By on August 27, 2010

Edmund’ Bill Visnic takes on the latest Harbour report, which finds North American auto plants running at an average of 58 percent capacity (even Europe, the global whipping boy for intractable auto overcapacity operates at an average 81 percent). Despite the recent downsizings across North America, the Harbour Report still estimates that 3.5m units of annual overcapacity remains in the US and Canadian auto manufacturing footprint, equivalent to 14 unneeded assembly plants. A rise in sales levels to the previous 15-16m mark could help the situation according to the report, but increased plant flexibility will be the factor that automakers can actually control. Even so, if 15-16m annual units don’t come soon, North America could be looking at more plant closures and job losses.

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18 Comments on “Report: Auto Industry Still Carrying 3.5m Units Of Overcapacity...”


  • avatar
    gslippy

    A double-dip recession will force the issue.

    Meanwhile, Hyundai can’t produce cars fast enough: http://www.thetruthaboutcars.com/hyundai-kia-break-another-monthly-sales-record-must-boost-production-to-do-it-again/

    Incidentally, overcapacity would further threaten the value of GM’s IPO, if it ever happens.

  • avatar
    jj99

    The plant closures and job losses will be concentrated in UAW plants. American consumers are not willing to overpay for a UAW built vehicle just so a union worker can retire before 50 with a generous pension and benefits.

    Ford thinks it can put a bunch of cheap useless electronic gismos in new vehicles that consumers will be willing to pay for. Not true.

    • 0 avatar
      mikey

      jj99 Could you perhaps quote us some facts to back up you statements. Do union built vehicles cost more,on a car to car comparison? What about the Korean unions? Do thier wages reflect in the price of KIA?

      How much in dollars does the UAW pension plan add to the cost of,say a Tahoe or a Laccross?

      So that %50 percent of the car market thats still domestic,is made up of stupid consumers that don’t price shop eh?

      Or is it just your own personal blind hatred/envy of the UAW.

    • 0 avatar
      gslippy

      @mikey, jj99: I’d put it differently. Since the UAW plants are not the lowest-cost producers, the mfrs will be more likely to start cutting at unionized plants than others. I doubt many consumers care directly about the union content of their purchase, and most would be surprised to learn that Hyundai/Kia is unionized in Korea.

  • avatar
    OldandSlow

    According to Edmund’s numbers – Sergio is running a company that is producing at 40% capacity or less.

    Do you see a lot of 2010 Sebrings or Journeys in the driveways of your neighborhood? I don’t see any in mine. Calibers are far and few and far between as well. I do see the occasional Chyrsler or Dodge mini-van.

    I’ll bet even Ford has at least 3 plants that running slow because of the lingering recession.

  • avatar
    Dimwit

    It’s Chryco & GM. Ford has been modernizing like crazy, even during the downturn, to turn all their assembly plants into flexplants. That’s where some of the funds have disappeared to. With all their new lines, overcapacity won’t be too much of a problem.

    GM has a few, mostly the Oshawa, ON plants. The nonflex plants will kill them. Chryco’s assembly plants are good except for, maybe, St. Louis, but they are toast so it doesn’t help.

  • avatar
    Steven02

    Do you have the numbers on who has the idled plants? Are many (or any) held by Motors Liquidation Company?

    It would be a good chart to show total capacity vs used capacity by car maker.

    • 0 avatar
      jj99

      The economy is getting worse. All makers will have excess capacity soon. In fact, all makers may already have excess capacity.

    • 0 avatar
      Steven02

      I know everyone should be a little over capacity, I am wondering if it is largely contained by one entity relative to their market share or evenly distributed. My guess is that Chrysler has the most and that everyone else is pretty close together.

  • avatar
    Ron

    Overcapacity isn’t much of a problem. This is because capacity is defined as two shifts a day five days a week and, as I recall, another four or five hours of overtime a week. Just because you have excess capacity when sales are tanking doesn’t mean that you use it. Also, Europe and Japan don’t have anything like the variation in models that we do. You just can’t build a Ram pickup at a plant set up for a Sebring. The problem is if you have underemployed workers, which is no longer the case in Detroit.

    Similarly, closing plants doesn’t necessarily lead to job losses. If a plant is only operating one shift a day, closing the plant and moving production to another plant only results in a minor reduction in maintenance, maintenance personnel, and real estate taxes; you have to transfer or hire just as many supervisors, assembly line workers, etc. at the new plant as you had at the one which is closed.

  • avatar
    pleiter

    By simply multiplying market share and 15M a demand is generated. Chrysler is way, way over capacity. GM Nissan Ford Honda little over. Every one else is under.

  • avatar
    MikeAR

    If the two bailouts had been closed like they should have been overcapacity would not be a problem. There would be new plants or old GM and Chrysler opened to take care of the demand even at 12 million annual sales.

  • avatar
    dwford

    Doesn’t Ford have multiple plants down for remodeling? Are these counted as “overcapacity?” They also have the Ranger plant in Minnesota set to close soon.

    • 0 avatar
      TokyoPlumber

      Good question. I checked Wikipedia (not always the most reliable source!) and double checked some information on Ford’s website. I came up with fourteen (14) Ford assembly locations (the same number listed in the Harbour report):

      United States (10 Assembly Plants)
      – AutoAlliance International – Flat Rock, MI
      – Chicago Assembly
      – Dearborn Truck
      – Kansas City Assembly
      – Kentucky Truck Assembly
      – Louisville Assembly Plant (Retooling)
      – Michigan Assembly Plant – Wayne, MI (Retooling)
      – Ohio Assembly – Avon Lake, OH
      – Twin Cities Assembly Plant (To close in 2012)
      – Wayne Stamping & Assembly

      Canada (2 Assembly Plants)
      – Oakville Assembly
      – St. Thomas Assembly (To close in 2011)

      Mexico (2 Assembly Plants)
      – Cuautitlán Assembly
      – Hermosillo Stamping & Assembly

      Two (2) plants are down for retooling (although both of these should be up and running later this year). Two (2) plants are scheduled for closure (one next year and one the following year).

      To say Ford has fourteen (14) assembly plants and therefore has too much capacity is an oversimplification that doesn’t account for scheduled closures and plants being re-tooled. Ford has twelve (12) operating assembly plants at present. This will go up as the retooled factories come online and then back down with the closures of St. Thomas and Twin Cities. So they should have thirteen (13) plants in 2011 and twelve (12) plants in 2012.

  • avatar

    For the record: In the industry, anything below 80 percent capacity utilization over a sustained period is considered untenable.

    • 0 avatar
      musiccitymafia

      Anything below 80%” ….. seems like a pretty broadly sweeping brush you’re using there. Canada. Mexico. Right-to-Work State. UAW. Labour Agreement. Not disagreeing, just saying.

  • avatar
    Arete

    It appears from the graphic that the 3.5 million number and the 58% refer to the northern states and Canada only. If one adds in southern US and Mexico, the overcapacity probably goes up (as even Toyota/Nissan/Honda have some overcapacity), while the percentage utilization is probably better and drags the average up.

    Also, one other thing to consider. The 15M capacity in North America isn’t equivalent to sales in NA, since a percentage of vehicles are imported from abroad (almost all German, large portion Korean and some Japanese as well). That means that the 15M domestic capacity is probably enough to serve maybe 19-20M domestic sales. The high for the US was about 16.5M if memory serves, and Mexico / Canada are probably a million each, so even a recovery to the highs of 2007 won’t get rid of undercapacity.

  • avatar
    RogerB34

    Nice article.
    The media doesn’t care about a problem that has been around since Y2K.


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