North American Capacity Utilization Peaking In First-Half 2016

Capacity utilization in North American light-vehicle plants hit its peak in first-half 2016 and is forecast to record two consecutive quarterly year-over-year declines in the second half of this year for the first time since 2011.

However, the decline mostly is the result of two new plants being added to the mix this year and because several facilities have undergone enhancements that are increasing their straight-time capability, thereby raising the bar for meeting full utilization.

Plant utilization will remain strong by historical standards, running close to 100% in Q3 and Q4 2016, after topping the level in first six months of the year.

First-quarter 2016 capacity utilization finished at 104.6%, and the estimated Q2 rate is an any-quarter-record 105.1%. Capacity utilization has topped 100% in only four quarters on record.

Due to seasonal trends, which have a major impact on Q3 as most plants undergo summer-vacation shutdowns and model changeovers, reaching 100% in July-September is nearly impossible, even with hefty overtime schedules. Q4 also is a tough period to achieve 100%, because of the high number of holiday-related shutdowns.

Third-quarter 2016 is forecast at 98.1% capacity utilization, down from like-2015’s 98.7%, but it ranks as the second highest rate for the period. Q4 is projected at 97.6%, also the second-best for the period.

Despite the lower utilization rates, production is forecast to increase in each quarter this year. After rising 4.4% year-over-year in Q1 2016, Q2 is forecast to increase 1.3%; Q3, 0.9%; and Q4, 1.8%. Q4 production is being helped by December having an unusually high number of work days due to Christmas falling on the final Sunday of the month.

North American capacity gets a boost when two new plants start up this year, including Kia’s facility in Monterrey, Mexico, starting production of the Forte by the end of this quarter, and Audi’s site in San Jose Chiapa, Mexico, which begins Q5 output in July. Both products currently are sourced from overseas for the North American market.

Kia’s plant is expected to add production of the overseas-sourced Rio early next year.

The plants will be ramping up much of the year, not reaching full line speed for several months. The Kia plant will add an estimated 240,000 units of annual straight-time capacity to North America and the Audi plant adds 165,000.

For entire-2016, plant capacity utilization is estimated at 101.3%, beating the previous record of 100.1% last year.

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