With incentives low, vehicle stocks lean and retail sales strong, the surging U.S. auto industry has seemed the picture of health. But North American carmakers also are piling on capacity at a rapid pace, and that has some analysts alarmed.
They say automakers are building plants and adding shifts so fast that the companies are in danger of overbuilding and undercutting their ability to make a profit.
The capacity trend is "the natural enemy of pricing," says Morgan Stanley's Adam Jonas.
According to a Morgan Stanley study, carmakers will have added 3.5 million units of "manned effective capacity" from 2011 through 2015 -- a 25 percent increase to 17.95 million units.
"That's equivalent to around 15 stand-alone auto plants," Jonas said, "the fastest pace of capacity growth since the 1950s."
But only about half of that capacity increase will come from new plants. The rest will be from adding shifts, eliminating production bottlenecks and other tweaks to manufacturing processes.
Jonas said the new capacity is "relatively cheap, dominated by Tier 2 workers in Detroit and Mexican plants." But, he added, "There are still just too many car companies chasing too few consumers in one of the most cyclical industries on the planet."
Morgan Stanley calculates that the industry will add 1.1 million units of capacity this year and 880,000 in 2014.
But the industry must prepare for slower growth in a post-rebound environment, said Michael Robinet, managing director of IHS Automotive. After North American production climbs to a projected 16.2 million units this year, from 8.6 million in 2009, at the depth of the recession, Robinet forecasts a slower rate of growth to 18 million by 2018.
Carmakers clearly need the extra capacity now.
"It's an opportunity risk," said LMC Automotive forecaster Jeff Schuster. "We're relatively capacity-restrained. There will be pockets of shortages, and it's possible some opportunities for stronger sales will be missed."
Automakers say that has been happening all year. Ford Motor Co. says chronic product shortages forced it to open additional assembly lines for the Ford Fusion and Explorer.