Trump’s call for new auto plants collides with reality

Melissa Burden, and Ian Thibodeau

President Donald Trump is pressing automakers to build new factories in the U.S., but he may have to settle for plant overhauls and incremental job expansions such as Ford Motor Co.’s planned $1.2 billion investment in three Michigan factories that’s expected to create at least 100 jobs.

Trump pushed automakers during a roundtable in Ypsilanti Township earlier this month for more U.S. plants, and in a speech to autoworkers the same day he said plants “are coming back — other plants that were expected to be built in other countries are not being built.” He’s often taken to Twitter to target automakers such as Ford, Toyota and General Motors for Mexico production. In early January, he tweeted: “Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax.”

Analysts and even automakers say it’s doubtful auto companies will spend the $1 billion or more needed to construct new plants: U.S. auto industry sales appear to be at a peak, and most companies simply don’t need more production capacity. While Trump repeatedly has urged the auto industry to deliver, industry experts are skeptical that automakers will meet the president’s costly demand for modern U.S. manufacturing plants.

“We’re near the top of a market cycle,” said Kristin Dziczek, director of the industry, labor and economics group at the Center for Automotive Research. “Why on Earth would you overcapacitize when you’re fulfilling peak market demand with the capacity you have?”

Chinese-owned Volvo Cars Ltd. may be one of the few exceptions: It’s building a new $500 million assembly plant in Berkeley County, South Carolina. Hyundai Motor and Kia Motors also are considering a new U.S. factory.

Auto analysts say the $1 billion-plus typically required for a new plant wouldn’t come easily for most U.S. automakers. Executives have vivid memories of shedding thousands of jobs and shuttering numerous factories during the recession. GM and Chrysler went through federally induced bankruptcy cleansings to survive.

GM, Ford and Fiat Chrysler have built no new brick-and-mortar assembly plants in the United State in a decade. And Detroit’s Big Three currently have no plans to build any, company officials have said. Instead, they are choosing to improve and expand on what they’ve already got.

LMC Automotive says U.S. automakers are running at almost full capacity at their U.S. plants. The research firm found Fiat Chrysler Automobile’s capacity utilization was at 95 percent last year; Ford was at 93 percent; GM was at 84 percent.

“The auto industry is one of the only industries in the world when you have a record year and you don’t celebrate,” Dziczek said.

Japanese, Korean and German automakers likely would be the first to look at additional factories in the U.S. if they saw a need, said Jeff Schuster, senior vice president of forecasting for LMC Automotive. Hyundai and Kia plan to invest $3.1 billion in the U.S. over the next five years and have said they are considering a new factory.

Kia in late 2009 opened its first North American plant in West Point, Georgia; it’s home to more than 3,000 employees who build the Sorento crossover and Optima midsize sedan. Hyundai has a plant in Montgomery, Alabama, that opened in 2005 and builds the Sonata and Elantra sedans and Santa Fe Sport crossover. The Hyundai plant employs about 3,000.

Any new Hyundai-Kia operations likely would be in the South, where labor costs are lower and unionization efforts are less likely.

Automakers including BMW, Honda, Hyundai, Mazda, Kia, Nissan, Toyota and Volkswagen/Audi have opted in recent years to build factories in Mexico to take advantage of cheap labor and an advantageous trade environment. Trump has lashed out against some: Ford was slated to build a new factory in Mexico but in January announced it had scrapped those plans.

Incentives from federal or local governments could enhance the likelihood of new U.S. plants being built, Schuster said. But he said automakers have to weigh several factors: policy changes and the threat of a border tax on goods coming from Mexico into the U.S.; the cost and time it takes to build and have a new plant production-ready; and the U.S. sales market, which is plateauing after a record 2016 in which 17.55 million trucks, SUVs and cars were sold. Automakers would look at existing capacity in other plants around the world.

“Until we get clarity around policy, the industry is kind of in a wait-and-see (period),” Schuster said.

Bring them all back?

During an Ypsilanti Township roundtable this month with senior leaders from 11 automakers, three suppliers and the president of the United Auto Workers union, Trump pushed automakers to build new factories and not just expand existing plants. In return, he promised to ease taxes and regulations.

“But you’ve got to work with us on new plants, on new jobs and bringing back our capability to a level that it’s never seen before in terms of automobile production,” Trump told the auto executives in an aircraft hangar at the American Center for Mobility.

Trump said the U.S. had tens of thousands of more autoworkers employed years ago than it has today. “We’re going to bring them all back,” he said.

Michael Sprague, Kia’s chief operating officer, told Trump that more jobs were coming from Kia, but he did not elaborate.

Volvo is building its South Carolina plant to broaden its manufacturing footprint to North America. Volvo sold 82,726 vehicles last year in the U.S., up 18.1 percent from 2015.

“We wanted to make a commitment to the country after being here for 60 years,” Volvo spokesman Jim Nichols said in an email.

Volvo will produce the new S60 sedan and an undetermined second vehicle at its new plant. The first sedans are slated to roll off the line at the end of next year. Production in the first year is expected to be about 60,000 vehicles, though it has capacity for 100,000. Volvo said the plant is expected to employ up to 2,000.

Caution after recession

Ford said Tuesday it will invest $850 million to retool its Michigan Assembly Plant in Wayne for truck and SUV production; $150 million in its Romeo Engine Plant to expand engine capacity for several vehicles; and $200 million to build a data center at the company’s Flat Rock Assembly Plant.

Analysts say Ford’s recent announcements might represent the closest automakers come to meeting the president’s demands. Including this week’s news, the company has announced plans to invest close to $2 billion in existing Michigan facilities over the next few years.

Caution is the watch-word after Chrysler’s near-death experience during the Great Recession. As sales of small cars have fallen, Fiat Chrysler has stopped building them entirely.

The automaker ceased production of the Chrysler 200 small car in December at its Sterling Heights Assembly Plant and is pumping nearly $1.5 billion into the facility to produce the next-generation Ram pickup due early next year. It has announced $3.5 billion in investment in U.S. factories since July 2016 that are expected to create 3,700 new jobs.

Fiat Chrysler CEO Sergio Marchionne has said the company is not interested in building new plants in the U.S. Chrysler in 2005 opened its most recent assembly plant, the Toledo Supplier Park, where the Jeep Wrangler is built. Chrysler invested $900 million into the project — its latest new assembly plant built from the ground up.

After Fiat took over Chrysler, it opened the Tipton Transmission Plant in Indiana in 2014. Fiat Chrysler bought an existing building for an undisclosed price and invested $162 million to create an additional assembly site for the nine-speed transmission, creating up to 850 new jobs.

GM in recent months has been plagued by slow car sales and has had to trim shifts from four assembly plants. GM’s newest assembly plant is the Lansing Delta Township facility, a $1.5 billion operation which opened in 2006. The plant builds large SUVs. GM announced a May layoff of more than 1,100 workers there, but said it plans to rehire 500 of them early next year.

GM’s newest manufacturing plant is Brownstown Battery in Brownstown Township. It opened in 2010; workers there assemble lithium-ion batteries.

The automaker has no plans to build any new plants in the U.S., according to a source familiar with the company’s planning. GM since 2009 has announced investments of more than $21 billion in the U.S., including nearly $10 billion in Michigan. In January, the company announced $1 billion in U.S. investments this year.

Barring any major unforeseen policy move from the Trump administration, the Center for Automotive Research’s Dziczek says automakers will err on the side of caution.

“This is an industry that eats capital for breakfast. You build a plant... for the next 40 to 50 years, you need to keep feeding it capital,” Dziczek said. “We’re fulfilling peak market demand with what we’ve got, and it’s not a smart decision to go beyond that unless there’s bigger market demand coming that no one sees.”

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Twitter: @MBurden_DN