North American Automotive Spending Remains Stable in 2008 Despite Industry Turmoil

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Researched by Industrial Info Resources (Sugar Land, Texas)--2007 was a year of great change and turmoil for North America's automotive industry. Chrysler LLC (Auburn Hills, Michigan) went from public to private, the Detroit 3 all completed new four-year deals with the United Auto Workers (Detroit, Michigan) union, and foreign automakers saw their market share finally overtake and pass that of the Detroit 3 for the first time. Even with these major changes within the industry, spending remained strong throughout 2007 with more than $12.6 billion in capital and maintenance work reaching the construction stage. A look at 2008's construction schedule shows that despite the changing face of the industry, almost $8 billion worth of project activity remains active for this year, a number that should easily top $10 billion by year's end.

Click on the image at right to view 2008 North American Automotive Industry Project Spending Analysis Chart.

However, even though automotive spending will remain somewhat consistent yet again in 2008, the industry will continue to evolve as the year rolls by. More job cuts loom in the future, and additional plant closures are sure to come later in 2008. In addition, 2008 is poised to be the year that Toyota Motor Manufacturing North America (NYSE:TM) (Torrance, California) takes firm control of the No. 1 slot in automotive sales for the first time. With General Motors Corporation (NYSE:GM) (Detroit), Ford Motor Company (NYSE:F) (Dearborn, Michigan) and Chrysler all in the midst of wholesale reorganization efforts, the era of the foreign automaker is upon us.

For the Detroit 3, job cuts and plant closures will persist in 2008 as they try and remake themselves as efficient operations, a label that the foreign automakers have enjoyed for decades. With the union fighting them for each plant and job every step of the way, 2008 will be a difficult year for the American automakers.

However, despite these internal problems, spending will remain as steady as it has been for the last decade. None of the automakers, foreign or domestic, can afford to rest on their laurels and not spend money on an annual basis. New models, redesigns, more familiar models and the change to more energy-efficient vehicles force all of the automakers to invest billions annually on capital work. In addition, routine maintenance must be performed, typically twice a year, once in the summer and once in the winter, at every assembly plant to maintain operational status.

In the case of foreign automakers such as Toyota, Honda Motor Company Limited (NYSE:HMC) (Torrance), and Hyundai Motor America (Fountain Valley, California), owner of KIA, capital investment has meant the construction of grassroot assembly plants in North America. For the Detroit 3, it has almost been the polar opposite: plant closure or retooling with a smattering of new plant activity thrown in for good measure. The American automakers have also been betting on investments in Mexico with its cheaper labor as opposed to more new investment in the United States or Canada.

Traditionally, the majority of the automotive capital and maintenance investment in North America would occur in the Great Lakes region. In recent years, the foreign automakers have transformed the Southeast region into an automotive mecca while additional investment in the Southwest region has helped to recover some of what that part of the country had lost in recent years within the industry. In 2008, however, for the first time in recent history, Mexico, at least so far in the year, has taken control of the North American spending focus. Mexico is edging out the United States in total automotive spending dollars $3.16 billion to $3.14 billion, a situation that will surely change as the year evolves.

As with most years, and mainly because of the sheer volume of operational plants, the Great Lakes region is leading the way in total number of active projects with 50, followed by the Southeast region with 41 and the Mid-Atlantic region with 25. Mexico is in fourth place with 20 projects. Canadian investment has been slowing over the last two years, and currently only a dozen projects are active in Ontario, the heart of the Canadian automotive industry.

Overall, the spending we have come to expect from the automotive industry is obviously in place. Investment in 2008 will easily pass the $10 billion mark; the real question will be whether it will surpass the investment totals we saw in 2007. The first half of 2008 will be a very telling indicator of how the year will shape up as the Detroit 3 continue their restructuring efforts. Ford and GM have already announced large numbers of plant closures scheduled for the next few years, but the real wildcard in 2008 will be Chrysler. Now that it's a private entity, it almost has carte blanche to do whatever it pleases to turn itself around. It will be an interesting year within the industry.

Industrial Info Resources (IIR) is the leading marketing information services company for the industrial process, heavy manufacturing and energy-related markets throughout the world. Celebrating its 25th anniversary, IIR provides accurate and timely intelligence featuring plant and project information databases, focused market databases, industry forecasting, key industry contacts, industry and territorial map products, direct marketing services and applications, and daily industry news.