The transplants are thinking small.
Honda Motor Co. and the rest of the international auto industry came here in the 1980s specifically to produce high-volume vehicles close to U.S. consumers.
But while the New American Manufacturers still rely heavily on high-volume vehicles, there has been a shift in strategy. The transplants' challenge: Figure out how to fit lower-volume nameplates into busy plants without eroding profitability.
Ten years ago, transplants built 26 nameplates for sale in the United States. Today that has swelled to 48. By contrast, the number of Big 3 nameplates during the same period dropped from 113 to 110.
A fragmented U.S. market is forcing transplants to offer more niche models.
"You have to keep developing products to move with it," says John Adams, general manager of vehicle and component manufacturing for Honda of America Manufacturing Inc.
"It's somewhat easier for us to do it simply because of who we are. We're a company that didn't have a lot of capital. Because of that, we've developed the ability to work with the same architecture, common tooling and lower capital investment to create new models. We didn't have any choice."
A growing challenge
To some extent, the transplants' success in North America has become a liability. Bigger factories mean more employees. To run Toyota's big Camry-Avalon factory in Georgetown, Ky., for example, the company now has close to 7,500 employees making 470,292 vehicles a year. Like the other Japanese automakers, Toyota maintains a no-layoff tradition, and Georgetown is a nonunion plant. UAW efforts to organize there have been repeatedly rebuffed by a work force that is satisfied with working conditions and confident about future employment.
But Toyota's tradition has never been tested by a sagging market for the bread-and-butter Camry. Toyota is keen to keep plant output high, even as the competition rises for traditional sedans such as the Camry. That means finding new product opportunities.
Brett Smith, assistant director at the Center for Automotive Research in Ann Arbor, Mich., believes the transplants are capable of thinking smaller about market segments because that is the nature of the Japanese new-vehicle market.
"They were already good at this sort of manufacturing," he says. "Now they've put the kind of flexible factory tooling and agile supply chains in place here in North America that will really let them strike at any segment they want at a minimal investment."
A new chapter
The shift to producing more niche vehicles accomplishes two things. It broadens the companies' product portfolio at a time when consumers are showing more interest in new segments. It also cushions North American factories against market downturns.
The New American Manufacturers are using their factories to produce more nameplates -- but not at huge volumes. For example, Honda looks to build 50,000 Ridgelines annually, though that could go as high as 60,000.
Last month, Georgetown got the nod to begin building Toyota's first North America-made hybrid vehicle, a Camry hybrid that will import key powertrain components from Japan. Georgetown will build up to 50,000 of the cars annually. But what was most striking about the plan is its almost negligible cost. Toyota expects to add the variation for just $10 million in capital investment.
Honda has a similar outlook. Its two Ohio assembly plants have hustled to satisfy relentless demand for Accords and Civics. But two years ago, demand for the Civic softened. Honda found itself in the unfamiliar situation of cutting production, without layoffs, at the nonunion East Liberty assembly plant, which employs 3,000.
Nissan North America Inc.'s plant in Smyrna, Tenn., weathered a period of slack demand in 1998, going so far as to eliminate some production days during the year. Today Smyrna has a different agenda. Before, it produced three models: the Altima, Sentra and Frontier pickup. Today the same factory lines juggle five nameplates, including the Pathfinder and Maxima. Nissan builds four SUVs in the United States, including the Infiniti QX56 in Canton, Miss.
Piece of the pie
Nissan's Canton plant demonstrates the difference between the old approach to the U.S. market and the new approach. Smyrna was built in the 1980s to produce a single model. That expanded to two and then three nameplates, each with volumes of 130,000 to 150,000 units.
Canton opened in 2003 with a plan to build five nameplates with volumes of 50,000 to 100,000 each, depending on market demand.
Few would consider full-sized pickups to be a niche segment in North America. Yet Nissan's multiproduct factory strategy in Mississippi allows it to view the full-sized Titan made there as having the same low-level risk as a niche vehicle.
Nissan said from the beginning that it did not expect to rival the Big 3-brand pickups on volume. Its hope, it made clear, was simply to be present in the segment, taking only a small, single-digit percentage of the pickup market. The Titan is running at about 100,000 units a year.
The Center for Automotive Research's Smith believes future niche products will be planned at even smaller volume targets. He guesses they likely will be in the range of 7,000 to 35,000 sales.
"There are very few high-volume products anymore," he says. "Fifteen years ago, the expected run was 250,000 units. Just a few years ago, it was 150,000. Today it's 50,000 to 80,000. It's going to go lower.
"The differentiating point for automakers will be whether a volume is that low intentionally," says Smith. "It's one thing to plan for 100,000 units and sell only half that many. But it's something else altogether to intentionally shoot for 50,000 and make the business plan work at that level. I think that's what the Asians are going to prove very good at."
You may e-mail Lindsay Chappell at [email protected]