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End-use outlook: automotive big three see the light.

Article Excerpt
GM, Ford and DaimlerChrysler are finally retrenching in an effort to stem the loss of market share to New Domestics like Toyota, Honda and Nissan. What are the implications for automotive metals suppliers?

Despite the dramatic headlines on plant closings and job cuts at GM and Ford, North American production of passenger cars and light trucks is projected to increase slightly this year and next. Growing vehicle output from New Domestic automakers such as Toyota, Honda and Nissan, and low dealer inventory levels, are helping to prop up production.

This is good news for automotive industry suppliers of steel and aluminum, who expect stable shipments to the sector despite the waning popularity of metal-intensive sport utility vehicles. According to industry data, the automotive market consumes 30 million tons of steel each year, roughly 25 to 30 percent of steelmakers' total demand. Similarly, about 5 billion pounds of aluminum is consumed by automakers each year, an average of 319 pounds per vehicle.

North American auto sales and production in the past few years have been very steady, by historical standards, and should remain so for the next year or two despite cutbacks by Big Three carmakers, says George Pipas, sales analysis manager for Dearborn, Mich.-based Ford.

Ford has announced plans to reduce its assembly capacity 26 percent by 2008 with the closure of seven assembly plants. Ford's announcement came a few months after GM said it plans to cut its vehicle assembly capacity by about 1 million units in the same timeframe as part of a major effort to reduce manufacturing costs, revitalize its product line and improve the profitability of its North American business.

While these moves will significantly decrease the North American production capacity of the two automakers starting this year, it won't necessarily mean fewer vehicles will be produced, as the facilities involved are now substantially underutilized, Pipas explains. For example, Ford's St. Louis and Louisville, Ky., assembly plants both make the Ford Explorer and Mercury Mount-aineer. Last year both facilities operated with substantial and frequent downtime. By idling the St. Louis facility and moving its production to Louisville, the automaker can operate much more efficiently and achieve the same output.

By getting capacity more in line with demand and better utilizing assembly operations, year-over-year production should decline only modestly. Ford expects production to dip 3 percent in the first quarter and 2 percent in the second quarter compared with last year, Pipas says. "In the scheme of things, these reductions are insignificant. For all of last year, our production was down 6 percent. So this is half of last year's decline."

Though some automakers are closing certain production plants, others are beefing up other locations. In mid-February, GM announced that it was also investing more than $545 million...

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