Area Development
The compass points appear to be turning again. In recent years, it has seemed like south was the only direction that automakers knew when looking for places to build or grow U.S. assembly plants. More recently, though, the old Rust Belt seems to have taken on a new luster, as the Midwest has again garnered its share of prominent headlines.

Outside of North America, the compass continues to point in a strong easterly direction - toward China, in particular, but also toward Eastern Europe to some extent.

And in many places, the expansion and contraction of automotive manufacturing activities is strongly tied to the fortunes of the automakers traditionally known as the Big Three. Some in the business, however, now refer to General Motors, Ford, and the Chrysler portion of DaimlerChrysler as the "Detroit Three" rather than the "Big Three" - an acknowledgement that their share of automotive sales is not as big as it used to be.

Financial Considerations
"It's going to be a very rocky year," says David Cole, chairperson of the Center for Automotive Research in Michigan, referring to the 2007 prospects for the Big Three. "The most important thing is to get the companies profitable, and they're shrinking to a profitable base from which to grow in the future. It's going to be smaller and leaner, but a profitable industry is better than no industry. They're making good progress."

At General Motors (GM), for example, cost-cutting measures have removed as much as $2,000 from the cost of making each automobile, he says, "which is an amazingly high number for this industry. The big hit has been what they've done with hourly employees, buyouts and restructuring healthcare agreements." Further savings have come from manufacturing productivity enhancements.

Just how much has been cut? By the end of 2006, the company had slashed annual expenses by about $9 billion, according to CEO Rick Wagoner, well ahead of the $6 billion target. The company plans to quickly reinvest some of the savings - as much as a billion dollars - to revitalize its product line.

That's good for GM as a company, but the cuts have been painful for many of its employees and some of its manufacturing communities. But unlike some rough patches in the past, the current changes have had a greater impact outside of Michigan.

"Most of the cutbacks are in the outlying regions," says Cole, farther from the industry's traditional home base. Among the plants to make the company's closing list were assembly operations in Oklahoma City and Doraville, Georgia, and an Ohio plant was slated to lose its third shift. Though Michigan wasn't completely spared, the hit was comparatively smaller. And Michigan has had it share of positive GM news, too, including success in Lansing, where the company a decade ago had planned to cease assembly but has since built two of its most modern plants.

Ford, too, is in the midst of a major restructuring. The company, which lost more than $7 billion in the first three quarters of 2006, is also remaking itself into a smaller but, executives hope, more profitable company. "Ford is in many ways on the same track as GM," says Cole. "It gives rise to the hope that things are coming together very quickly."

Indeed, new Ford CEO Alan Mulally recently told analysts that the "Way Forward" restructuring plan is moving along ahead of schedule. The company is planning to slash its total North American work force by 29 percent and close 16 plants. Last fall, the company announced plans to cut some 14,000 white-collar jobs, above and beyond the 38,000 hourly employees already headed for the doors through buyouts and early retirement packages. Meanwhile, Ford intends to accelerate new product development in hopes of making its offerings more in tune with changing consumer demand.

Like GM, however, Ford is showing ongoing commitment to many of its Michigan operations. The company recently announced plans to invest $866 million upgrading six Michigan plants. Plans include pumping $130 million into a stamping and assembly plant in Wayne that makes the Focus, $320 million to upgrade Ford's transmission plant in Van Dyke, and $208 million at the Dearborn plant where the F-150 pickup truck is made.

Among the challenges that have stung the Big Three are increasing employee healthcare and pension costs. But they also are troubled by declines in the demand for trucks and SUVs, which were practically their bread and butter only a few short years ago. That's a factor in the uncertainty facing operations such as DaimlerChrysler's plant in Newark, Delaware, where the Dodge Durango and Chrysler Aspen are made. At press time, there were indications that the company - dealing with Chrysler losses in the billions - was considering closing the plant or cutting shifts. On the positive side, the company recently invested about $180 million in the plant, but on the other hand it is distant from its major Midwestern suppliers, a factor said to add as much as $500 in costs per vehicle.

Ironically, though the Big Three are focused on making cuts at the moment, Cole foresees a labor shortage not all that far down the road. Baby boomers will be retiring from the manufacturing work force, affecting all sorts of industries, including automotive. "It's a huge issue," he says. "In four to five years, we'll be short 10 million skilled people in our work force. We don't know where these people are going to come from."

Rising Stars
While areas dependent upon Big Three activity are biting their nails and wondering about the future, other parts of the country are basking in the success of such competitors as Toyota and Honda.

Among those rejoicing the loudest are the people of Greensburg, Indiana, whose claim to fame had been the trees that have mysteriously grown for decades from the top of the courthouse tower. Now, the community is known as the new home of Honda.

The company announced last summer that it would build an assembly plant on 1,700 acres near Greensburg. The $550 million facility is to begin production in the fall of 2008 and employ 2,000 people. Capacity will be up to 200,000 vehicles a year. "What was interesting was that they said it was going into the upper Midwest," says Cole, noting that it bucks the trend of recent years that has seen lots of investment in Southern locations by foreign automakers, including Honda. "That would suggest that some of the push for Southern plants is not there right now. It's good news for the Midwest, and what this is tied to heavily is the issue of work force."

Greensburg isn't the only Indiana community celebrating. Toyota is currently gearing up to begin producing its popular Camry in Lafayette, at the Subaru of Indiana Automotive assembly plant there. The plant originally was a joint venture with Isuzu, but the decline in Isuzu production made room for Toyota to move in. Toyota - which already makes pickups, SUVs, minivans and forklifts at two other Indiana locations - last year upgraded part of the Subaru plant and began hiring up to 1,000 employees.

Though the Midwest is faring well, automotive investments continue to bear fruit in the South. Toyota's new San Antonio truck plant officially opened in November on a 2,000-acre site that also hosts nearly two dozen suppliers. The total investment, including that of the suppliers, is about $1.6 billion, and total employment is about 4,000, including those working at the supplier facilities.

Toyota's Texas plant is making the full-size Tundra pickup, supplementing the production from the company's assembly plant in Southwest Indiana. With the added capacity, Toyota has launched a major campaign to take on the Big Three and attempt to strengthen its position in the truck market.

Insiders suggest that Toyota isn't finished with its North American expansion plans. A recent Bloomberg news report suggested that the company could add as many as five more North American plants in the next 10 years, including one in the Southeast and another in Mexico. In fact, a Japanese newspaper in January reported that the company is making plans for a Georgia plant that could produce as many as 200,000 vehicles, perhaps SUVs.

While Georgians wait for word from Toyota, they celebrate news that came from Kia in 2006. The Korean automaker announced plans to invest $1.2 billion to build an assembly plant in West Point, Georgia, creating more than 2,800 jobs. The company broke ground for the project in October, and the operation is to reach full production by 2009. At least five supplier companies also are to locate in Georgia, creating another 2,600 jobs.

These kinds of moves reflect the shift of American car demand away from the traditional Big Three. Last year, Honda and Toyota imported record numbers of vehicles from Japan, as their North American plants failed to keep up with the growing demand. But the domestic brands saw their market share drop from 57 percent in 2005 to 54 percent in 2006.

Overall, it wasn't a bad year for new car and truck sales in the U.S., with 2006 total sales of 16.5 million vehicles. That's down slightly from 2005, but was the eighth-best year ever and the eighth straight year topping 16 million. Analysts with the Big Three are forecasting 2007 sales that are flat or slightly below the levels of 2006.




The Global Perspective
It should come as no surprise that the big automotive story globally is China. Analysts have been predicting and preparing for the rise of the Chinese auto industry for years, and the boom is occurring just as expected, according to Garel Rhys, director of the Centre for Automotive Industry Research at the Cardiff University Business School in Wales. "It seems to be accelerating because the Chinese are beginning to believe the people who are saying they are the next big thing," he says. "It's certainly a continuation of the trends of the last five years, when we've seen a lot of activity occurring in China."

Consider the statistics: China vaulted past Japan last year to become the world's number-two vehicle market (the United States is number-one). Car purchases in China were up 37 percent, according to the China Association of Automobile Manufacturers, and sales of all vehicles including trucks and buses were up 25 percent. Some 7.2 million vehicles were sold in China last year, compared with 5.7 million tallied in Japan by the Japan Automobile Manufacturers Association.

"Everybody thought the market in China would take a year off growth, but it didn't happen. It was another record year," says Rhys. And that has translated into major activity on the plant construction and expansion front. "In China, you probably have more than half of the world's activity in terms of expanding and building facilities," he says.

Behind the Chinese boom is robust economic growth, estimated at 10.5 percent for 2006. The growth has translated into great sales figures for Chinese automakers and foreign manufacturers alike. General Motors, for example, saw China sales rise 32 percent to nearly 880,000 vehicles and recently announced plans to build hybrids in China. Ford's China sales of all brands rose 87 percent to about 167,000 units. BMW's sales were up by more than 50 percent. In fact, high-end cars are selling so well that Rolls-Royce has had to hire more workers to meet the Chinese demand for its Phantom, which retails at more than $300,000. Shanghai General Motors Corp., a GM joint venture, is China's top-selling automaker, while the biggest Chinese manufacturer is Chery Automobile Co.

The next chapter of the China story involves exports. Chinese automakers exported some 325,000 vehicles in 2006, mostly trucks and buses destined for Asia, Africa and Latin America. But they have their sights set on Western markets. Changfeng Motor Co. brought SUVs and pickups to the Detroit Auto Show this year, signaling its intention to crack the American market in the not-too-distant future. DaimlerChrysler may team up with Chery to make small cars for sale in the United States and elsewhere within a couple of years. And ZX Auto has plans to enter the U.S. market by the middle of next year, which could make it the first Chinese car seller in the States.

Geely Automobile Co. also hopes to break into the American market next year. It had a presence at last year's Detroit Auto Show, and is gearing up production dramatically. "Geely wants to build 650,000 cars by 2013," says Rhys. "That really is a representation of what the other companies are doing. They are all expanding, and also expanding in the heavy truck and diesel engine areas."

Growth in India may be a bit overshadowed by the Chinese boom, but Rhys says India is full of opportunities: "More people are aware of the growth in India now."

Among recent headlines, Honda is making plans for its second Indian plant, a $200 million small-car plant in the western state of Rajasthan. Initial production would be about 50,000 units. Honda already is selling small sedans in India. Also, Volkswagen recently announced plans for a plant in Maharashtra state that by 2009 will build 110,000 cars annually.

Automakers are lured by promises of healthy economic growth in India. Some 1.1 million passenger cars were made there in 2005, and analysts expect that figure to reach 2 million by 2010.

Even with growing local demand, some Indian manufacturers have their eye on the global pie. For example, a small manufacturer named Mahindra & Mahindra is making plans to enter the American market, perhaps as soon as the fall of 2008. Word is that an SUV and a pickup would be the first products to hit the U.S. market.

Rhys sees activity and promise in Russia, where he says "the next 10 years in Russia are going to be very interesting, indeed, in automotive developments." Also, keep an eye on the Ukraine and other former Soviet bloc and Eastern European destinations. For example, Poland, the Czech Republic, and Slovakia have enjoyed positive automotive and component manufacturing headlines in recent years. One current report has Ford shifting production of its leading small-car brand, the Ka, from Spain to a production line in southern Poland.

Mexico continues to attract attention from automakers. Reports from the Mexican Automotive Industry Association indicate that at least three new plants could be established there in the next few years. General Motors, Volkswagen, and DaimlerChrysler are among those said to be looking, and the total investment estimates of $7.5 billion would match the investments made by automakers in the past six years.