The latest manufacturing data from Markit Economics suggests that US manufacturing has hit lows the likes of which we haven’t seen since September 2009. While the auto industry has been booming for the past few years, it has been resting on the back of zero percent interest rates—which can’t be set any lower to boost sales if the auto market starts to decline.
Despite this, North American and UK manufacturing is still seeing significant investments in the auto sector. What does that mean for automobile manufacturing?
Three recent announcements in the US and a fourth from the UK may help shed light on this issue.
Ford Upgrades Cleveland Engine Plant
Ford Motor Company (Ford) is investing $145 million to upgrade its Cleveland engine plant to support production on its second-generation 3.5-liter EcoBoost engines for the 2017 Ford F-150 lineup.
Ford's 3.5-liter EcoBoost engine. (Image courtesy of Ford Motor Company.)
“This is very exciting news for the hardworking men and women of Cleveland Engine Plant and the Ohio community as a whole,” said Jimmy Settles, UAW vice president, National Ford Department. “The team at Cleveland Engine is thrilled to begin building one of the most technologically advanced engines ever designed for the all-new F-150 Raptor.”
General Motors Invests in Tennessee
Not to be outdone by Ford, General Motors (GM) is investing $148 million to repurpose the machining and assembly equipment at its Spring Hill, TN manufacturing plant to build V8 engines. As a result, the former Saturn plant will retain approximately 200 jobs.
The investment will enable the facility to build Small Block 6.2L V8 engines for GM’s truck and SUV lines for the first time.
“This investment will position GM and its workforce to promptly respond to consumer demand for this engine in the popular truck and SUV segment,” said Arvin Jones, GM North America manufacturing manager.
The equipment repurposing will begin immediately, with Small Block 6.2L V8 production scheduled for Q4 2016.
New North Carolina Aluminum Die Casting Plant
Linamar Corporation and GF Automotive recently announced that their new jointly-owned aluminum die casting plant will bring 350 manufacturing jobs to Henderson County, NC.
The combined entity, GF Linamar LLC, will invest more than $200 million in the new facility over the next seven years. In addition, Linamar plans to offer on-site machining services at the facility.
The new plant will provide the North American market with large light-metal high-pressure die castings for powertrains, drivetrains and structural components.
“We are very pleased to announce that we have selected Henderson County, North Carolina as the site of the GF Linamar LLC plant,” said Linda Hasenfratz, CEO of Linamar.
“This will be our fourth plant in North Carolina, an area where we have thrived thanks to a fantastic workforce and a great business environment,” Hasenfratz added. “It is rapidly becoming an important hub for us to serve our customers in the southern US and North America overall.”
“We appreciate very much the warm welcome and the support from the state of North Carolina and the Henderson County authorities,” said Yves Serra, CEO of GF Automotive. “The location is ideal for us and we look forward to a prosperous future for our joint venture in the US.”
The plant is scheduled to begin production mid-2017, providing integrated casting and machining solutions to automotive, industrial and commercial customers.
Aston Martin Investing in Wales
Across the pond, Aston Martin has announced a $279-million (£200-million) investment in the UK, with plans to build a second manufacturing facility in St Athan, Wales.
This will become the sole production facility for Aston Marton’s DBX crossover. With growing demand for these vehicles from China and the US, the company expects to export more than 90 percent of its production.
Aston Martin also confirmed that next-generation sports car and electric vehicle production will be concentrated at its Warwickshire headquarters.
The company expects the new facility to create up to 1,000 new UK jobs between now and 2020, with a further 3,000 jobs created as a direct result of its investments.
Occupying roughly 90 acres, the new facility will re-purpose some existing Ministry of Defence (MOD) facilities. Conversion of three MOD “super-hangers” into factory and storage space is scheduled to begin in 2017, with vehicle production starting in 2020.
“Through a detailed evaluation of over 20 potential global locations for this new manufacturing facility, we were consistently impressed with the focus on quality, cost and speed from the Welsh Government team,” said Andrew Palmer, CEO of Aston Martin.
The Fate of the Auto Industry
Here’s a comparison of investments from the four companies:
Why are these companies investing in new facilities if the auto industry is poised to follow manufacturing into a decline?
As it happens, this may be the perfect time to invest in new automotive production facilities. Automakers operate at slim margins to begin with, but those margins are squeezed even further when the market softens.
Only the most technically advanced production lines with the lowest operating costs can survive in that environment. Indeed, a distinct lack of investment in a plant in the face of potential decline could indicate that the company is considering closing it in the event of a market downturn. Spring Hill, by contrast, should be relatively safe for the foreseeable future.
Similarly, GF Linamar’s investment in the die-casting plant seems based at least in part on a bet that North American auto manufacturing will continue to thrive.
What about Aston Martin?
The margins are obviously higher than Ford’s or GM’s, but its investment in mass production could be the start of a shift for the company.
It’s much easier to go from manufacturing 7,000 to 700,000 cars per year than it is to go from 700 to 7,000. Aston Martin could be preparing for a move into the mid-range market in the event that the demand for high-end cars dries up.
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