Magna Vehicle Assembly Plant in U.S. Delayed

TRAVERSE CITY, MI – Magna Steyr Fahrzeugtechnik AG & Co. KG had earth-moving equipment on a site in the South last year, ready to build an American version of its Austrian factory, when the client abandoned its niche-vehicle project.

With Ford Motor Co. and General Motors Corp. closing plants and reducing capacity in North America, the abandoned project is understandable, says Wolf-Dietrich Schulz, Magna Steyr vice president-manufacturing.

“You have to have social responsibility,” he says at the Management Briefing Seminars here, but the car would have been nice on the road.

With that project scrapped, Magna Steyr probably won’t find a similar project to build a vehicle in volumes of about 50,000 units for an auto maker until the “mid-term,” which usually means five to seven years.

Magna Steyr will not build a plant without a customer. “It has to be a strategic decision” by the customer to have a niche vehicle, Schulz says, and preferably a plan for an 8-year product cycle.

In Graz, Austria, Magna Steyr builds cars for DaimlerChrysler AG’s Mercedes, Chrysler and Jeep brands; BMW AG; and GM’s Saab nameplate; in a plant with an annual capacity of 260,000 units.

The Graz plant handles a total of seven platforms, manufacturing 11 models including the Mercedes G-Class SUV.

Magna Steyr’s complex has six body shops, five assembly lines and two paint shops. While each auto maker has its own body shop, Magna believes it could convince customers, in the future, to share a body shop in order to reduce costs – much the same way they share the two paint shops today.

The planned U.S. plant was designed to operate with a single flexible body shop and four assembly areas to provide four competing customers with their own systems, Schulz says.

Flexibility comes with a cost premium of 16%-20%, he says, but it would cost an OEM customer even more to introduce niche models in its own factories.

Magna wants to assemble vehicles in the U.S., similar to operations in Graz, Austria.

Magna Steyr proposes OEMs install capacity for 70% of what they consider to be peak sales of a vehicle. The supplier would be contracted to handle the extra 30% during the introduction years, as well as the run-out of the model when volumes drop.

Schulz says Magna Steyr is looking at Russia and China, as well as the U.S., for a future contract assembly plant and is in the midst of reorganizing operations in Graz to remain competitive.

In Austria, Magna Steyr plans to source more modules and components from low-cost countries in Eastern Europe, whose border lies just 19 miles (30 km) from Graz.

Schulz also says Magna Steyr is trying to work with other Magna International Inc. subsidiaries on future projects to take advantage of corporate synergies, but he adds that his Magna Group sister companies are not always the easiest with which to work.

Earlier this year, Magna Steyr took over operation of the paint shop at Chrysler Group’s Jeep plant in Toledo, OH, from Haden Prism, a subsidiary of Haden International Group. Haden, which owned and operated the paint shop, abandoned the high-profile project in February due to financial difficulties.

Chrysler President and CEO Tom LaSorda told Ward’s last month the auto maker has no interest in having another supplier own the paint shop.

“Magna has the money to buy it,” LaSorda says. “We told them it’s on our books anyway. Let’s proceed as a business transaction instead,” he says of the arrangement to use Magna as an operator, with Chrysler as the owner.

“The people are different; the UAW (United Auto Workers union) is different; but we are learning,” Schulz says of the experience in Toledo.

“We were four to six weeks behind on the installation when we started, but now we are at speed and delivering quality,” he says. “It’s a good first footprint in North America.”

The paint shop and Toledo plant now are operating on two shifts. Schulz says if capacity becomes available, he could imagine painting other Chrysler products in Toledo, but the site would not be suitable for Magna Steyr’s proposed American plant.

In Asia, Magna Steyr is considering a flexible plant like the American “virtual” model that could also be used as a complete-knocked-down facility.

Besides manufacturing, Magna Steyr develops vehicles for customers.

The supplier is near completion of a 17-month project to develop a “top hat” or new body structure for an existing platform, Schulz says.