Build all of the cars and trucks you want. But sooner or later, you need engines to power them.
Toyota, Huntsville, Ala.: V-8 engines for the Tundra
Honda, Lincoln, Ala.: V-6 engines for the Odyssey
SIA Automotive, Lafayette, Ind.: four-cylinder engines for Subaru cars
Expanding engine plants
Nissan, Decherd, Tenn.: V-8s for pickups, sport-utilities
Toyota, Buffalo, W.Va.: V-6s for Lexus RX300
Three engine plants are under development in the United States for Toyota, Honda and Subaru. A fourth is being converted into a vastly expanded engine plant for Nissan, and a fifth is being expanded for Toyota engines.
All of them represent the same cold, hard fact for international automakers: Penetrating the U.S. market eventually requires localizing the production of engines, just as it once meant localizing the production of vehicles.
All of them also represent a challenge for the group: How do you re-create the capital-intensive infrastructure to produce engines in a foreign market? Stamping presses to knock out millions of steel body parts a year are one thing, but what about aluminum foundries and castings plants that source only 100,000 to 200,000 engines a year?
But as the automakers move to compete in bigger trucks, they must develop more powerful powerplants to drive them. That makes their engine strategies more uniquely American, because V-8 pickup engines are mostly a phenomenon of the North American market. At the same time, the New American Manufacturers are reaching vehicle volume levels that make local engine production of all kinds more critical.
In the interest of pushing U.S. sales, the automakers are biting the bullet. But they are biting it in different ways.
Honda Motor Co. Ltd. is constructing an engine plant in Lincoln, Ala., to supply the Honda Odyssey built there. The Alabama minivan engine plant is part of a global strategy for Honda, which now wants each of its vehicle plants to have a dedicated engine production line.
Typical of Honda, the engine operation will be as self-sufficient as possible. It will include a foundry to produce aluminum. It will cast its blocks and heads and perform its machining activities.
Toyota Motor North America Inc. will soon build an engine plant in Huntsville, Ala., to produce V-8 engines for the Tundra pickups built in Princeton, Ind. That $250 million project will not include a castings operation. Toyota has not revealed where it will source the castings for the V-8. But in Toyota's other North American-built engines, the castings come from one source: Bodine Aluminum Inc. in Troy, Mo.
Toyota purchased Bodine in 1990 to guarantee a steady North America source of aluminum engine parts. Since then, the old family-run foundry has expanded in lock step with Toyota's growing engine production here. The subsidiary consists of two foundries employing about 900. Toyota declines to say whether Bodine will supply the new V-8 line.
Nissan North America Inc. is taking still another tact. The automaker is spending more than $500 million to turn its small Decherd, Tenn., engine assembly plant into a full-blown producer of four-cylinder, V-6 and now V-8 engines, complete with machining and component-making operations. But there will be no castings produced there.
Instead, Nissan has enlisted Teksid Aluminum Components Inc. of Italy, a unit of Fiat, to serve as its foundry. Later this summer, Teksid will open a lost-foam casting operation in Sylacauga, Ala. That investment will take over the aluminum castings business for Saturn Corp.'s four-cylinder engine production in Spring Hill, Tenn.
But before the Teksid foundry opened, Nissan signed on, requiring a second foundry at the Sylacauga site. Now Teksid will run two separate castings plants, using two technologies and distinct tooling, to serve two competing Tennessee automakers. For Saturn, Teksid will use lost-foam casting technology: a science Fiat and Saturn pioneered independently of each other in the early 1990s. For Nissan, Teksid will use high-pressure die casting.
"In the future, we will see about the possibility of other products," says Andrea Prato, the Teksid plant manager. "For now, we are going to be very busy getting our first plant up and running, and starting to build our second plant."
So much investment is bound to make engine production an expensive proposition for the New America Manufacturers. But Emil Hassan says there is one principal mitigating factor: "It's cheaper to build them here than to build them in Japan and ship them here," points out the company's senior vice president for North American manufacturing, purchasing, quality and logistics.
"If it didn't make financial sense in the long run, we wouldn't be doing it," he says.
But Nissan's engine plans also represent a new level of maturity for the North American organization. When completed, Decherd will build an aluminum V-8 pickup truck engine, using new suppliers, and deliver it on an in-sequence basis to a new Mississippi plant 500 miles away, where newly trained auto workers will produce a new pickup to permit Nissan to enter a new market segment.
"We've been assembling engines. Now we have to learn engine machining. But we happen to think we're pretty good at learning new things," Hassan reassures. "We've been doing that for a long time now.
"You've got to seize opportunities," he adds. "You can't wait forever."
Honda and Toyota also are taking on something of a challenge - not just in launching a work force, but in achieving their economies of scale. Both automakers' new Alabama engine plants will build just 120,000 engines a year. That is a fraction of the typical production scale for an engine plant. By contrast, Honda's Anna, Ohio, plant produces more than 1 million engines a year. Toyota's Georgetown, Ky., engine plant built almost 480,000 last year. Toyota's newer Buffalo, W.Va., engine plant recently got the nod to supplya Lexus engine for the upcoming Lexus RX300 that will go into Cambridge, Ontario, as well as the four-cylinder engines that will power the new Toyota Matrix and Pontiac Vibe. That will bring volume there up to 540,000 engines a year.
In Honda's case, the low volume is partially offset by the relatively low investment Honda is making in Lincoln. Honda is spending only $440 million for a factory that will include minivan assembly, stamping operations, plastic injection molding operations, an aluminum foundry, engine machining operations and engine assembly. And it is half the money Toyota is spending to add 150,000 units of truck capacity - no engines - at Princeton.
"Return on investment won't be an issue for Honda," says Laurie Felax, vice president of Harbour and Associates in Troy, Mich. "For GM or Ford to invest in a 120,000-unit engine plant would be inefficient. But Honda is the benchmark for efficient investment. Their cost per unit is so low, the small volumes of the engine plant won't make any difference."
There also is little reason to believe either Honda or Toyota will leave their engine plants at the 120,000-unit start-up level, Felax says. "These auto companies say they will produce at one volume level, but they eventually will move up to a larger volume," she says. "They say 120,000 units, but they always plan for more."
Toyota's plan is a case in point: The Huntsville project will only build V-8s for the Tundra, even though the same Indiana assembly plant produces Sequoia sport-utilities that require the same engine. Should Huntsville someday decide to deliver its V-8s to both pickups at the Princeton factory, capacity would have to double.
Meanwhile, SIA Automotive Inc. is building a small-volume engine plant in Lafayette, Ind. The operation will deliver engines to Subarus built at the plant. Last year, Subaru-Isuzu turned out only 107,000 Subaru cars, but the plant also is planning to build a car-pickup hybrid for Subaru called the ST-X.
Such small-scale production is not for everyone. BMW AG, for one, says it has no interest in building engines in America. Explains BMW Manufacturing Corp. President Helmut Leube: "We just launched a new engine plant in England," Leube says. "We have an engine facility in Austria, another in Germany. We are getting engines from Brazil. This gives us more capacity than we can utilize presently."