Why are automakers investing in factories now?


Honda modernized its Marysville, Ohio, plant, allowing for more Accords.

Falling sales, rising incentives and mounting vehicle inventories — is this really the right time for automakers to invest heavily in new U.S. production capacity?

Whatever, several manufacturers have decided to seize the moment.

Daimler last week announced a major expansion of its plant in Alabama, and this week, Volvo reportedly will reveal plans to double capacity at a factory under construction near Charleston, S.C.

Meanwhile, Honda said it has completed an expansion in Ohio, while Subaru and Toyota are spending big to modernize or enlarge assembly plants here.

Why all the bullishness in such uncertain times?

LMC Automotive forecaster Jeff Schuster says it makes perfect sense because the U.S. market is mutating — not shrinking — and automakers are spending to capitalize on new products.

“There is opportunity out there,” Schuster told Automotive News. “We’re in a period of product transformation, with a lot of electrification coming and a shift to more SUVs. You have to invest to catch that wave.”

That shift in U.S. consumer preference — to crossovers and SUVs away from sedans — is partly responsible for the industry’s downcast mood. Ford Motor Co. last week said it will cut production at five North American assembly plants, mostly because of soft demand for its cars, including the long-popular Focus.

Nissan North America told Automotive News last week that, in response to soft demand, it has temporarily halted production of its Altima sedan in Canton, Miss. — one of two U.S. plants where the Altima is made — and turned over that assembly line to building the Murano crossover.

The industry’s factory footprint clearly is changing.

• Daimler last week said it will invest $ 1 billion in its 20-year-old crossover and SUV plant in Vance, Ala., to add a battery manufacturing operation and begin producing a new electric SUV or crossover starting in 2020.

Up to 600 jobs and 1 million square feet of factory space will be added to produce a vehicle and batteries for the new electric EQ subbrand.

The plan is part of Daimler’s global strategy to electrify its entire range of Mercedes-Benz light vehicles by 2022, offering customers at least one electrified alternative in each segment and bringing its total to more than 50 electrified vehicles.

The capital spending also was announced in the wake of allegations by President Donald Trump of unfair German trade practices. Trump has singled out the success of Mercedes and rival BMW in the U.S. as evidence.

Jason Hoff, CEO of Mercedes-Benz U.S. International, said the plant “has been a success story from the beginning,” adding “we are now continuing this story with a clear vision for the era of electric mobility.”

• Volvo is expected to announce this week a plan to invest another $ 500 million in its U.S. assembly plant under construction near Charleston to double its planned capacity.

That would double Volvo’s investment in the plant to $ 1 billion. Volvo has not confirmed media reports about the expansion, but the Chinese-owned Swedish automaker is eager to catch up with its premium-class global competitors, most of which have long operated North American assembly plants.

• Toyota and Subaru are each in the middle of major U.S. investment programs. Toyota is spending $ 1.3 billion to modernize its large assembly plant in Georgetown, Ky., to allow for flexible manufacturing of future products. Subaru’s operations in Lafayette, Ind., are expanding to keep up with its ever-growing U.S. sales.

• Honda Motor Co. said last week that it has completed a significant overhaul of its Marysville, Ohio, vehicle plant, spending $ 267 million and hiring an additional 300 workers. The factory changes will allow Honda to produce more Accords, even as the sedan market in general loses favor among consumers.

“We have to keep changing and improving,” said Steve Rodriguez, the Honda executive who led the investment program.

Part of the investment involved bringing the subassembly of front-end modules inside the Marysville plant, requiring more local Honda employees to do the work. Marysville also will begin assembling battery boxes for a soon-to-launch hybrid model. Those components previously came from Japan.

“I’ve spent my career in auto manufacturing,” Rodriguez said. “Twenty years ago, the big issue was outsourcing — we wanted to find opportunities to outsource work and bring down cost where we could. But now we see there’s an important balance. It’s important to keep growing.”

Projects heat up

Since January, automakers have announced several major investments in U.S. plants.
• General Motors: $ 1 billion in various plants to create or retain 1,500 jobs
• Fiat Chrysler Automobiles: $ 1 billion in Ohio and Michigan to create 2,000 jobs
• Ford Motor Co.: $ 1.2 billion in Michigan, new jobs to be determined
• Toyota Motor Corp.: $ 1.3 billion in Kentucky; no new jobs
• BMW: $ 600 million in South Carolina to create 1,000 jobs between 2018 and 2021
• Toyota and Mazda Motor Corp.: $ 1.6 billion to create 4,000 jobs; site to be determined
• Honda Motor Co.: $ 267 million in Ohio to create 300 jobs
• Volvo Car: The automaker will reportedly increase the scope of its plant construction project in South Carolina, spending an additional $ 500 million and adding 1,900 workers.
• Daimler AG: $ 1 billion at its Vance, Ala., plant to launch electric vehicle and battery manufacturing.

Source: Reuters and staff reports

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