|Big Three May Be Shrinking but U.S. Auto Business Isn't
Foreign carmakers account for a growing proportion of North
American-made vehicles -- and an increasing share of sales to buyers
here. Some foresee a Big Six.
By John O'Dell
Times Staff Writer
December 18, 2005
Plant closings. Job cuts. Shrinking market share.
Judging from the steady drumbeat of bad news in recent months, it
would seem that auto manufacturing in the U.S. was headed for
But lost amid all the carnage is the fact that the North American auto
business is still growing, and is expected to grow still more.
It's just that the expansion is not happening for any automakers
headquartered around Detroit.
Even as General Motors Corp. and Ford Motor Co. prepare to close more
plants and cut an additional 60,000 jobs in the next five years to try
to shrink their way to profitability, Toyota Motor Corp. is opening a
huge pickup assembly plant in Texas. Japan's leading carmaker also is
building a plant in Canada and is eyeing Michigan, home of beleaguered
Ford and GM, as a site for a factory.
American automakers may be contracting, but industry watchers expect
substantial growth in overall auto production and sales in the U.S.,
Canada and Mexico over the next decade.
"There are 64 million people in the U.S. who will be getting drivers'
licenses in the next 10 years," said George Peterson, president of
AutoPacific market research in Tustin.
The national appetite for new cars and trucks will grow to about 18.5
million vehicles per year in the next decade, up from 16.8 million
this year, he predicts. Mexico and Canada could easily add an
additional 3 million in annual vehicle sales.
Most of these extra sales are likely to be won by the likes of Toyota,
Honda Motor Co., Nissan Motor Co. and South Korea's Hyundai Motor
The U.S. carmakers are getting hammered by intense competition from
Asian and European rivals and by skyrocketing healthcare and pension
Even if they are successful in remaking themselves, the U.S.
carmakers' best odds for further growth are in Asia and Europe. In
North America, they "are going to come out of this as smaller
companies, with smaller market share, fewer employees and fewer
manufacturing plants," said George Pipas, Ford's in-house U.S. market
GM's share of the U.S. auto market has fallen to a record low 26%. A
decade from now GM will have shrunk "into the teens," said Dan
Gorrell, vice president of Strategic Vision, an auto research firm in
San Diego. Ford (currently with a 17.4% U.S. market share) and
Chrysler (13.6%) will have similarly reduced shares, he said.
Peterson and several other analysts say Toyota (now with 13.3%) could
be the top brand here within a decade, but with less than a 20% market
It's not only sales patterns that are changing. Factory employment and
the production of passenger vehicles are shifting to foreign companies
on this continent. It's part of the new automotive landscape that has
taken hold in the last quarter century.
"Instead of the Big Three in Detroit being the symbol of the world's
automobile industry, we'll be looking at a global Big Six or maybe a
Big Seven, and eventually they'll all be around the same size" in
North America, said Jim Press, president of Toyota Motor Sales U.S.A.
and a member of Toyota's global management board.
On his scorecard, the top six automakers would be: Toyota, General
Motors, Ford, Honda, DaimlerChrysler and Nissan. Hyundai is the likely
Asian brands together account for almost 40% of all passenger vehicle
sales in the United States. To accommodate this demand, there's also
been a surge in foreign-owned plants.
Honda was the first Asian carmaker to build a manufacturing plant in
the U.S. — in Marysville, Ohio, in 1982 — which now makes almost 70%
of its North American sales volume.
So far foreign automakers have built 27 car, truck, engine and part
plants in North America. That compares with 132 North American
factories owned by American carmakers. There also are three assembly
plants that are joint ventures between U.S. and foreign brands.
And foreign-owned plants continue to sprout. South Korea's Kia Motors,
the only major Asian automaker that doesn't have a factory here, is
scouting for a manufacturing location, just as Honda, Toyota and Mazda
Motors also are looking for extra North American production capacity.
Changing tastes have a direct effect on the factory floor. Consider
the New United Motors Manufacturing Inc. assembly plant in California.
The Fremont plant was opened in 1984 as a joint venture between GM and
Toyota and in the early years it split its vehicle production between
the two companies.
But this year 82% of the 380,000 vehicles built in Fremont are Toyota
Tacoma pickups and Corolla sedans, vehicles in far greater demand than
the Pontiac Vibe sport wagon, the sole GM model made there.
"We'll see more and more of these cooperative deals" aimed at
increasing foreign brands' North American production by utilizing the
Big 3's underperforming plants, said David Cole, director of the
nonprofit Center for Automotive Research in Ann Arbor, Mich. "It's a
way for companies to maximize their dollars."
Indeed, on Monday, Chrysler Group, the U.S. arm of Germany's
DaimlerChrysler, said it would invest as much as $1 billion
modernizing its St. Louis, Mo., plant to help get it ready to start
building minivans there under a pending contract for Volkswagen to
utilize extra capacity. VW doesn't offer a minivan in the U.S., so it
will hire Chrysler to build them.
It's a significant shift from 1980 when Ford, GM, and then-Chrysler
Corp. collectively employed about 780,000 salaried and hourly workers
in North America and built 9.7 million cars and trucks at factories
located primarily in the American Midwest. Volkswagen was the only
foreign automaker building cars in North America, with a modest plant
Meanwhile, Toyota and all other foreign brands were true importers,
making cars and trucks overseas and shipping them to showrooms.
Today, 14 automakers build passenger vehicles in North America.
Moreover, ever since Nissan opened a massive car and truck assembly
plant in Smyrna, Tenn., a few months after Honda's Ohio plant, auto
production and employment has drifted into the southern states, Canada
Once Nissan showed that cars could be made in non-union plants outside
of the traditional manufacturing states, others followed.
"Manufacturing will continue to drift out of the Midwest," said James
Sourges, vice president of consulting firm Capgemini's auto group in
Total auto production here has risen 65% to 16.2 million vehicles
since 1980, even as employment has shrunk 34% to about 515,000.
Foreign-owned companies account for 26% of all direct employment by
automakers in North America.
The foreign brands' presence doesn't stop with factories. Each has a
U.S. headquarters — Toyota employs more than 6,000 in Torrance. The
major players have design studios in California, hot weather test
centers in Arizona, and engineering centers near Detroit.
Even as Ford and GM continue shedding underutilized production
capacity and trimming staff, several Asian automakers are snapping up
Motor City engineers and technicians to staff their growing technical
Detroit "will remain the center of automotive engineering in North
America," said Eric Noble, president of CarLab, an automotive market
research firm in Orange. "The Japanese and Koreans will be increasing
their presence, their operations there because of the talent pool that
is, increasingly, underemployed."
Toyota, Nissan, Honda and Hyundai have a major research presence in
greater Detroit, with more than 2,000 employees and close to $500
million invested in their technical centers. Toyota expects to add an
additional 500 workers as it doubles its Ann Arbor center by 2008.
It is that kind of growth, based on the foreign brands' ability to
produce quality vehicles more cost-effectively than their American
rivals, that continues to reshape the auto industry.
To get their costs under control, Ford, GM and Chrysler Group will
have to engineer new labor contracts, analysts said. The United Auto
Workers union has agreed to some recent healthcare changes to cut
costs, but the union has said any major changes will have to wait
until the next labor contract in 2007.
But many analysts, including Cole, say the UAW will become a much
smaller and more cooperative partner in the revamping of the American
"There is now, finally, a real sense of urgency to get at the
fundamental cost issues," he said.
(BEGIN TEXT OF INFOBOX)
Not your father's auto industry
American automakers still have far more factories in North America
than do foreign brands, but the pattern since 1980 shows that import
brands are on the move--and moving south.
Industry at a glance, 2005
GM 62 173,000
Ford 39 122,000
Chrysler 33 85,700
Toyota 12** 36,800
Honda 7 26,200
Nissan 3 26,750
Other 6 44,500
Totals 162 514,950
** Includes joint venture with GM.
Sources: Individual automakers, ESRI