Increased Output Backs Production Hub Views
The decision by Ford Motor, Chrysler and General Motors Company (GM) to reduce summer plant closures, and in some cases add extra shifts, to meet growing domestic demand, supports BMI 's positive outlook for North American production. However, with only Ford considering new investment in Canada, the varying levels of competitiveness throughout the region are still in play (see ' Autos Investment Round-Up: US Competitiveness Shines', March 1) .
With US light vehicle sales on course to meet BMI's forecast of 15.44mn units in 2013, carmakers are looking to ramp up the capacity that was cut back following the downturn of 2008 and 2009. Ford has announced it will increase its total North American capacity by 200,000 units in 2013, by reducing its summer closure to one week instead of two at most plants in the region and adding shifts at plants in Kansas City and Michigan. GM is also adapting its summer production schedule to meet demand, while many of Chrysler's plants will work through without a shutdown.
As demand is expected to stay strong throughout the year, producing near to market and reducing delivery time is vital. However, it also highlights BMI's view that production in the US is becoming increasingly competitive and attractive in its own right. Moreover, the earnings from North American sales, particularly compared with the losses from Europe, make it a market worth investing in.
|Total Vehicle Production By Country (CBUs)|
That said, there are still some hubs around the region that are more attractive than others. While Ford has said it is confident of maintaining its Canadian manufacturing base, despite the strong Canadian dollar and high labour costs, it is a more rare show of confidence, especially as Ford Canada CEO Dianne Craig mentioned new investment is being considered. After announcing further investment for the company's US operations in November 2012, Chrysler's CEO, Sergio Marchionne, answered a question on similar projects for Canada, saying no such investment was on the cards. He also alluded to being unhappy with the labour deal reached with the Canadian Auto Workers union.
Indeed, the latest newsletter from the Michigan-based Center for Automotive Research (CAR) supports BMI's findings, that a large proportion of North American autos investment is not just heading for certain countries, but particular hubs in those countries. We believe the southern states of the US, with South Carolina becoming a notable case, are winning out thanks to their business environment, although Mexico is providing competition (see 'Regional Production Hub To Continue To Attract Investment', March 5).
CAR data show that of US$43bn invested in North American by autos firms between 2010 and 2012, only 5% (around US$2.3bn) went to Canada. The 'US South' claimed US$4.9bn and Mexico US$7.8bn. We certainly expect this trend to continue, which is reflected in our production forecasts.
US output for Q113 was up 4% year-on-year. However, the increases in capacity are in line with our forecast for 7% growth during the year. Similarly, we expect 8% growth in total production in Mexico, based on its low labour costs and strong export operations. In Canada, however, even our conservative initial growth forecast of 3% looks optimistic in the wake of a near 9% contraction in Q113 output and has been revised to a 5.8% decline for the year.