Harbour-Topping Chrysler JV Engine Plant Attracting Foreign Attention
July 20, 2008
By Bill Visnic
The Global Engine Manufacturing Alliance engine plant in Dundee, Mich., currently is one of the auto-manufacturing sector's more intriguing stories. Currently making three variants of the 4-cylinder "World Engine" for one-third owner Chrysler LLC, GEMA also happens to be North America's most productive powertrain plant, according to the industry-benchmark Harbour Report.
But despite its Harbour-topping performance, some inconvenient circumstances have conspired to make GEMA barely half-utilized - and foreign auto companies sniffing for North American engine-making capacity are taking notice. Sources say several automakers may have toured the GEMA facility - including one name that keeps popping up: BMW.
Regardless of who's interested in GEMA, one thing is certain: its vast amount of unused capacity, combined with industry-leading productivity, has made GEMA an extremely tempting prize in a country that - thanks to the ever-dwindling value of the dollar - has emerged as a low-cost manufacturing region.
The Background
The Global Engine Manufacturing Alliance is an engine-development and manufacturing joint
venture between Chrysler, Mitsubishi Motors Corp. and Hyundai Motor Co. Ltd.
The GEMA plant in Dundee, Mich., not far from Detroit, began making engines in October 2005, and is one of five global facilities producing the World Engines: the other sites already operating are in Asan, South Korea and Shiga, Japan. Two others are under construction in Montgomery, Ala., and China's Shanghai Province. The GEMA empire, when complete, will have annual capacity to build 2.2 million of the 4-cylinder World Engine family, says president Bruce Coventry, comprising the world's largest single engine program.
But beyond those basics, the history of the GEMA venture gets tricky - making the Dundee site, in particular, a facility of paradoxes.
Almost from the beginning, GEMA did not work out as planned.
GEMA in Dundee is a joint-venture plant involving three partners, yet two, Mitsubishi and Hyundai, still aren't taking any of the engines some three years after the start of production.
The plant's entire production currently goes to Chrysler, but despite a market thirsting for fuel-efficient powerplants, Chrysler has had to cut back its demand for the 1.8-liter, 2-liter and 2.4-liter World Engines GEMA supplies.
In spite of all this, GEMA probably is the most modern engine plant in North America. It has a unique and effective work arrangement with the UAW and is flexible beyond compare. So flexible, it could be tooled in a flash for an automaker - virtually any automaker - that wants to hit the ground running with engine-making ability.
Award-Winning Efficiency - But Underutilized All The Same
So GEMA's gestation has been exactly as planned.
The facility is vastly underutilized. Two of the partners, Mitsubishi and Hyundai, haven't taken engines at all, and the third, Chrysler, is swimming against heavy market currents that have demanded cutbacks even for its new compacts that use GEMA's 4-cylinder engines.
Nonetheless, the Dundee GEMA plant is a manufacturing powerhouse, says Ron Harbour, innovator of the Harbour Report and now a partner in the North American automotive practice of Oliver Wyman, which acquired the annual Harbour Report last January.
"By most any metric, they've been very successful," Harbour told AutoObserver. "In terms of what they've put together there, I think they executed it very well. I'd give them an 'A' on execution."
Harbour said the original vision for GEMA and its actual performance are practically two separate matters. As evidenced in the Harbour Report, the GEMA plant itself is a model of efficiency. But the plans for GEMA's engines quickly unraveled.
He said the primary problem was that Mitsubishi fell on hard times just as GEMA production in North America was getting started. And at some point, Hyundai simply seemed to lose interest, focusing instead on producing the 4-cylinder engines itself, first in South Korea and now near its vehicle-assembly plant in Montgomery.
Harbour said Mitsubishi's well-documented financial troubles - which some believed brought the company to the brink of pulling out its automotive operations from the U.S. - leD to a crippling delay in its product programs. The company was supposed to be taking Dundee-built GEMA engines long ago, but Harbour believes that now won't happen until 2010.
Mitsubishi continues to use Japan-built engines for its 4-cylinder-equipped models built at its vehicle assembly plant in Normal, Ill., and "we can only speculate," on why, Harbour told AutoObserver.
As for Hyundai, its seemingly complete reversal of strategy is more mysterious. Hyundai was supposed to use Dundee-built GEMA engines almost from the start, but, "It appears they've walked away from that," said Harbour.
For his part, Coventry, GEMA's president and longtime presence in the powertrain sector (he has worked at every Detroit Three company and currently remains a Chrysler vice president), has been around too long to say much that could be construed as negative.
He said the GEMA plan was to "treat the engine fundamentally as a commodity. That was the overarching principle." He says the original intent was mainly to supply Chrysler and Mitsubishi in large numbers and provide "some small volume" to Hyundai.
"We continue to work closely with Mitsubishi," Coventry said. "When they request engines, we will be prepared."
Regarding Hyundai's role, Coventry merely opines, "Part of it is their corporate philosophy. They're interested in partnerships - but they remain fiercely independent."
GEMA As Contract Builder
GEMA in Dundee is composed of two mirroring facilities, a North and South plant. The original stated capacity for the combined plants was about 840,000 engines. But process improvements have created free capacity, boosting GEMA's overall capacity "close to 1 million," said Coventry. "Our throughput is exceeding our expectations.
"That is giving us a cost advantage," he added. "It also is giving us a Harbour (metric)
advantage, too.
But, the situation has created serious overcapacity - even though in one sense the overcapacity is only theoretical, Coventry insists, because the process improvements initiated at the North plant mean the South plant was never actually tooled for production, mainly because of the Mitsubishi delay and Hyundai's course reversal.
Now, GEMA's entire South plant sits unused - a ripe plum hanging low for the picking, perhaps, by a currency exchange rate-battered European or Japanese automaker anxious to hike vehicle production in North America and thinking locally sourced engines also would be convenient.
"With our current production volume, we do not have any requirement for the South plant," Conventry confirmed - although he will not say what automakers or other industry entities, if any, have inquired about or toured GEMA.
Coventry said, however, that thanks to the plant's design and outrageously high degree of flexibility - some 96 percent of GEMA's machinging/build/assembly process is handled by adaptable computer numerically controlled (CNC) tooling - virtually any type of engine could be built at GEMA.
And cost-effectively, too. UAW Local 723 represents hourly workers who work under a single job classification, said Coventry, rather than the numerous job classes in a typical UAW facility.
The plant also ushered in a new and unique arrangement that divided the workers into three
crews working a 4-day rotation of 10-hour day and night shifts that included Saturdays to create a 120-hour workweek. The arrangement generates an extra 49 days of production on straight time, and also reputedly provides for high levels of worker satisfaction by creating numerous occurrences of five consecutive off days.
Engine making at GEMA's currently unused South plant could be converted to virtually any use in a short time - practically over a weekend, Coventry insisted, adding "We can flip the switch very quickly.
"I think we are uniquely positioned," he said.
Europeans Most Likely Takers?
Ron Harbour agrees, saying the potential of GEMA's unused South plant is huge, with options almost too alluring to ignore.
He mentions Volkswagen AG as a possibility. Volkswagen, like BMW, is exposed to the profit-sapping dollar-euro exchange rate many analysts believe won't reverse anytime soon.
Only last week, Volkswagen announced it would build an all-new vehicle assembly plant in Chattanooga, Tenn.. - but "they don't have a lot of powertrain capacity" to accompany new U.S. vehicle production, Harbour said. He added that any company interested in engine output from GEMA would not necessarily have to take over the site; a company could hire GEMA to build engines on a contract basis - an increasingly common arrangement.
The imminent possibilities for GEMA "could run the gamut" said Harbour, adding that Chrysler owner Cerberus Capital Management likely is "looking at every potential option."
And although GEMA's Coventry won't reveal his hand, it seems GEMA's fat dollop of available engine manufacturing is too tempting to stay unused in the current automotive environment.
"Like any asset, we want to continue to look at all options," he said, almost coyly, adding that GEMA already essentially functions as a contract manufacturer.
"We're not sure where this is going to go."
Anything you say, Bruce. Wink, wink.
Photos by Chrysler
1 - Global Engine Manufacturing Alliance plant in Dundee, Mich., launched in October, 2005.
2 - The UAW negotiated a special contract for the GEMA plant.
3 - Some 96 percent of GEMA processes are governed by highly adaptable CNC tooling.
4 - So easy, even a Governor can do it: Michigan Gov. Jennifer Granholm helps to assemble a 4-cylinder "World Engine" at the inauguration of the GEMA facility in Dundee, Mich.
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