The first rule in show business is to keep the audience wanting more.
After an encore or two, if the crowd keeps cheering when the houselights come on, the show's a success.
A few diehard fans might be disappointed they didn't hear their favorite obscure tunes, but everyone generally leaves happy and the performer's stardom remains secure.
A direct correlation can be drawn to the North American auto industry and the strategic moves by auto makers, both foreign and domestic, to match their manufacturing capacity with a market now recovering from historic lows.
Those moves strike a dissonant chord as 25 vehicle-assembly plants have closed since 2005, removing capacity to build more than 4.5 million light vehicles, according to Ward's data. All the shutdowns have been in the U.S. except for one,Co.'s Toluca, Mexico, facility.
The reduction has been offset by curtain raisings at two GM plants and four Asian auto maker sites, including Kia Motors Corp.'s first U.S. plant in West Point, GA.
The result is a net reduction in North American production capacity of roughly 3 million units.
The goal is to match supply with demand.
Gauging the latter has been as difficult as guaranteeing a box-office sensation in recent years because of volatile fuel prices, high unemployment and economic crisis.
Against this backdrop, vehicle purchases have become low priorities for skittish consumers.
But there is reason for optimism. Ward's AutoForecasts projects vehicle-manufacturing capacity now will remain relatively stable through 2015.
Ward's forecasts the loss of another 400,900 units for Detroit-based auto makers with the impending closure of GM's Shreveport, LA, plant and twoMotor Co. plants in St. Paul, MN, and St. Thomas, ON, Canada.
In contrast, Asian transplants are expected to continue increasing their manufacturing capability by 2015, adding 419,000 units of capacity, includingMotor Corp.'s new facility opening next year in Blue Springs, MS. Motor Co. Ltd also adds the Leaf electric vehicle at its plant in Smyrna, TN, in 2012.
In 2005, U.S. auto makers owned 69% of the capacity to produce new vehicles in North America, compared with 27% for Asian transplants and 4% for the Europeans.
By 2015, taking into account all the restructuring, Detroit is expected to hold a 59% share of North American capacity, while Asian and European transplants will grow their shares to 35% and 6%, respectively, according to Ward's AutoForecasts.
Historically, Asian auto makers have achieved higher utilization rates at their North American assembly plants than their Detroit counterparts.
As recently as 2007, perennial starsof America Mfg. Inc. and were using 94% and 87% of their capacity, respectively, according to Ward's data. Utilization rates for Detroit auto makers in the period were between 68% ( Group) and 73% (GM).
As a group, utilization rates in North America are down for U.S. auto makers, from 75% in 2005 to 59% this year. Likewise, rates have fallen for Asian auto makers, from 81% in 2005 to 72% this year, according to Ward's data.
Only the European transplants as a group have boosted capacity utilization rates at North American assembly plants, from 63% in 2005 to 75% this year.
But with the recent massive restructuring, Detroit has set the stage to gain some ground on the competition.
Since the disastrous year of 2009, every auto maker on the continent has improved its capacity utilization.
But Detroit has the advantage of significantly leaning out its manufacturing portfolio, which should translate into better efficiency.
It all depends on sales. After several years of new-vehicle deliveries in the U.S. in excess of 16 million annually, the market plummeted to 10.4 million in 2009 and is rebounding slightly this year.
Ward's forecasts a sizeable boost to 13.4 million U.S. sales in 2011, with steady growth to 15 million vehicles in 2015.
As long as the market remains under 16 million units annually, Detroit auto makers collectively should have enough capacity to meet demand, while operating near their historical utilization rate of 75%.
Many critics are calling for a new “normal” market of about 15.8 million units, and auto makers are working to make themselves profitable at lower sales levels.
More-optimistic analysts suggest when employment and housing recover, pent-up demand will drive the market quickly to pre-recession levels and even beyond.
If that happens and the market exceeds 16 million vehicles a year, Detroit auto makers either will have to increase utilization, find new capacity or lose share of North American production.
In this type of up-market, Detroit auto makers will have a chance to test whether their changes in capacity will result in higher utilization rates, or force them to look for other solutions.
GM has two tricks up its sleeve to allow for some wiggle room. The auto maker idled its plants in Spring Hill, TN, and Janesville, WI, but they are being kept on “indefinite standby” in case sales boom and current capacity proves inadequate.
The question is, how quickly could these plants be brought online?
The long-time Asian strategy is to quickly accommodate market swings by boosting or cutting back imports. Detroit auto makers could look for ways to import more of their own global production into the U.S. to maintain or increase share, depending on which vehicles are in demand.
Another option for Detroit is to add overtime or third shifts, which works well so long as increased demand is spread out among a manufacturer's portfolio. However, spikes in demand for a particular segment or vehicle can stress the system beyond a third-shift solution.
Although most of the emphasis with regard to North American capacity has been on downsizing, the region is bristling with activity from virtually every auto maker.
GM, for instance, is retooling its Hamtramck, MI, plant to produce the Chevrolet Volt extended-range electric vehicle and potentially the Chevy Impala and Malibu sedans. Hamtramck capacity of 275,000 vehicles in 2010 should remain steady as of 2015, according to the Ward's forecast.
Lake Orion, MI, is being retooled to produce small cars, and the Grand River plant in Lansing, MI, is competing to bring a new product to its site, which could require additional capacity.
Earning a standing ovation is GM's CAMI assembly plant in Ingersoll, ON, Canada, which is working three shifts and skipped its annual summer shutdown to churn out the popular Chevy Equinox and GMC Terrain cross/utility vehicles.
The auto maker is prepping nearby Oshawa for assembly of additional units to meet demand. CAMI capacity of 280,000 vehicles is expected to remain unchanged from 2010 to 2015, according to the Ward's forecast.
is recasting the Michigan Truck plant, which has produced Lincoln Navigator and Ford Expedition SUVs, to assemble Focus small cars instead, including an electric version.
Maximum capacity is expected to grow from 102,000 vehicles this year during retooling to 301,000 in 2015, according to Ward's.
In Mexico, Ford has begun production of the Fiesta B-car at its Cuautitlan plant. However, Ford's Kansas City plant will lose production of the Escape CUV to Louisville, KY, leaving that facility's future in question.
has reduced North American assembly capacity only 12% since 2005, leaving some existing plants such as Sterling Heights, MI, in jeopardy if Chrysler vehicle sales don't pick up.
By comparison, GM and Ford have cut North American capacity 28% and 24%, respectively, in the same period.
In Mexico, Chrysler is preparing its Toluca plant to produce the500 minicar, and capacity could be increased with an additional shift as more Fiat-based vehicles come online.
Toluca capacity could balloon from 300,000 units this year to 430,000 by 2015, according to the Ward's forecast.
Among the Asian producers, established plants forin Marysville, OH; Toyota in Georgetown, KY; and in Smyrna continue with annual capacities of about a half-million vehicles, each.
Toyota opened its San Antonio, TX, plant in 2006 and shockingly shuttered it for two months in 2008 due to slow sales of the Tundra fullsize pickup.
Capacity of 220,000 vehicles in San Antonio is anticipated to remain flat in 2015, and Tacoma small-pickup production has been added at the site.
The New United Motor Mfg. Inc. site in Fremont, CA, which had been co-owned by Toyota and GM, closed after the Detroit auto maker chose to wind down its Pontiac brand and exit the joint venture.
NUMMI built the Pontiac Vibe compact car for GM and Matrix, Corolla and Tacoma for Toyota before being shut down at the end of March.
NUMMI capacity in 2005 was 440,000 vehicles. Capacity in 2015 is expected in the range of 150,000 vehicles. Tesla Motors Inc. is due to begin production of its Model S electric sedan in part of the plant in 2012.
Among the European transplants,AG's annual capacity at its Mercedes-Benz plant in Vance, AL, should remain at 175,000 vehicles into 2015.
But rivalsAG and AG are on tap to grow their North American manufacturing capacity 31% and 5%, respectively, by 2015, according to the Ward's forecast.
Much of VW's growth will stem from a new plant in Chattanooga, TN, slated to open next year to assemble a new sedan larger than the current Passat (see story, p.20). Capacity in 2015 is expected to be 151,000 units.
From a capacity standpoint, Detroit auto makers are fairly well-positioned for the near future, assuming a modestly paced recovery and a slightly smaller market.
But should recovery come faster, or bounce back higher than expected, they could find themselves, perhaps for the first time, with too little capacity to meet demand.
At that point, Detroit auto makers would break the second cardinal rule in show business: Never let them see you sweat.
— with John Sousanis, Ward's AutoForecasts