembly at Chrysler's plant in Belevidere, Ill., where production has been cut. (Photo by Chrysler)

3 - Groundbreaking ceremonies for Toyota's Blue Spring, Miss., plant included the setting of the factory's first column. (Photo by Toyota)

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.