Too many companies building too many vehicles for not enough consumers.
That sums up the North American overcapacity problem.
And it's an issue that Michael Robinet studies as vice president for global forecast services at CSM Worldwide in Farmington Hills, Mich.
CSM provides industry analysis for automakers, suppliers and others from 10 offices worldwide. The 12-year-old firm tracks more than 60 component markets to develop its forecasts. Robinet spoke with Staff Reporter Lindsay Chappell about production overcapacity.
The industry is worried about factory overcapacity, yet almost everyone from General Motors to Mercedes-Benz is adding capacity here. How dire is the situation?
It's interesting how capacity is always somebody else's issue. But it's not really an industry problem - it's a company problem. It can be a problem in the aggregate. But some analysts would have you believe that it's like a lake that can be drained and corrected. It can't. It's a problem that's unique to each OEM.
Ford, for example, appears to have too much capacity. But what it has is the wrong type of capacity in the wrong locations with the wrong build types. GM has a similar situation. They're building new facilities, but knowing that it will mean retiring older facilities that are not as efficient.
North America is also being impacted by a growing capacity from other parts of the world. That's existing capacity that's being realigned toward the North American market. As Asian and European producers gain more market share, it puts more pressure on the Big 3.
The rules of the production game have changed, though, haven't they? You can build factories faster and cheaper today, and you can operate smaller plants profitably. Will that alter the capacity debate?
Yes, it will. So will the fact that every time there's a new project now, the company has a debate about which plant will build it or whether it will require a new facility. It's not merely a matter of handing a plant $500 million to retool and gain another five or 10 years of service. That plant today is competing for those investment dollars against plants in Europe, Latin America and Asia.
At the same time, it's very difficult to close a factory. The union contracts make it difficult. So in the quest to build more flexible and efficient plants, you might have to move an existing work force next door to your new factory, or provide special pension arrangements to retire an older work force. It gets very complex. But the Big 3 are seeing that flexibility and efficiency are the way to go, and they're making it work.
DaimlerChrysler placed two plant projects on the back burner, in Windsor, Ontario, and Savannah, Ga. Do you think that was a reaction to capacity concerns?
My guess is that the issue there was spending. DaimlerChrysler doesn't really have the capacity issues that Ford and GM do. There's actually a feeling inside the Chrysler group that they're going to need more capacity. I'm not sure I share that feeling. But the whole reason for the new van plant in Savannah was to move a new product into the South, where there's a growing demand and they could work with the new supply chain that Mercedes-Benz has been developing down there. All of which illustrates my point - that capacity is unique to each company. Toyota, Honda and Nissan don't have enough.
Ford and GM, and arguably even Volkswagen, have a bit too much. So it's not an industrywide problem.
Toyota has talked a lot lately about the long-term growth potential of the United States, and said that the industry will be selling 20 million cars a year routinely. Is this a valid part of the capacity equation?
To an extent. But you have to consider that factories are fixed costs.
Keeping up plants and their work forces is still an expensive proposition for companies who, in some cases, have had some tough times of late.
It does beg the question, though: Who's really making money building vehicles?
The Big 3 have been making their money financing and servicing the vehicles, and at best breaking even building and selling them.
When you come down to it, who's making money as manufacturers are Nissan, Toyota, Honda, BMW and PSA.