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USA: "Slow Growth in New Companies May Hinder U.S. Recovery" report

USA: "Slow Growth in New Companies May Hinder U.S. Recovery" report. 8-page report by Council on Competitiveness.

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back to index backAMERItalk January,  2006

Let the Fireworks Begin

Whether consolidating or expanding, carmakers in North America examine the options between 'one-stop shop' and 'close up shop.'

Auto makers in North America continue to bemoan the burden of competition: "In view of further reductions in model lifecycles and continuing over-capacity, DaimlerChrysler does not expect any alleviation of the intensely competitive pressure in the automobile industry," read a typically cold statement in 2005.

John Engler, president of the National Association of Manufacturers and a former governor of Michigan, told a conference audience in November that the Big Three's legacy costs have forced a "wrenching readjustment" that has involved halving of wages and reduction of job classifications from 48 to five in the case of one Michigan plant.

In the interest of competitiveness ... clearly, it's going to fall on the areas where the older investments were made," he said. "Things will get smaller."

In a late November speech to the Business Roundtable in Washington, D.C., William Ford Jr., president of Ford Motor Co., asked for a dramatic increase in the R&D tax credit to assist U.S. companies in keeping up with their competitors. He asked for something else too, in noting the demands that advanced technologies "created outside our borders" have placed on older U.S. plants:

"I believe there is an opportunity here to convert some of our industry's existing plants so we can build advanced technological vehicles and components," he said. "I urge Congress to consider tax incentives to help American manufacturers convert existing but outmoded plants into high-tech facilities."

As a consequence of such statements, territories in the heart of automotive country are honing their own competitive edges in trying to maintain a piece of the inevitable industry consolidation. The strategies range from a training center in Arkansas to targeted incentives restructuring in Ohio.

DaimlerChrysler's several projects provide a case study in industry consolidation trends. But they also exhibit the investment promise inherent in those trends. And they aren't waiting for federal incentives.

Chrysler Group in December announced it would invest up to $1 billion in its plants in Fenton, Mo., outside St. Louis, where various Chrysler and Dodge pickups and minivans are manufactured. While no new jobs necessarily will be created, preservation of the complex's 5,500 jobs suits all parties just fine.

Like the company's recent investments in places like Belvidere, Ill., and Toledo, Ohio, the DaimlerChrysler (DCX) investment in St. Louis is characterized by the drive to build as much flexibility as possible into plants, allowing multiple vehicle types to be built on one assembly line. Among the new features will be a fully robotic body shop, just one feature expected to help reduce model changeover time. In addition, the very job classification reductions that are said to threaten the industry in some areas will in this case be welcomed as part of the team concept the company will be implementing. The South Plant was recognized as the most productive minivan plant in North America by the 2004 Harbour Report.

In the background hover reported conversations between DCX and Volkswagen about DCX taking over VW-brand minivan production, with the St. Louis South plant a leading candidate.

Missouri Gov. Matt Blunt had met with Chrysler Group officials in summer 2005 to discuss the prospective investment, and Blunt later supported the move by Fenton and St. Louis County officials to offer tax abatements to the project. The state's package comes to $32 million, half of that for training; the local abatements will be valued at $46 million over 15 years.

Shifted Priorities

But abatements and prepared ground aren't everything. Witness DaimlerChrysler's recent second bypassing of a greenfield assembly site originally prepared for them in Pooler, Ga. Instead, DCX announced just after Thanksgiving its decision to expand production of the Dodge Sprinter van at the repurposed North Charleston, S.C., complex of its American LaFrance subsidiary, a business unit of Freightliner LLC. The German company will make a US$35-million investment in the 460,000-sq.-ft. (42,734-sq.-m.) facility in Ladson, where some 250 people will work on the new assembly line when production of the 2007 model begins there in late 2006.

"A comprehensive logistics study, conducted by DaimlerChrysler's Commercial Vehicles Division, found Ladson to have a clear strategic manufacturing advantage," said the company in its announcement. Among the Ladson site's chief strong points was the fact that the kits from which the vans are assembled already land directly at the Port of Charleston from Europe. Should the North American market warrant it, DaimlerChrysler plans a further factory expansion including body and paint shop.

The American LaFrance unit has been sold. Meanwhile, the 70 or so employees at Freightliner's Gaffney, S.C., facility who had been performing kit assembly of the Sprinter will be repurposed themselves to other work within the Freightliner division.

"The Ladson location will provide an immediate increase in annual output to 32,000 units, roughly 10,000 more than is possible today in Gaffney, as a first step to react to market demand," said Dr. Rolf Bartke, head of Mercedes-Benz Vans business unit. The Ladson investment is approximately three times what the company invested when it launched the Gaffney operation in 2001.

How much did the Palmetto State have to pay for this? Only half a million dollars in infrastructure grants, some job-creation credits and tax credits. Should the investment rise to the company's target level (depending on vehicle sales), the infrastructure grants will rise accordingly to $15 million.

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