Capacity Pain and Gain

Despite cutbacks already completed and more planned in 2007 and 2008 at General Motors Corp. and Ford Motor Co., North America's production capacity will peak in two years before it starts to decline, an analysis by Ward's shows.

Average annual straight-time capacity levels projected by Ward's, assuming normal schedules each year at each plant, show North American factories rated at 18.82 million units for 2006.

Helping explain why there still is pressure on Detroit auto makers to accelerate production capacity cutbacks or announce new ones, that number is projected to rise next year to 18.95 million, then to 19.23 million in 2008 before shutdowns at Ford and GM take effect and slice capacity by 476,000 units in 2009 to 18.76 million.

Another relatively small net loss the next year will have annual capacity at 18.70 million in 2010.

At the same time, increases are coming from well-documented investments at Toyota Motor Engineering and Mfg. North America Inc., Honda of America Mfg. Inc. and other smaller producers.

Over the next two years, Toyota's capacity will increase by more than 500,000 units, spearheaded by production at its new plant in San Antonio, now building the all-new Tundra fullsize pickup.

Additionally, Subaru of Indiana Automotive Inc. will begin production of Toyota Camrys at its Lafayette, IN, facility in 2007. Toyota purchased 8.7% of Fuji Heavy Industries Ltd., maker of Subaru, in October 2005.

Toyota, alone, will increase its annual capacity to 2.32 million from 1.48 million this year, based on a Ward's outlook.

Regionally, the winners from these expansions are in Ontario, Canada; two rustbelt states (Indiana and Illinois); the Southern U.S. and Mexico.

Conversely, the rustbelt and Southern U.S. also will suffer some of the biggest losses in output.

By 2010, Texas will have accrued the largest gain in total annual capacity with 388,000 units of new Tundra volume coming online this year. Ward's also expects the San Antonio facility to add a second product by the end of the decade — probably the Highlander midsize cross/utility vehicle.

Indiana will follow with the next largest increase between now and 2010: 284,000 units. That includes new brick-and-mortar from Honda in Greensburg to pump out about 150,000 units.

The state's growth won't stop there, with the Honda plant likely to add capacity beyond 2010 to an annual level of 300,000 units, based on a Ward's forecast.

Third on the list of volume gainers is San Luis Potosi, Mexico, which will benefit from a new GM plant slated to build small cars there in 2008.

The Canadian province of Ontario places fourth, with additional capacity coming from a new Toyota plant in Woodstock to build RAV4s in 2008 — helping to offset a net loss by GM in Ontario when it consolidates its Oshawa No.1 and No.2 plants into one large assembly complex.

The net gain for the province should cement its place for a long time as the No.1 producer in North America, as well.

Ontario will have capacity for 3.13 million units in 2010, up from 3.00 million in 2006, but it could go higher if demand for the new Ford Edge and its platform siblings is high enough for Ford to add a third shift to its plant in Oakville.

On the downside, the drop in total North America annual capacity that starts in 2009 comes mostly from GM and Ford closures. Some have been announced; others are Ward's projections. GM and Ford will cut a combined 1.7 million units from their annual capacity between 2006 and 2010, based on the Ward's forecast.

Georgia, with the caveat that it will rebound, will be the hardest hit with the loss of 336,000 units due to recent closing of Ford's Atlanta plant and the future shutdown of GM's plant in Doraville.

Georgia will bottom out at more than 400,000 units in 2009, but Kia Motors Corp.'s opening of a new plant in West Point in late 2009 will offset the losses. And the southern state should be in a position to add capacity after 2010.

Kentucky will be behind Georgia in capacity reductions, based on Ward's projections, with a loss of some 301,000 units. Ward's believes Ford will close its Louisville plant that currently builds the Ford Explorer and Mercury Mountaineer midsize SUVs, although the auto maker has not indicated it plans to do so.

Based on another Ward's prediction not announced by the auto maker, Ohio, the second-biggest producer in the U.S., is expected to undergo a reduction of 296,000 units. Ward's forecasts GM's Moraine plant, currently building the Chevrolet TrailBlazer and GMC Envoy midsize SUVs, will close in 2009, though it is not on GM's current list of planned shutdowns.

Ward's North American Annual Straight-Time Capacity by Region
(Current Year vs. 2008 and 2010 Projections)

Production Capacity of Top 10 States and Provinces
(2006 vs. Forecast 2010)

Top Winners/Losers in North America Production Capacity
(Volume Gains/Losses From 2006 to 2010)