Manufacturing is no different from any other business sector. It’s about winners and losers, and recently we’ve seen examples of both.
Let’s take a look at the loser’s corner first. Mitsubishi Motors has been making cars at its only U.S. plant, the Bloomington-Normal facility in central Illinois, since 1988, as a joint venture between the firm and the Chrysler Corporation. In 2000, the operation peaked at 222,000 units, but after the 2008 financial crisis, production dropped to 18,500 vehicles per year.
The factory’s export market has been affected by a slump in Russian demand, Bloomberg reports. Unfortunately, 1,200 workers will be affected. In 2014, Mitsubishi sold a total of 82,000 vehicles in the U.S., accounting for less than one percent of the overall market.
The Outlander Sport SUVs, previously built at Bloomington, may be exported to the U.S. from Mitsubishi’s Okazaki plant in Japan. Final board decisions will be made July 30, 2015.
It must be asked: What happened? Mitsubishi is a massive industrial conglomerate with the technical and financial depth to master almost any market, including automobiles. So how is it possible that a major Japanese automaker can fail to command a significant market share in the largest and wealthiest automotive retail market in the world? In a word, branding.
Compared to Toyota, Nissan and Honda, Mitsubishi was a late entry to the U.S. market. To catch up, the company formed the now-famous alliance with the Chrysler Corporation, and it worked brilliantly at first.
Chrysler Corporation gained small-car expertise that the company lacked, and Mitsubishi had an instant new dealer network that ran coast-to-coast. The products were of fine quality, with vehicles that were just as good as anything from other Japanese automakers, but without an independent brand and dealer network, Mitsubishi was always vulnerable.
With the breakup of the Chrysler deal, the writing was on the wall. Sometimes it’s not about the quality of your product, or the efficiency with which you make it. Sometimes it’s about the marketing.
On a more positive note, diesel engine and heavy equipment maker Caterpillar sits in the winner’s circle.
The company has announced a new strategy to create a “vocational truck” product family of dump trucks, cement mixers, garbage trucks and other “straight truck” service vehicles.
Until recently, Caterpillar built vocational units with Navistar, makers of international brand trucks. The arrangement uses Navistar’s Mexican production facilities, but the new Caterpillar-designed units will be built in Victoria, Texas. That plant, which opened in 2012, currently makes excavators.
It may seem like an unusual move, shifting production from Escobedo, Mexico to Victoria, Texas, but it makes sense. Caterpillar has the financial and engineering horsepower to move into the truck market at any level, and, with a modern Texas-based production facility, they can still tap into a large Mexican supplier base, as well as an increasing number of tier one suppliers located in the Southeast.
The Victoria facility will expand, adding approximately 200 jobs, and will continue to produce excavators. Caterpillar expects production to begin in the first half of next year.
As one company grows, another company contracts. What Caterpillar and Mitsubishi both have in common, however, is the end of agreements with other vehicle makers. For Mitsubishi, it may result in their withdrawal from the U.S. market someday. For Caterpillar, it may do the opposite, as the maker of so many diesel engines for heavy trucks may be poised to dominate the entire truck market.
We’ll just have to wait and see.