North American Industry Investment Tops $12 Billion in 2007

Spending by North America’s automotive industry remained strong throughout 2007, with more than $12.6 billion in capital and maintenance work reaching the construction stage, a recent report by Texas-based Industrial Information Resources Inc. finds.

Despite the changing face of the automotive industry, almost $8 billion worth of project activity remains active for 2008, a number that should easily top $10 billion by year end, IIR says.

However, the report cautions additional plant closures and job cuts loom on the horizon.

The year 2008 will be a difficult one for the Detroit Three auto makers – General Motors Corp, Ford Motor Co. and Chrysler LLC, the report notes.

Despite internal problems, IIIR predicts spending will remain as steady as it has been for the last decade.

“None of the auto makers, foreign or domestic, can afford to rest on their laurels and not spend money on an annual basis,” IIR says. “New models, redesigns, more familiar models and the change to more energy-efficient vehicles force all of the auto makers to invest billions annually on capital work.

“In addition, routine maintenance must be performed, typically twice a year, once in the summer and once in the winter, at every assembly plant to maintain operational status.”

In the case of foreign auto makers such as Toyota Motor Corp., Honda Motor Co. Ltd., and Hyundai Motor Co. Ltd., the report says capital investment has meant the construction of grassroot assembly plants in North America.

“For the Detroit Three, it has almost been the polar opposite: plant closure or retooling, with a smattering of new plant activity thrown in for good measure,” IIR says. “The American auto makers also have been betting on investments in Mexico, with its cheaper labor as opposed to new investment in the U.S. or Canada.”

As in most years, and mainly due to the sheer volume of operational plants, the Great Lakes region is leading the way in the total number of active projects this year (50), followed by the Southeast (41) and Mid-Atlantic (25). Mexico is in fourth place with 20 projects. Canadian investment has been slowing over the last two years and only a dozen projects are active in Ontario.

“Overall, the spending we have come to expect from the automotive industry is obviously in place,” IIR says. “Investment in 2008 will easily pass the $10 billion mark. The real question will be whether it will surpass the investment totals we saw in 2007.

“The first half of 2008 will be a very telling indicator of how the year will shape up as the Detroit Three continue their restructuring efforts.

“Ford and GM have already announced a large numbers of plant closures scheduled for the next few years, but the real wildcard in 2008 will be Chrysler,” the report says. “Now that it’s a private entity, it almost has carte blanche to do whatever it pleases to turn itself around. It will be an interesting year within the industry.”

So far this year, Mexico is edging out the U.S. in industry spending, at $3.16 billion vs. $3.14 billion, a situation that will change as the year evolves, IIRI says.