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Foreign Car Makers Seen Passing Detroit in North America Capacity

June 24, 2009

Wall Street Journal 23 June 2009

By ANDREW GROSSMAN

The Big Three auto makers soon won’t be so big.

Even though they have been losing market share for decades, General Motors Corp., Ford Motor Co. and Chrysler Group LLC have continued to produce many more vehicles in North America than their foreign-owned rivals.

But production cuts as part of Detroit’s restructuring have put the Big Three on the verge of losing that distinction, according to a study by Grant Thornton LLP.

The auditing firm expects the Detroit car makers to cut capacity 36% from 2008 levels, to 7.5 million vehicles a year, as they work to more closely align capacity with smaller market share. It says European and Asian manufacturers will raise their capacity by a combined 23% to meet rebounding U.S. demand. That would leave them with the ability to make 8.1 million vehicles a year, surpassing the Big Three’s capacity by 2012.

The shift would mark a dramatic reversal of fortune. Until the 1980s, almost all vehicles made in North America were products of GM, Ford and Chrysler plants. Foreign rivals gained market share by importing vehicles made overseas.

But in the 1980s, first Honda Motor Co., then other Japanese car makers, started building plants in North America. Asian and European makers have built most of their North American plants in the South. If that trend continues, more suppliers will likely follow them there.

GM’s capacity use fell to 64% in 2008 from 88% in 2002, according to forecasting firm CSM Worldwide. Ford and Chrysler had similar drops. Honda’s North American capacity use was 94% in 2008. Toyota’s was 80%, CSM said.

Grant Thornton expects industrywide North American capacity use to hit 90% by 2012. That number has been closer to 75% historically. That would come in large part from a predicted 14% drop in overall capacity.

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