When I was a boy, well before I was of driving age, I had this thing for cars. When I got a little money in my pocket after mowing lawns, I would buy Hot Rod magazine and dream of some day owning a hot car.
So this past week, I had to take my truck to a mechanic’s shop, where I couldn’t help but notice this room, separate from the repair area, that was full of restored muscle cars from the 1960s and 70s.
Don’t you know that took me back. The cars, like the music, have always stuck with me. Pontiac GTOs and Motown will forever be etched in my brain.
I never did get that hot car or anything really that special. But I still appreciate cars (and trucks) today. I only wish I could say the same about today’s commercial music, most of which I believe is inflicted upon us by space aliens to determine if we might be worth keeping around.
But I digress. Back during Detroit’s heyday (before the saucer people walked among us), it was all about Detroit and the Big Three – General Motors, Ford and Chrysler.
Since those heady times, the world has changed. The Big Three lost market share to foreign competitors and GM and Chrysler came damn near losing the farm. The city of Detroit fell off the end of the Earth.
The good news is Big Three are now doing relatively well, and the overall industry, now with foreign owned assembly plants dotting the landscape, is poised for an unprecedented sixth straight annual sales increase next year.
The National Automobile Dealers Association is predicting that 16.46 million light-vehicles will be sold this year in the U.S., climbing to 16.94 million in 2015, which would be the most in a decade.
Oh yes and Detroit has rejoined planet Earth and is actually doing some very good things. Welcome back.
Why You Should Care
America’s automotive industry is our largest manufacturing sector, responsible for 3 percent of nation’s GDP. Over the past five years, automakers in this country have exported more than $563 billion invehicles and parts – about $86 billion more than the next largest exporter, which is aerospace.
Many economic developers, particularly in the Midwest and Southeast, target the automotive industry for recruiting purposes, and I can’t say that I blame them. Automotive is still the Big Kahuna.
That’s because the automotive manufacturing requires a deep supply chain providing thousands of parts, as well as raw materials, and other goods and services. Each job at a vehicle assembly plant produces 11 additional jobs in the U.S. economy, according to an analysis by the Center for Automotive Research.
Because the auto industry is so large and dynamic, as a consultant to both companies and communities, I have to stay abreast of it. But because I find the industry so inherently interesting, that has not been a chore for me.
What’s more, I have had the pleasure of working with OEMs, as well as Tier One, and Tier Two suppliers. They have been American, German, Japanese, Korean, and Canadian companies, and they remain some of my favorite projects.
Look What FDI Has Done
Foreign direct investment in the U.S. by automotive companies continues to be a boon to many places. Just ask folks in South Carolina (BMW); Alabama (Mercedes, Toyota, Honda, Hyundai); Georgia (Kia); Tennessee (Nissan, Volkswagen), Mississippi (Nissan), Ohio (Honda) and Indiana (Toyota, Honda and Subaru) Kentucky (Toyota), Texas (Toyota)and West Virginia (Toyota.)
I just read a report that Japanese-branded automakers directly employed 82,816 workers in the U.S. last year. Their manufacturing activities generated an estimated 224,000 intermediate jobs (suppliers of goods and services), with another 393,000 jobs resulting from consumer spending by those in the direct and intermediate positions – totaling close to 700,000 jobs.
Leave it to say, I don’t feel too guilty driving a Toyota pickup truck built in San Antonio.
Ford Has a Better Idea
This month, two things have happened in the auto industry that have really caught my eye because my gut tells me they really can be revolutionary in nature.
The first came from Ford, which stands to set the industry on its head.
At the Ford Rouge Center – the historic campus Henry Ford established in 1917 – Ford has begun manufacturing an all aluminum bodied pickup truck.
“We are transforming the future of manufacturing here in the U.S.,” said CEO Mark Fields at a news conference on Nov. 11– the day the first 2015 F-150 rolled off of the production line.
A Risk Worth Taking
Ford says the new truck weighs 700 pounds less, yet can tow 1,100 more pounds, haul 530 more pounds and will get as much as 29 percent better fuel economy than its mostly steel predecessor.
Said Chairman Bill Ford: “Yeah, this is a risk, but it’s one well worth taking.”
Ford spent $359 million to convert production to the aluminum body at its Dearborn truck plant, and another $1.1 billion into its Kansas City Assembly Plant in Claycomo, Mo., where production of the 2015 F-150 will begin in the first quarter of 2015.
Together, the two plants will be able to produce 700,000 trucks per year.
A Mississippi Spinoff
Already there appears to be industry spinoffs. American Specialty Alloys said it plans to build a $1.2 billion aluminum mill to tap into rising demand from the automotive industry.
The company said the mill would supply over 600,000 tons of flat-rolled aluminum to the automotive industry annually.
“The move to use less steel, substituting lighter aluminum by automakers will create unprecedented demand on current manufacturers of these grades of aluminum,” founder and Chief Executive Roger Boggs said in a statement.
American Specialty has not announced a location for the new plant, but has filed for environmental permits at a site near Golden Triangle Regional Airport, just west of Columbus in Lowndes County. The company incorporated in Mississippi in March and has listed a Columbus address.
Toyota Takes an Untraveled Road
Toyota, the largest and I think smartest car company in the world, said last week that it will soon start selling emissions-free, hydrogen-powered vehicles.
Toyota will begin selling fuel cell cars in Japan on Dec. 15 and in the U.S. and Europe in mid-2015. The sporty-looking, four-door Toyota Mirai will retail for $57,600 before taxes.
This is surely an untraveled road that Toyota is taking. The company is essentially shelving its battery-electric technology and investing in fuel cells instead
It’s a gutsy move, as success will depend on it being able to lower the cost of the vehicle, while buyers will have to contend with finding the fuel.
The Old Chicken and Egg Scenario
Yoshikazu Tanaka, deputy chief engineer for Toyota’s next generation vehicle development, said it may take 10-20 years for the Mirai to reach sales in the tens of thousands of vehicles a year, but that the company is in this for the long haul.
The company knows that if it doesn’t build the car, the number of hydrogen fuel stations will never grow. Toyota faced a similar scenario with its gasoline-electric hybrid, the Prius, which now sells in big numbers.
Toyota has lent startup FirstElement Fuel Inc. $7.3 million to build 19 hydrogen fueling stations in California. Most of the pumps will be built at existing gas stations at a cost of about $1.4 million a station.
California has pledged to invest up to $200 million over 10 years to build at least 100 fueling stations and First Element won a contract to build a portion of them.
Toyota also is contributing an undisclosed amount toward building 12 stations in New York, New Jersey, Rhode Island, Massachusetts and Connecticut with Air Liquide SA, an industrial-gas company with 60 hydrogen stations globally.
So aluminum bodies and fuel cells may be the future. Time will indeed tell. These are big gambles, no doubt, by two carmakers who understand that innovation is absolutely necessary for them to remain relevant and market leaders.
It’s an exciting time for the auto industry. Good things are happening. Chances are being taken. Now let’s see where Google takes us.
Have a happy Thanksgiving everyone. I’ll see you down the road.
Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. http://www.barberadvisors.com
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