Graz's Global Vision

In the winter of 2001, Magna Steyr AG & Co. KG executives from Austria visited Detroit to lay out a grand vision to assemble complete vehicles in North America, possibly at a new plant it would build.

As an option, Magna said it could take over an existing vehicle assembly plant as the North American industry wrestled with overcapacity.

Five years later, Magna Steyr still has no plant in North America, but it is aggressively pitching the same message. This time, the company is thinking globally. It is just as eager to set up a niche-vehicle assembly plant in China, Thailand or Eastern Europe as it is in North America.

Magna Steyr as an organization has endured a complete overhaul since 2001.

In Graz, Steyr Daimler Puch Fahrzeugtechnik had been assembling vehicles for nearly 100 years when Canadian supplier Magna International Inc. purchased a majority of the company in 1998. In the process, it obtained significant engineering resources and facilities.

In 2002, Magna purchased the Eurostar plant, located adjacent to the Steyr plant in Graz and wholly owned by DaimlerChrysler AG. The plant had been assembling Chrysler minivans for the European market for several years.

The Eurostar and Steyr Daimler plants were consolidated the same year under the new name of Magna Steyr, and Magna set out to maximize the two facilities.

What used to be two main facilities and parts operations has been smartly segmented into four buildings serving multiple customers — one for assembling Mercedes-Benz vehicles, one for BMW AG vehicles, one for Saab Automobile and one for Jeep and Chrysler brands.

Production in Graz over five years has more than tripled, from 75,000 vehicles in 2001 to 240,000 this year. The growth stems from Magna's winning of new customers for contract assembly of vehicles. For many years, the Steyr facility's primary customers were Mercedes and Jeep.

In 2003, Magna Steyr began producing Saab 9-3 convertibles and BMW X3s, on separate lines. In 2005, the complex added the new Jeep Grand Cherokee and the Chrysler 300C. In 2006, Magna Steyr adds production of the Jeep Commander fullsize SUV and in 2007, a Fiat Auto SpA car.

As Magna Steyr management strives to drive up plant efficiency, flexibility and productivity in Graz, it strengthens its credibility as a contract assembler and its case for replicating the model elsewhere.

“We've jumped from the Stone Age to great improvement in just a few short years,” says Wolf-Dietrich Schulz, vice president-manufacturing at Magna Steyr. “Yes, the G-Class still is hand-built here, but the rest of the complex is much more contemporary.”

The Steyr plant has been building the Hummer-like Mercedes G-Class with intensive manual labor since 1979. Plus, there are more fork lifts than management would like, largely because the older facilities were not designed for efficient unloading and conveyance of components.

But Schulz, who spent 31 years at General Motors Corp., is proud of the improvements in Graz during his five years with Magna Steyr.

He says Graz compares favorably with Europe's best assembly plants, including GM's newer Eisenach, Germany, facility, which is heralded for its high efficiency. The body shop at Graz for the Grand Cherokee, for instance, is fully automated.

“If we were not efficient, we would not be getting new business,” Schulz says.

In Graz, Magna Steyr has two paint shops, each about 10 years old, and both have been adapted to meet new environmental requirements. One paint shop serves BMW, while the other serves Mercedes, Chrysler and Saab.

Illustrating Steyr's flexibility at Graz is its Chrysler facility, which manages to assemble rear-wheel-drive and 4-wheel-drive 300C sedans and wagons on the same line as 4WD Grand Cherokee SUVs and front-wheel-drive minivans.

The logistical challenges at Graz are extreme. Some 1,800 suppliers ship parts to the complex, at a rate of one truck every minute. There are 45,000 part numbers. Over the course of a year, some 681 million parts arrive at the Steyr complex. Suppliers receive daily, weekly, 2-month and 6-month forecasts.

Having made significant strides at Graz, Magna Steyr management believes the company is primed for similar work overseas.

Asia is a key target, as 15% of total vehicle production there is handled by contract assemblers. That compares with about 3% of total production in Europe, which has a long “coach builder” tradition with six contract manufacturers, and less than 1% in North America.

Schulz says Magna Steyr could build in North America or Asia a highly flexible plant capable of producing 160,000 vehicles annually for up to four different OEMs. The plant could run on three shifts and employ one body shop and one paint shop.

The company has been shopping for locations for such a plant in North America and has discussed incentives with government officials for a facility in Eastern Europe.

Schulz advances the idea of “peak shaving,” in which an auto maker outsources peak demand for a certain model to a contract assembler.

Ideally, OEMs would build capacity for 70% of a particular model's lifecycle. “We would pick up the other 30%,” Schulz says.

That 30% would entail peak demand, when the vehicle is selling well, and at the end of the cycle as the auto maker begins tooling up for the next-generation model. The auto maker would own the tooling, while Magna Steyr would own the production equipment and robots.

Talks with potential customers, including those in Asia, have been extensive. OEM response has been somewhat mixed.

“There is some skepticism as to whether this would work,” Schulz admits, adding he does not know how Magna Steyr would work with the United Auto Workers union if such a plant were located in the U.S.

“But GM and Ford (Motor Co.) are struggling, and they need help,” Schulz says. “They need a paradigm shift, and we can offer that.”

As GM and Ford announce plant closings, Magna Steyr appears positioned to take over one or more existing facility. But Schulz says the company prefers to do greenfield plants that can be designed from the ground up for maximum efficiency.

Worldwide, Magna Steyr employs 11,000 people, including a Rochester Hills, MI, engineering center that opened in 2002, with 200 employees.