Outlook Points to North American Plants Dipping Below 100% Capacity

With North American demand for light vehicles slowing and expected to go into decline next year, if not later this year, production also will be starting an extended slide for the first time since 2009.

Production losses will be partially offset by new capacity coming on line beginning this year, which will help the industry better ease into the next upturn, including loosening a few bottlenecks.

The coinciding addition of new capacity this year – Kia in Monterrey, Mexico, and Volkswagen/Audi in San Jose Chiapa, Mexico – and 2017, and a slowdown in sales, also will lower North American light-vehicle production capacity utilization to long-time lows.

Unless sales defy expectations, especially in the U.S., and volume over the remainder of the year significantly outdoes year-ago totals, production will flatten in the fourth quarter before declining in 2017. Capacity utilization, though somewhat diluted because of two new plants undergoing ramp-up to full line speed, will fall from the same year-ago total for the first time since 2014 and for only the second time since 2011. (Capacity utilization is production as a percent of estimated straight-time capacity, which is calculated assuming each plant works two daily 8-hour shifts, Monday through Friday, each week of the year.)

Furthermore, the 12-month trailing capacity utilization rate through the end of Q4 will decline from the previous quarter for the first time in five years. Through Q2 2016, the most recent quarter with final production data, the 12-month trailing utilization rate was 101.4%, compared with 98.8% a year earlier. The 12-month total is forecast to increase from the prior period in Q3 to 101.5%, before declining to 101.0% in October-December.

With the planned new capacity coming on line over the next four years, capacity utilization might not get back to the 100% it attained for the first time on record in 2015 and is forecast to do again this year. Much of the new capacity is replacing vehicles currently imported from overseas. However, some of the new capacity will help alleviate a few pressure points created by the industry running at 100%-plus straight-time.

About 40,000 units of additional annual capacity is going to heavy-truck maker Navistar’s plant in Springfield, OH, which will assemble a portion of General Motors’ fullsize vans beginning in 2017. Most production of the Chevrolet Express and GMC Savana will remain in GM’s Wentzville, MO, facility, but unburdening the plant from being responsible for all of its van output will free up more capacity there for its hot-selling Chevrolet Colorado and GMC Canyon pickups.

In mid-2018, Ford will be expanding its manufacturing footprint with a new plant in San Luis Potosi, Mexico, allowing it to build more compact cars and CUVs.  Combined, the only two North American plants currently building Ford’s CUVs – Louisville, KY, and Oakville, ON, Canada – are running well above straight-time capacity. Louisville, which is running a 3-crew system, often with overtime, routinely tops 140% capacity utilization.

Toyota expands its existing footprint with a new plant in Guanajuato, Mexico, where it will move Corolla production from Canada, freeing up space at its Cambridge, ON, plant to build more CUVs.

In total, 1.5 million units of new annual capacity will be added through 2019.

Based on WardsAuto’s forecast for available production – estimated straight-time capacity taking into account each plant’s actual weekly schedule, typical vacation and holiday downtime, and extended shutdowns for tooling and inventory control, once all new plants are fully ramped up in 2020, automakers will have annual straight-time capability to assemble 19.2 million units. That compares with 17.7 million in 2015, and is well above the 13.8 million at which the industry bottomed out in 2008 and 2009, following the permanent closure of several plants, loss of shifts at other plants and long-term shutdowns to slash inventory levels.

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