For a decade, the decision-makers at Nissan Motor Co. Ltd. had a tough time signing off on more investment in North American production capacity. The home market in Japan was slipping and cash-strapped Nissan faced unprecedented layoffs there. Even as the U.S. economy boomed and industry sales roared, Nissan moved ahead only cautiously.
All at once, Nissan has expansions under way at four of its five U.S. and Mexican vehicle and engine plants, plus an entirely new plant in the works with a new roster of products. The company is spending more than $2 billion here on plant expansions - and doing so just as the U.S. economy and auto market appear to be stumbling. It is building new factory space to enter a segment that is entirely new for Nissan - full-sized pickups and sport-utilities - even as business is softening for the automakers that monopolize the highly profitable segment, a situation sure to make the Big 3 cling jealously to their turf.
"There's really no gamble in what we're doing," maintains Emil Hassan, senior vice president for manufacturing, purchasing, quality and logistics at Nissan North America Inc. "This expansion is intended to allow us to build the products that we believe are going to sustain our profitable growth.
"We'll get our share," he adds of the move into big trucks. "If we hit 5 percent, we'll be happy. That's all we're really aiming for - our very modest market share."
A snapshot of North America in April 2001 is a really a tale of two auto industries.
In Detroit, still the greatest concentration of automotive commerce in the world, they are throwing around the word "recession" these days. GM and Chrysler both are taking the slowdown as an opportunity to re-evaluate major programs.
Auto plants that ran flat out over the past half decade are idle. Big 3 suppliers are laying off tens of thousands of workers. In a symbolic gesture of frugality, several key North American suppliers canceled their participation in March's SAE World Congress. The air of 1990s exuberance has suddenly dissipated. Executives are talking of limiting their spending on travel and entertainment as the U.S. industry hunkers down for the sort of "down cycle" the industry had almost forgotten about.
And then there is Nissan. And Toyota. And Honda, Subaru, BMW, Mercedes-Benz and Mitsubishi.
Maybe Kia and Hyundai to boot.
At faraway factories in Alabama and South Carolina, Indiana and Tennessee, the auto industry is booming ahead on a quest for more market share. More than $4 billion is going into new plants and expansions among the New American Manufacturers, all geared for capturing just slightly more of the U.S. market than the international industry has ever held.
In Tokyo, as its home market languishes, Toyota Motor Corp. speaks of targeting 2 million vehicle sales a year in the United States by the end of this decade - 400,000 more than it sold last year.
Nissan President Carlos Ghosn tells reporters that muscling into the full-sized truck segment is a "no-brainer."
In Munich, BMW AG reveals that its U.S. plant eventually will build 200,000 BMWs a year - three times as many cars as BMW sold here a decade ago.
In Seoul, Hyundai Motor Co. leaders are envisioning a new U.S. factory that will build 200,000 Hyundais and Kias annually - a production volume equal to half of the brands' combined sales in 2000.
When all is said and done, within 36 months, the New American Automakers will have the factory capacity to produce nearly 5 million cars and trucks in North America, based solely on announced plans.
And that's before they begin importing.
An opportunity opening
Whose hide will all this come out of?
The industry has proven woefully inadequate at predicting long-term market shifts. Who would have guessed, a decade ago, that sports-car maker BMW would triple its U.S. sales during the 1990s and overtake its big German rival, Mercedes-Benz? Or that a down-at-the-heels Mercedes-Benz would resurge, more than double its U.S. sales and reclaim its position from BMW - only to be overtaken itself last year by the new luxury-segment leader, Lexus?
More stunningly, who would have correctly predicted that by the end of 2000, Lexus dealers would be outselling Ford and Chevrolet dealers on a per-store basis in trucks?
And just how bad for Detroit could a boom in Scandinavian luxury imports be when Ford Motor Co. now owns Volvo and GM owns Saab? And if Subaru's upcoming SV-T pickup hybrid, planned for production at Subaru-Isuzu Automotive Inc., should start cutting into U.S. sales of Chevrolet's S-10 pickups, will GM mind, since it also now owns 20 percent of Subaru's parent, Fuji Heavy Industries Ltd.?
Even though the score-keeping is getting more and more complicated, the past two decades have seen a persistent shift in market share from the Big 3 to their long line of overseas competitors. In 1980, before the first Japanese auto plant opened in North America, the non-U.S. automakers held a 23.7 percent share of the U.S. market. By 1990, it had risen to 28.3 percent. As of 2000, the group held a 31.2 percent, even if Ford and GM's wholly owned European brands are counted as U.S. sales.
Arguably, a 7.5-point change is not huge - although every 1 percent of market share was worth more than $3 billion in sales last year. But this ongoing shift will soon pick up a different tempo.
Most of the factory capacity built in North America over the past 15 years was "transplant" production. Honda's big Accord factory in Marysville, Ohio, Toyota's Corolla lines in Canada and California and its Camry lines in Kentucky, all simply replaced the Japanese sources of the cars. A Tennessee pickup truck factory made it easier for Nissan dealers to sell trucks - and so they could sell more - but those trucks already were in the dealers' product portfolio.
This phenomenon is changing. Today, almost every overseas-based automaker is producing, developing or adding new models at North American plants. New models represent incremental sales, not replacement production.
At Toyota, the company is ramping up production of its full-sized Sequoia sport-utility at its newest plant in Princeton, Ind., and also tooling up to build a small hybrid vehicle called the Matrix.
At Honda, the company is quietly moving a Generation X-directed sport-utility through the development pipeline, even as it ramps up production of its new Acura MDX sport-ute.
Isuzu dealers around the United States are now receiving a new Indiana-built model called the Axiom, in addition to the other models it produces in Indiana.
A $300 million expansion at BMW's South Carolina plant will add new, as-yet unrevealed products for U.S. sales.
The Mercedes-Benz M-class SUV is about to spin off a hybrid for its assembly line in Vance, Ala. Meanwhile, the M-class itself became the Mercedes brand's biggest volume product last year, overstepping the German-built E-class car family.
Little by little
"I refer to this as 'extended incrementalism,'" says industry forecasting executive Doug Scott, president of Allison Fisher International's West Coast operations in Los Angeles. "If you look at all these new products, they are typically small-volume models that don't amount to any big piece of the market. But look at what happens to them over an extended period of time: They grow in tiny steps every year until, one day, they represent a lot of business."
Toyota's 4Runner SUV was selling about 40,000 units a year in the mid-'90s. Last year sales were more than 111,000. Mercedes-Benz originally built a factory in Alabama that would give the company 60,000 M-class trucks a year. And half of those were to be exported to Europe. This year, Mercedes probably will sell 60,000 in the U.S. market alone, requiring a bigger plant.
The new thrust by Nissan is a bolder one. Nissan will spend nearly $1 billion to build a new factory north of Jackson, Miss., to build pickups, sport-utilities and minivans. Nissan already sells U.S.-made minivans, produced through an alliance with Ford that is now concluding. It is the rest of the new product mix that represents pure market gain for Nissan. Even 150,000 of the factory's planned 250,000-unit capacity, divided evenly between a pickup and an SUV, would amount to a 1 percent shift in U.S. market share, assuming another 15 million sales year.
"People say we are crazy to get in so late," Nissan's Renault-appointed president, Carlos Ghosn, told reporters earlier this year in Detroit. "But even with the dip of the last three or four months, the large pickup segment is 2.2 million units, which is more than 50 percent of the entire Japanese market. And there are just four competitors, so it's a good crowd. It's the segment that has dropped the least, that is the most profitable and that has room for innovation. The big SUV market is 600,000 units, which is larger than the entire Middle East. And the minivan segment is 1.2 million units. So if you add all that up, you are competing for 4 million units from three segments - all built in one new plant from a company with a heritage in trucks. It's a no-brainer."
But such market-share creep has ensnared Japan's automakers in the past. The original wave of Japanese imports in the late 1970s and early 1980s caused enough grumbling on this side of the Pacific Ocean that Japan's industry responded by moving their high-volume vehicles into new U.S. plants. After the recession of the early 1990s, Detroit cast a hostile eye on Japan's curiosity with bread-and-butter Big 3 segments, like large sedans and trucks. U.S. trade groups attempted to block Nissan's appeal for trade privileges to build its Altima in the United States. And when Toyota decided to build a "big" pickup, it settled for a less confrontational mid-sized T100 model.
Today, the import automakers appear to be less shackled by old fears. Some in the industry speculate that Toyota is eyeing the possibility of becoming the No. 3 automaker in America. Construction is currently under way to boost Toyota's North American output to 1.45 million cars and trucks. More production is likely to follow, since Toyota is busily developing new models for its U.S. dealers, such as the Toyota Highlander, for which there are no North American production plans - yet.
Toyota itself is subdued on the subject, projecting an atmosphere of Doug Scott's "extended incrementalism."
"We don't look forward to market share," clarifies Jim Press, executive vice president of Toyota's U.S. sales subsidiary, Toyota Motor Sales U.S.A. Inc. "We look back at market share, to see what it was, to give us some idea of how we've done.
"We have a specific sales goal in mind," Press adds. "Slow and steady growth to take care of our existing owner body as it expands. Our share was 9.3 percent last year. We think it might be that or a little higher this year."