The Truth About Cars » factories The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Thu, 24 Jul 2014 14:26:12 +0000 en-US hourly 1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » factories Building Boom At Volkswagen: Ten More Plants Thu, 14 Mar 2013 14:15:46 +0000

No overcapacity problems at Volkswagen – at least not globally, and especially not in China. “Within the coming years, we will build at least ten more plants – seven of those in China,” Volkswagen chief Martin Winterkorn said today in Wolfsburg, with Automobilwoche taking notes. By 2016, Volkswagen will have capacity for more than four million units in China, that’s about half of VW’s current worldwide output.

This year, Volkswagen will start production in Urumqi, Foshan and Ningbo. Two new component plants will open this year in Changchun. In 2014, the Tianjin transmission plant will follow. In addition, the supervisory board approved and additional Chinese plant for 300,000 units.

More factories go up in India (Scania), Russia, (MAN/ St. Petersburg, VW/Kaluga), and Mexico (Audi/ San Jose Chiapa.) Volkswagen has more than 100 plants worldwide, twelve of those in China.

Volkswagen wants to off-set a tanking European market by building cars in more promising regions. Assuming that Volkswagen can sell all those cars, world domination could be achieved within the decade.


]]> 17
Subaru Is Like, So Over China, Totally Moved On To America Thu, 17 May 2012 14:07:41 +0000

Subaru’s failed relationship with China hasn’t burdened Subaru with too much baggage; the automaker is already moving on, planning to expand its Indiana plant to build more Legacy and Outback models.

The 52,000 square foot expansion will be worth $75 million. The body assembly facility will be the main area of focus, and is expected to take capacity from 156,000 units to 180,000 units assuming no overtime is worked. 100 jobs will also be added. Further expansion, including an all-new plant, is also on the table for Subaru.

As far as we know, the rising yen and a need to focus on North America makes the case for expanded capacity on this continent even more compelling. One only needs to look at other small automakers like Mazda to see just how badly the rising yen can hammer a company – though Subaru does have the backing of parent company Fuji Heavy Industries, while Mazda is essentially on its own.

]]> 9
China Hits Limits To Growth: Not Enough Car Factories Thu, 14 Apr 2011 13:29:55 +0000

“We can’t make cars as fast as they sell in China,” said an old friend of mine last night on the phone from Wolfsburg. He works at Volkswagen, the company that fights with GM for the title of King of the Middle Kingdom. I wanted his opinion on the sudden reduction in Chinese car sales. His answer? “What reduction? We are building three new factories in China, and we better get on with it.” He is right. If they don’t hustle, the competition will pour concrete faster than Volkswagen does.

When China’s Association of Automobile Manufacturers announced only 8 percent growth for the first quarter of 2010, and a paltry 5.36 percent in March, many observers worried about an end of the Chinese car boom.

China’s automakers and their overseas partners are worried about the opposite. They don’t have enough capacity. Indeed, part of the reduction in growth stems from not being able to keep up with the demand, especially in the bigger bore segments, where the joint ventures reign.

Indeed, Volkswagen had been capacity constrained for all of last year. Still, they managed 19.9 percent growth in the first quarter in China, says Reuters. Where did they find all those cars? Volkswagen is building two new car plants in China, in addition to a new wholly-owned factory for transmissions. Volkswagen is betting big on China and wants to double its production capacity in China to three million and more vehicles by 2013/14.

Volkswagen is not alone. Many other large joint ventures hit their own Limits to Growth last year and decided to do something about it.  “China’s top 12 carmakers plan to boost their annual output capacity to a combined 39 million vehicles in 2015, 140 percent more than their sales in 2010,” writes The Nikkei [sub] today.

  • SAIC expands its capacity to 6 million units, up 70 percent from its 2010 sales. The expansion plans include plants built with joint venture partners Volkswagen and GM.
  • Dongfeng wants to increase output of its joint-venture plants with Nissan and other automakers by 80 percent to 5 million cars a year.
  • FAW, partner of Volkswagen and Toyota wants to raise its capacity to 5 million units annually.
  • Changan, joint venture partner of Mazda, Suzuki, Ford, and PSA, wants to raise its capacity to 5 million units annually.
  • Geely, owner of Volvo, is aiming for a fivefold increase to 2 million cars.

China has some 120 carmakers, the exact number is unknown. Says The Nikkei: “With production hikes planned by midsize makers, some analysts estimate total capacity in China will rise to 40-50 million vehicles a year by 2015.

Did China’s factory builders go insane?

Not really, if we take a sober look at the numbers. In the year 2000, 2 million cars were sold in China. Just ten years later, 18 million new cars changed hands. That’s a growth of 800 percent. In the ten years, growth averaged 24 percent annually. There were years with 48 percent growth and years with just 5 percent growth. There is no real pattern.

If we assume only 15 percent average growth for the next 10 years, then we will be at 36 million cars in 2015, and at a whopping 73 million cars in 2020. But won’t the market be long saturated by then?

Not at all. By industry convention, a market begins to show signs of saturation at 500 cars per thousand people. The U.S. boasts more than 800 cars per thousand. Now that’s one saturated market. The G7 average is over 600 cars per thousand. Poland raced from cars for functionaries only in 1990 to 450 cars per thousand average people today. Russia already stands at 225 cars per thousand. And how many cars does China have today?

63 per thousand, says my database. Some think it’s less. 63 cars per thousand stands for a market that sucks up cars like a dry sponge. And it does, as we saw last year.

Let’s continue running the numbers. Generously assuming that a Chinese car lasts 15 years, and applying a sedate growth rate of 15 percent annually, we will have just 154 cars per thousand by 2015. In 2020, when 73 million cars are sold, we will have only 329 cars per thousand, still far away from saturation. I’ll spare you the rest of my model, it is frightening.

In my more than 30 years in the business, I learned three golden rules:

  1. Market saturation starts at above 500 cars per thousand.
  2. A market starts buying cars when per capita GDP crosses $1,000
  3. Don’t get confused by single years or single quarters

Suddenly, the expansion programs of the top 12 Chinese automakers, which – according to the Nikkei – hold an aggregate market share of 90 percent, make eminent sense. The expansion plans of the bottom 108 automakers don’t make sense at all, but there is a Darwinian reason why they are at the bottom. At some point, their capacity will be bought by the surviving companies for pennies on the dollar, or rather for fen on the yuan.

Won’t China choke on the traffic?  China already has an expressway system of 74,000 kilometers, second in size only to the United States. If that surprises you, then you are excused: About half of that system was built in the last five years. In the next five years, China will build another 10,000 km, for a total world record length of 85,000 km. In addition, China already has the world’s longest high speed rail network.

]]> 8
Porsche To Magna: Take The Money And Run Sat, 19 Dec 2009 09:13:47 +0000 Eat my dust. Picture courtesy

Last year, Porsche gave Magna an eight-year contract to build the Cayman and Boxster models from 2012 on. Then Porsche went to Volkswagen. Then Opel came. VW was miffed and said “us or Opel.” When Magna’s Opel deal went poof, VW said Magna can come home, all is forgiven. Apparently not quite. Volkswagen (or Porsche, hard to say these days…)  want to use the factories of bankrupt Karmann which Volkswagen had bought and cancelled the contract. Magna cried foul and wanted money.

Now, the matter is official, writes Automobilwoche [sub].

Porsche has officially dissolved the outsourcing contract with Magna, Boxster and Cayman will be built somewhere else, most likely in the former Karmann works in Osnabrück.

And Magna? Magna received a nice, but unspecified chunk of money for their troubles from magnanimous Porsche. (Or Volkswagen.)  VW CEO Martin Winterkorn, who is also head of Porsche now, said: “You can believe me, Magna is very happy with the solution. They have been compensated for their work.”  Come 2012, your Boxster or Cayman will not be made in Austria, but in scenic Osnabrück, birth place of the Karmann Ghia.

]]> 3