Carmakers drive cash into US plants

Toyota unveiled a C$500m-plus ($521m) plan on Tuesday to upgrade its two car assembly plants in Ontario, adding to a string of recent investments by carmakers in their North American operations.

The new round of investments, totalling at least US$4bn, marks a sharp reversal of the plant closures and cutbacks of the past few years as the industry aligned capacity with shrinking demand.

US new car sales have now recovered from a low of little more than 9m vehicles (seasonally adjusted annual rate) in early 2009 to more than 13m this spring. Sales in June slipped below 11.5m but analysts expect a recovery during the second half of the year.

General Motors has announced projects totalling $2bn at 17 facilities in eight states. The largest is a $331m expansion and modernisation of its Arlington plant in Texas, which builds large sport-utility vehicles.

Ford Motor is spending $600m to overhaul a plant in Kentucky to produce a new model of its small Escape sport-utility vehicle.

One common thread among the latest slew of investments has been financial support from governments at various levels. Canada’s federal government will contribute $71m in interest-free loans to Toyota’s latest projects, while the province of Ontario will provide an outright grant of similar value.

Toyota also restarted work last year on a $1.3bn assembly plant in Mississippi after suspending construction during the recession. The plant, which will initially build small Corolla sedans, is due to start production this autumn.

South Korea’s Hyundai announced in May that it would spend $173m on a new engine plant at its assembly facility in Alabama. Speculation is rife that Hyundai will also expand the six-year-old assembly plant in line with its fast-growing North American sales.

The North American investments are in marked contrast with Europe, where industry sales are down about 1 per cent this year and carmakers resis­ted closing plants during the crisis, leaving the industry with overcapacity.

The only big carmaking facility under construction in the European Union now is Daimler’s €800m ($1.2bn) plant to build compact cars in Kecskemét, Hungary, from 2012.

According to PwC Autofacts, a research consultancy group, North America’s car industry will have registered a net loss of 1.7m units of capacity between 2007-12, with 19 plants closed and another seven opened. During the same period, the EU eliminated just 30,000 units of capacity as eight plants were closed and another seven were opened, according to PwC.