Transplants start truckin'

The strengthening dollar is making the U.S. less attractive as a low-cost manufacturing site, but you'd never get that impression looking at the expansion plans launched by most foreign-based automakers in the U.S. and Canada.

Honda, Toyota and Nissan all are planning to build more vehicles and components in North America during the next several years, and more aggressive expansions - possibly even new assembly plants - are rumored at several Japanese and German sites, although official spokesmen discount those reports.

Even smaller operations, such as Subaru-Izuzu Automotive in Lafayette, IN - which barely survived the early 1990s - now are expected to add another product and significantly increase production capacity, thanks to the skyrocketing U.S. sport/utility (SUV) market. Isuzu Motors Ltd. reportedly is making plans to build a small SUV similar in size to its compact Amigo at the site, in the m model year. Adding the Amigo to the already popular Honda Passport, Isuzu Rodeo and Subaru Outback could force a capacity increase from 180,000 to 240,000 annually, officials say.

The only transplant not benefiting from the SUV craze is CAMI in Ingersoll, Ont.. It builds General Motors Corp.'s and Suzuki's slow-selling Geo Tracker and Suzuki Sidekick: unrefined small sportutes that haven't managed to catch the public's fancy and now face stiff competition from the likes of Toyota's RAV4. Production at the Canadian plant has plummeted in the past year, forcing layoffs and buyouts.

There are reports that exports to Japan may be scaled back somewhat, but even though the Japanese yen and German mark have plummeted against the dollar in the past year, foreign manufacturing operations are continuing to grow, particularly those for engines and light trucks.

The universal explanation from Japanese and German automakers: currency rates fluctuate too much to impact long-term strategic manufacturing plans.

Despite reports to the contrary, for instance, a spokesman says Honda North America Inc. still plans to export 150,000 vehicles yearly from North America by 1998 or 1999, up from about 90,000 now. And BMW Manufacturing Corp. in South Carolina keeps humming along. Now building 255 units a day, production of a new 60-cyl. Z3 roadster is scheduled to start in January, with right-hand-drive export models added to the mix over the next 3 to 4 months. Startup was fast, and cooperation from suppliers is excellent, says President Allen O. Kinzer. An SUV is one of several new products that could be built at the plant in the future.

And the newest U.S. transplant, Mercedes-Benz U.S. International Inc. (MBUSI), is gearing up to begin producing saleable AAV SUVs in January.

Bill Taylor vice president of operations (and a former manufacturing executive at Toyota's Canada plant), says MBUSI is right on schedule. The plant is 98%-complete, and the last of three production trials is being wrapped up. Ramp-up of regular production will be very slow, he says, but the Alabama plant should hit high-volume levels by mid-year. A second shift starts in September when the $35,000 vehicles are officially scheduled to go on sale.

By the end of '97 or early '98 MBUSI should be making 270 vehicles per day on two. nine-hour shifts, five days a week. Once things are rolling smoothly on two shifts. Mr. Taylor says production of other variants will begin, including V-8-powered and right-hand-drive models. Diesel and 4-cyl. models for export also will be produced in 1998. And a Porsche AG version also is rumored to be in the works.

There are continued press reports that MBUSI's parent is considering further expansion of the U.S. operation to include manufacturing the next-generation C-Class car - and engines and transmissions - but top Mercedes officials say all they've done is run a few feasibility studies. If they want to expand, there is plenty of room: the current MBUSI site only occupies about 255 of 966 available acres.

While the nine U.S. and four Canadian transplant operations (including Volvo's small facility in Halifax, Nova Scotia) are all very different, almost all have a growing interest in light trucks. In addition to the new Mercedes M-class sport/utility - a first for the German automaker - Honda plans to build an all-new minivan in Canada in 1998, boosting production in Alliston, Ont., by 120,000 units; Toyota plans to build 100,000 pickups - and possibly its 4Runner SUV - in Princeton, IN, and a Camry-based minivan starts rolling off the line i n Georgetown, KY, in mid-1997. There also are rumors Toyota plans to build the RAV4 mini-SUV in the U.S.

The steel skeleton of Toyota's new $700-million T100 pickup truck plant in Princeton, is taking shape now, and is scheduled to begin production in late 1998. A spokeswoman won't comment on possible future products at the site.

Nissan is shifting production of Sentra subcompact cars to Mexico - reportedly to make room for a new SUV or mini-SUV at its Smyrna,. TN, operations. The new truck, on which Nissan is spending about $90 million to retool. is expected to be based on the same platform as Nissan's 2.4L pickup and will debut in 1998. Some analysts also expect a new Maxima. based on a revised Altima platform, to be built at the plant in several years, but Nissan insiders discount that scenario.

Even Mitsubishi Motor Mfg. Inc. in Normal, IL, may be considering building joint-venture cars or Mitsubishi SUVs of some kind. Its agreement to supply Chrysler Corp. with cars runs out in 1999, and analysts say Mitsubishi and AB Volvo are mulling the possibility of a manufacturing agreement similar to the joint venture they have building the Mitsubishi Carisma and Volvo V40 in The Netherlands. Wards Automotive Reports says the operation could supply Volvo with about 100,000 second-generation V40 models beginning in 2000, priced between $18,000 and $25,000.

Furthermore, Honda North America Inc. announced major expansion plans last May that increase its employment to more than 20,000 in North America and bring its investment to more than $4 billion.

Those plans call for a 50% increase in U.S. engine production to 900,000 units, including two new engines, which means almost all of its North American-made vehicles will use Ohio-made engines.

Honda also intends to produce nearly all of the automatic transmissions it uses for vehicles made in North America (650,000 units), and says it is nearly a year ahead of schedule with plans to increase auto production capacity, to 720,000 vehicles in the U.S. and Canada. In December 1995, Honda announced plans to expand production in Canada for a new minivan, bringing total production capacity to 840,000 units in the U.S. and Canada.

Honda also is continuing to beef up its North American research and development operations. With employment increasing to 800 associates by the end of 1996 (up from earlier targets of 750 by 2000) HRA now has the capability to simultaneously develop two models. In addition to conceiving, designing and developing the Acura CL (see WAW March '95, p. 49) HRA is completing work on other new models for exclusive production in North America and is supporting engineering efforts of its North American suppliers, the company says.

Toyota also announced a new engine plant in West Virginia last Max. The $400-million plant will build 300,000 4-cyl. engines for the Corolla annually, and will start production in late

But with light trucks capturing a whopping 48% share of the U.S. market in November - after hitting a record 46.6% share in October - rumors about massive new transplant investments aimed at getting a bigger piece of the ever-expanding U.S. light-truck market continue to circulate.

Some analysts say continued strong sales of U.S.-built Honda cars such as the Civic and Accord, the addition of more U.S.-built Acura luxury car models beyond the Acura CL Coupe, and the automaker's growing interest in minivans and SUVs could lead it to build a fourth assembly plant in North America.

Demand for Honda's new Ohio-built Civic has been so strong, for instance, that it has been forced to import some of the cars from Japan. Even so, the Civic-based CR-V sport/utility, which will soon debut in North America, would be "a natural" for U.S. production, says one analyst, as would a new car-based, Honda-built Passport SUV replacement. The current Passport is a rebadged Isuzu built in Indiana.

However, Honda spokesman Takanori Sonoda says another new plant isn't in the cards. "I completely rule out that possibility," he says emphatically.

But that doesn't mean some change isn't in the wind. WAW sister publication Ward's Automotive International reports that Honda may move production of the Accord wagon from Marysville, OH, plant back to Japan.

The move could take place in about a year, insiders say, marking the first time a Japanese automaker has transferred production from an overseas base back to Japan.

It is expected to save the company money by not having to export the vehicles to Japan. where demand for the Accord wagon is growing due to a boom in recreational vehicle sales. Plus, the move fits with Honda's strategy. of producing products where they are sold.

Annual production of the model at the Ohio plant is about 70,000, with some 45,000 exported to Japan in 1995. Reports say Honda would increase production of other models at the Ohio plant.

Honda also reportedly plans to stop exporting its slow-selling Acura TL sedan to the U.S. in 1998. It will be replaced with a mid-luxury car, possibly based on the next-generation Accord, and built in the U.S.

Toyota also has stopped making the Camry station wagon at its plant in Georgetown, KY. due to poor U.S. demand, and may make the model in Japan instead.

More so than most transplant executives, MBUSI's Mr. Taylor is looking forward to 1997 with a mixture of excitement and anxiety. "The coming year is going to be the most difficult year. a tremendous challenge to climb this huge mountain," he says, acknowledging that the task ahead of him will be no small feat. MBUSI is not only the latest "transplant," a tag that Mr. Taylor dislikes, but it also is the most unusual.

"We aren't transplanting anything," he says, pointing out that MBUSI is building an entirely new vehicle with a new product development and production process, not building cars or trucks that already are being built somewhere else. Even when he worked at Toyota in Canada, he says he didn't think the label was appropriate.

The goal at MBUSI is to build a well-equipped $35,000 luxury SUV that is worthy of the Mercedes label, yet can be considered a good value compared with topline Ford Explorer, Jeep Grand Cherokee and other high-end SUVs throughout the world.

In order to do that, MBUSI has thrown out the traditional (and famously high-cost) Mercedes manufacturing strategy and is implementing an all-new hybrid method that tries to implement the best of Japanese, American and European manufacturing techniques that relies heavily on supplier involvement.

Skeptics predict that such a synthesis, combined with executives and workers that come from backgrounds where they have been thoroughly indoctrinated in one of the three, will lead to chaos. Add a few overbearing technocrats from Mercedes headquarters, and you've got what one analyst calls "a recipe for disaster."

Yet despite a normal level of nervousness, Mr. Taylor sounds like a man who fully plans to prove the skeptics wrong. Are there problems? Sure. But they're talked through and worked out, he says. And what about those famously rigid German managers? "I have to give them top marks for being patient, cooperative and flexible," he says.

Whatever happens, the skeptics won't have too long to find out if they're right or wrong. "September of '97 used to seem like a long ways away, but doesn't anymore," points out Mr. Taylor.

Auto Alliance Hopes for Better Times

Most - but not all - of the U.S. transplants have enjoyed strong production volumes over the past several years. One exception is Auto Alliance International Inc. in Flat Rock, MI, owned 50/50 by Ford Motor Co. and Mazda Motor Corp. After doing well in 1993 and 1994, slow sales of the Ford Probe and Mazda MX-6 have caused production to sink precipitously from 247,000 in 1994 to an estimated 132,000 in 1996.

The operation began solely as a Mazda venture in 1997, but weak-selling products and its parent company's financial problems led Ford to buy a 50% interest in 1992. Now, as Ford expands its influence at troubled Mazda in Japan, it is floating a plan to consolidate AutoAlliance's 2,800 union workers into the same contract as the rest of Ford.

That move would give Ford greater flexibility at the plant - such as being able to shift employees and other products into the facility - and enhance job security for AutoAlliance employees, Ford officials say.

Currently AutoAlliance workers have a separate contract with the UAW that prohibits Ford from transferring production or workers from another plant to Flat Rock.

"The management at AutoAlliance, Ford and the UAW are taking a look at this to see if it's good," confirms a Ford official.

AutoAlliance employees, who have worked under the separate UAW contract since the plant opened in 1987, say they are being urged by Ford, the UAW and AutoAlliance management to approve the proposal before year's end as a means to a more secure future, one that could include adding a new vehicle to the plant by 1999. The labor contract at AutoAlliance expires in March.

AutoAlliance has struggled for the past two years to land a new vehicle. The slow-selling Mazda MX-6 and Ford Probe are being eliminated in 1998, leaving the plant with just two future products to build: Mazda's redesigned 626 and Ford's yet-to-be-named Con-tour-based 2-door hatchback, code-named SW164. Launch of the new 626 is set for September 1997. Job One for SW164, which will be either a '98 1/2 model or early '99, has been pushed back a month to March 1998.