Value, not volume: pressure mounts on automakers to tackle manufacturing overcapacity

In February 2019, Honda made the surprise announcement that it would end production at its Swindon, UK factory. The closure is part of the automaker’s “global automobile manufacturing restructure”, and is scheduled for 2021, when the Civic—the only model built at the factory—reaches the end of its current lifecycle. The Civic will no longer be built in Europe, a move which also impacts the automaker’s second European Civic assembly site in Turkey.

Honda has now wrapped up its consultation process, and as it found no viable alternative to closure, confirmed that it will proceed with its plans. The February announcement came at the height of the UK government’s intense Brexit negotiations, and quickly followed other companies’ alterations to their UK operations, including Nissan’s about-turn on earlier plans to build the X-Trail at Sunderland, and the decisions by Panasonic and Sony to shift their European headquarters out of the UK. Honda was quick to underline that its decision was not Brexit-related, and that “unprecedented changes in the global automotive industry” were behind its decision.

There has long been overcapacity in the global automotive industry, and automakers appear to now—finally!—be taking a close look at their operations, cutting out excess where possible.

In South America, Ford is closing its vast and ageing Sao Bernardo do Campo factory in Brazil, which built a disparate range of vehicles at diminishing volumes, including the Fiesta small car, F-series trucks, and the Cargo heavy-duty truck. The closure is part of a wider move that includes the automaker exiting the South American truck market entirely.

Ford is also ending production of passenger cars in Russia by the end of June, with its Sollers local joint venture closing two vehicle assembly plants as well as an engine plant. The decision was accompanied, however, by news of plans to strengthen its commercial vehicle business in Russia. Ford unveiled a detailed turnaround plan in January 2019 which foresaw all options being considered as part of a major business restructuring in Europe, including potential plant closures.

In the US, General Motors has delayed the planned closure of its Detroit-Hamtramck factory; the plant—once the source of the Chevrolet Volt—was due to be idled in June, but GM has extended production of the Chevrolet Impala and Cadillac CT6 to January 2020. Recently, the automaker closed its 52-year old Lordstown, Ohio plant, which built the Chevrolet Cruze, and GM is reportedly negotiating a potential sale of the factory to Workhorse, a battery electric vehicle company interested in building electric pick-up trucks. In addition to these two factory closures, the automaker is shuttering transmission plants in Warren and Baltimore during 2019 as part of a raft of North American cuts announced in 2018 that will also see the shutdown of its Oshawa, Ontario factory, where it currently builds the Chevrolet Impala and Cadillac XTS. Globally, GM is carefully assessing its market and manufacturing presence, withdrawing where relevant from challenging markets.

A number of factors are at play here. In North America, sedan sales are declining in the face of growing demand for profitable SUVs and pick-up trucks; a similar trend is visible in Europe, where automakers are addressing dwindling demand for formerly popular MPVs and D segment vehicles. Add to this changing vehicle demand, the growing number of megatrends that includes public concern about emissions, the rising cost of motoring and the availability of innovative shared mobility services, and global automakers clearly still have difficult decisions to make about model cancellations as well as overcapacity reduction.

So much for factory closures—what about new vehicle assembly plants?

“2018 was a fairly quiet year for new plant openings,” noted Jonathan Storey, who has compiled the latest edition of Automotive World’s ‘Global vehicle assembly plant database’. The annual study contains production data for nearly 60 vehicle groups, 150 brands and over 1,100 models, including light (<3.5t GVW) and heavy (>3.5t GVW) vehicles. The data file contains all automaker groups with global light vehicle production in excess of 500,000upa and many low-volume producers; it also includes the major heavy truck producers.

“The major new factory openings were two new plants for VW in China, one for BMW in Mexico, although this does not officially open until 2019, and Land Rover’s new plant in Slovakia,” said Storey.

“We expect this lower level of capacity expansion to be the pattern for the next few years,” he added, “with automakers more concerned about ensuring the right mix of capacity, particularly with regard to SUVs and EVs, than to significantly increase capacity.”