By Dr. C. R. (Buzz) Canup, President, Canup & Associates
The final sales and production numbers are in for the global automotive industry for CY 2014, and, for the most part, the numbers look very good. As a matter of fact, many of the automotive brands reached record breaking levels for both production and sales on both a regional and a global basis. Looking back for a moment to the crisis of CY 2009, the automotive industry has made a remarkable recovery. In CY 2009, the world was in the middle of the worst recession in history. Every business and industry was being impacted. Every country was being impacted. Hundreds of thousands of workers lost their jobs. Thousands of businesses closed their doors, many to never open again.
The automotive industry went through an unbelievable transition during and after the Great Recession. Ford sold off almost all of its portfolio of companies, including Jaguar, Land Rover, and Volvo, and down-sized or stopped production at many of its plants. General Motors down-sized its portfolio of brand names eliminating Oldsmobile and Pontiac, selling Saab, and closing the Hummer manufacturing plant and name plate. General Motors and Ford had both initiated plans to spin off their parts manufacturing companies of Delphi and Visteon respectively prior to the recession, and both continued with those plans. Daimler-Benz shed itself of the Chrysler acquisition. Thirty-percent of Chrysler was almost immediately acquired by Fiat with no upfront cash transactions (subsequently 100 percent of Chrysler was acquired by Fiat in 2014, and the merger has become known as Fiat Chrysler Automotive or FCA). Additional domestic assembly plants had production levels decreased with associated layoffs for both full-time and contract employees. Toyota delayed the completion and opening of its new assembly plant in Tupelo, MS.
New car deliveries for the United States hit a 27-year low of 10.4 million in 2009. The same year, China surpassed the United States as the largest automotive market in the world, and has retained that position since. The United States has taken over second place followed by Japan, based on the number of light vehicles manufactured. The China automotive market has experienced double-digit growth percentages since the beginning of the decade. While sales are projected to drop to single-digit growth for 2015, the number of vehicles projected to be sold in China is still highly significant at 19.5 million units. The U.S. market for 2015 is projected by many of the experts to be in the range of 16.7 to 17 million units. Sales in the U.S. were 16.4 million in 2014.
The recovery of the automotive market in the U.S., along with the significant growth of the automotive market in China, has stimulated significant new capital investment and new product models over the past two to three years by the leading automotive manufacturers. Briefly, but not intended to be all inclusive, the following significant announcements have been made at various times and in various regions around the world.
In the United States: a) BMW announced a $1 billion expansion at its Greer, SC plant, increasing annual capacity to 400,000 vehicles; b) Mercedes Benz has a five-year plan to invest $2.4 billion and increase capacity at its Tuscaloosa, AL plant to approximately 300,000 vehicles; c) Mercedes has announced the relocation of manufacturing for the R-Class vehicle from Tuscaloosa to contract manufacturer AM General in Mishawaka, IN; the move will open additional manufacturing space in Alabama to produce new platforms for Daimler; the plan is to produce over 300,000 vehicles this year; d) Volkswagen has announced a $600 million expansion at its plant in Chattanooga, TN to manufacture a new SUV; e) Ford has announced multiple capital investments and expansions in the U.S. to upgrade and expand production capacity at its existing plants; f) GM has announced significant investments to upgrade and improve multiple plants in the U.S.; g) Hyundai and Kia have both signaled a shortage of production capacity in the US to meet market demand as well as their intent to potentially expand existing plant capacities; h) Nissan has announced expansions at both of its US plants (Smyrna, TN and Canton, MS, including the addition of an Infiniti line in Smyrna; i) Toyota has announced an expansion in Georgetown, KY including the addition of a Lexus production line; j) Ford had to add over 2,000 jobs to its Kansas City pickup truck assembly plant in 2013 to address sudden increased demand for the F-150; plans have been completed and implemented in St. Louis and Kansas City to convert the F-150 to an aluminum body truck.
In Mexico: a) Audi has announced a new $1.3 billion assembly plant in San Jose Chiapa to produce 150,000 vehicles with the potential to double that output; b) Honda has an $800 million assembly plant that was scheduled to start production 1Q 2014 in Celaya; capacity is estimated at 200,000 vehicles (start-up date was delayed several months for various reasons); c) Honda also has a $470 million transmission plant under construction in Guanajuato near their new assembly plant; d) Nissan has just completed a $2 billion plant in Aguascalientes, raising its Mexican production capacity to 850,000 vehicles; e) Nissan and Daimler Benz have announced a new 50/50 joint venture company to construct a $1.4 billion assembly plant with the capacity to produce 300,000 vehicles in Aguascalientes near the existing Nissan plants; it will manufacture Infiniti and Mercedes Benz vehicles; f) General Motors has announced investment of $3.6 billion through 2018 to essentially double their existing manufacturing capacity in Mexico; GM currently manufactures 647,000 cars, 897,000 engines, and 1.2 million transmissions in Mexico; g) Kia announced plans to build an automotive assembly plant in Monterrey to produce 300,000 vehicles.
In China: The China automotive industry has literally erupted over the past decade. In the year 2000, China was producing just over two million vehicles per year. By 2009, China produced 13.79 million vehicles and surpassed the U.S. as the world’s largest automobile producer by volume. The following year (2010) China production and sales both exceeded 18 million vehicles. Wikipedia reported that China manufactured over 22 million vehicles in 2013. Of the vehicles manufactured in China, just over 40 percent are produced by local Chinese companies. Brand names include: Dongfeng Motor, FAW Group, BYD, Brilliance China Automotive, Lifan, Geely, Chery, Hafei, Great Wall, Jianghuai and Chang’an. The balance are manufactured by joint venture foreign automotive companies including: General Motors, Ford, Volkswagen, Nissan, Toyota, Honda, Mitsubishi, Hyundai and others. The automotive market has been growing in China between 15 and 20 percent per year for the past several years. Projections are that the rate of growth will shrink to a more manageable seven to eight percent in 2015. This still represents a significant market growth with a strong upside for profits.
Recent announcements from China include: a) BMW produced its one-millionth vehicle manufactured in China at the beginning of this year; the car rolled off the assembly line at BMW’s Tiexi plant in Shenyang, China. BMW also has a second manufacturing plant in Dadong, Shenyang. Production capacity of the two plants combined is currently being increased from 300,000 to 400,000 over the next couple of years; b) Volkswagen is opening a new manufacturing plant in 2015 in Changsha, China; it will increase VW production in China by 300,000 vehicles; this is part of an overall plan to increase total production capacity in China to over four million vehicles by 2018; c) General Motors has announced plans to build five additional assembly plants in China by 2018; GM currently has 11 joint ventures and two wholly owned foreign enterprises in China, and employs over 58,000; d) Renault, who has been pretty much a “non-player” in China to date, has announced “massive investments” in China over the next several years; Renault is opening a manufacturing plant in Wuhan in 2016 with an initial production capacity of 100,00; capacity will be increased to over 500,000 very quickly; Carlos Ghosn, CEO, stated at a press conference that he anticipates Renault will sell over 800,000 vehicles in China in the near future. He would not provide specifics in terms of the amount of capital investment nor a timeframe for his projections.
There are several additional major activities on-going around the world in the automotive industry. For an industry that was knocked to its knees in 2009, it has made a remarkable recovery. Europe has not been as fast in its economic recovery from the Great Recession, and hence, has not made the same strides as the U.S. and China. CY 2014, however, saw a moderate recovery in production and sales for the EU automotive industry, and signals the potential for a stronger 2015.
In Russia: Russia’s invasion of the Ukraine, along with the associated sanctions, has significantly impacted the automotive industry recovery inside Russia. It had been well on its way to becoming number one in automotive sales in Europe in 2012. However, previous announcements of new plants have now been put on hold, several existing plants in Russia have either slowed production significantly, or have been shuttered. The Russian recession and the devaluation and instability of the Ruble have caused double-digit increases in the prices of automobiles in just in the last couple of months. Sales have dropped precipitously with no indication of a recovery anytime soon. The situation and conditions in Russia have had a major negative impact on automotive sales and manufacturing inside the country creating huge losses for the major players. This set-back will have a long lasting influence on future investments.
So, what is the outlook for the automotive industry? The outlook could be very good as long as there is not another global financial crisis, or as long as there is not an outbreak of hostilities in Eastern Europe or the Middle East. Sales in the U.S. should be at least as good as sales were for 2014. Thirteen brands of automotive manufacturers established U.S. sales records in 2014. Sales in Europe, excluding Russia, should be about flat with 2014. Sales in China are projected to increase by seven to eight percent in 2015, about half the growth rate of 2014 year-over-year, but still very significant.
It appears the automotive industry has made a remarkable recovery from the depths of the Great Recession in 2009. Many of the experts believe the recovery has exceeded everyone’s expectations. Based on the number of plant expansions and the number of new plants announced globally, the industry itself is very confident about the near term and long term opportunities. If 2015 and 2016 unfold as planned, it will most certainly signal the strength and resilience of the automotive industry going forward.
Dr. C. R. (Buzz) Canup, President, Canup & Associates
Buzz Canup is the President and Founder of Canup & Associates, a management consulting firm specializing in site location studies for private industry and economic development consulting for countries, states, regions and communities. He has extensive experience working with world-class corporations on a global basis. His experience includes all phases of a project from concept to implementation, including feasibility analysis, strategic planning, feasibility analysis, site location studies, incentives negotiations, property acquisition, permitting and zoning, engineering and construction management, recruitment and workforce development, and plant start-up and operations. Representative clients with whom he has worked include: Michelin, Honda, Volkswagen, Audi, Navistar, Freightliner, Daimler Benz, Hewlett-Packard, and Dell. He may be contacted at firstname.lastname@example.org or through his website at www.canup.com.