North American Capacity to Peak in 2008

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 America factories rated at 18.82 million units for 2006.

Helping explain why there still is pressure on the Big Three 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, slated to start building the all-new Tundra fullsize pickup in the fourth quarter of this year.

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.

Also in the forecast is more capacity at Toyota’s Princeton, IN, plant that assembles the Toyota Sienna, Sequoia and Tundra.

Indiana will be No.4 in vehicle-assembly capacity in 2010 – from seventh in 2006 – and become one of only five North American states and provinces with annual straight-time capability above 1 million 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.

Other than an existing assembly plant building a few hundred Scania trucks each year, the 156,000 small cars initially slated for the new GM plant will be the state’s only production. And the expectation is GM will expand the facility’s capability.

The Canadian province of Ontario will follow San Luis Potosi with a gain of 132,000 units by 2010. The additional capacity will come 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.

Although Ontario has been the highest-volume vehicle assembler in North America since 2004 when it knocked Michigan to No.2, Michigan still has more production capacity.

That will change in 2008 when the opening of Toyota’s Woodstock plant pushes Ontario to the No.1 slot for capacity, as well as production.

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.

Illinois rounds out the Top Five gainers. Its 2006-2010 increase of 125,000 units largely is complete with the addition of a third shift this summer at DaimlerChrysler AG’s Belvidere plant.

On the downside, the drop in total North America annual capacity that starts in 2009 comes mostly from a slew of closures at GM and Ford. Some have been announced; others are Ward’s projections. Some cuts represent shift reductions at a few assembly plants after they retool for new products.

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 last month’s 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 the 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.

Other states forecast for capacity losses and, accordingly, production losses, are Tennessee, Virginia, Minnesota and Mexico.

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