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Rising demand in North America and more domestic capacity will drive steady production increases through 2011, based on a Ward's AutoForecasts production outlook for the region.

Giving a slightly bigger boost to increased capacity will be the weaker U.S. dollar that is making imports more costly. It is expected to stay low compared with foreign currencies for the long term and cause European- and Asian-based companies to slightly speed up plans to produce more vehicles locally for the North American market.

In the short-term, North American vehicle production now is forecast to rise by less than 1% in 2004 from 2003 to 16.41 million units. That will be followed by increases of 4%, 6.2% and 3.8% in 2005, 2006 and 2007, respectively. Production increases will slow after 2007 but stay mostly on the upswing. By 2011, North American manufacturers will be producing 19.5 million units annually. With the exception of a downturn in 2004, Mexico will experience the fastest growth rate through 2007, while the U.S. will maintain solid improvement and Canada's growth will be relatively weak.

The U.S., which accounts for three-fourths of the region's output, will see improvements not just from increased demand, but from new capacity from the strategic manufacturing groups of BMW AG, Honda Motor Co. Ltd., Nissan Motor Co. Ltd., Toyota Motor Corp., DaimlerChrysler AG and Hyundai Motor Co. Ltd.

There also will be significantly increased utilization of existing capacity from the Chrysler portion of DC and at Mazda Motor Corp.'s AutoAlliance International Inc. joint-venture plant in Flat Rock, MI, which is included in the Ford Motor Co. strategic group.

U.S. production will average 3.1% annual growth from 2004 to 2006, then slow to a 1.4% average gain through 2011. Production in 2004 is forecast at 12.21 million, compared with 12.17 million in 2003. It will be followed by an increase to 12.88 million in 2005 and to 13.33 million the following year. At the end of the forecast period, it should be hovering near 14.3 million units.

Mexico will benefit from better utilization of existing capacity. The most significant growth will come from Volkswagen AG, which will add more products to its lone plant in the region. Additionally, a new Toyota plant in 2005 eventually will produce far more than the initial 20,000 units annually as reported by the manufacturer.

After peaking at a record 1.92 million units in 2000, production in Mexico will fall for the fourth consecutive year in 2004 to 1.52 million. However, 2005 will bring an increase of 8.9% to be followed by a 24.3% surge in 2006 when output hits a new high of 2.05 million. The recent decline in production has been due to a general slowing of demand in the U.S. over the last three years and, to a lesser extent, the influx of imports from South America to the Mexican market. In addition, several high-volume vehicles built in Mexico were hit particularly hard by sales downturns. The Jetta and Beetle produced by Volkswagen suffered severe drop-offs in sales and the DC-built PT Cruiser underwent a nosedive in demand just as the manufacturer completed a capacity increase.

Last year, Renault-Nissan also saw demand for its small cars built in Mexico — the Nissan Sentra and its variants — begin to wither, also contributing to a falloff in Mexican output. Additionally, DC closed a truck plant in 2002, and Ford steadily phased out production of the once popular Escort small car at its Hermosillo plant. Canada production growth will lag Mexico and the U.S. Closures of DC's Pillette Rd. plant in Windsor last year and the mid-2004 loss of Ford's F-Series Ontario Truck plant in Oakville are curbing output. There are no new facilities on tap for Canada until 2007. Production will be hampered in the long term by flat growth at the two biggest producers, General Motors Corp. and Ford.

By 2011, Canadian plants will produce more vehicles, but their share of North American production will decline.

Haig Stoddard is manager of industry analysis for Ward's Communications.