Look for the Auto Shakeout

From: Area Development Magazine, Oct. 2004
Article by Steve Stackhouse

Here is one to think about.

"Conventional wisdom might suggest that there's no need for new investment in automotive manufacturing. But in the super-competitive world of cars and trucks, conventional wisdom does not necessarily apply.

The world's auto plants have the combined capacity of producing 70 million to 80 million vehicles a year, according to David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan. Global demand for vehicles is roughly 20 million units less than that, he says. Yet while logic might suggest that automakers can cruise on the capacity they have, it's just not that simple.

"One of the realities is that the industry is in a very competitive state," he says. "It hasn't been able to raise real prices since the '90s. The buying power of consumers is better than it's been in years, and that will continue as long as there is overcapacity."

But despite that general overcapacity, individual automakers continue to have the need to adjust their own manufacturing capacity. "If you're Toyota, you're probably going to add to your capacity," Cole says. Meanwhile, "Ford is taking out roughly a million units of capacity." The paradox is that the competitive situation brought on by overcapacity is forcing automakers to make facility investments — not to add capacity but to achieve new efficiencies.

The bottom line: "There's really a business-model transition. The shakeout is under way," Cole says. He notes that a recent industry seminar referred to the situation as "the perfect storm," a confluence of dramatic economic influences. There's the hyper-competitive situation, increases in raw material and energy prices, the rapid emergence of such developing markets as India and China, plus new R&D and manufacturing technologies. "There are whole new ways of developing products," he says."

More here.