Wednesday, January 18, 2012

Auto Plants Are At Capacity and Adding Third Shifts Around the Country, Boosting Local Economies

Bloomberg -- "Bobbi Marsh puts her 11-year-old son to bed each night and then heads to her job at General Motors Co. (GM)’s metal-stamping plant in Lordstown, Ohio. She gets home in time to make him breakfast.  Marsh, 34, is one of thousands of auto workers in the U.S. benefiting from the return of a third shift at factories -- often from 11 p.m. to 7 a.m. -- translating to 24-hour-a-day production at many plants for the first time since the industry collapse in 2009. At the nadir, some plants ran only one eight- hour shift. 

The new third shifts, adding more than 4,300 jobs in four states at GM alone, bring jobs to the economy and revenue to governments as well as demand at odd hours for everything from daycare and dentistry to financial services and food. U.S. auto plants this year may operate at about 81 percent of capacity after falling as low as 49 percent in 2009, according to estimates from IHS Automotive in Northville, Michigan. 

U.S. Automakers are increasing production at the car plants after the U.S. light-vehicle sales rose by at least 10 percent for two straight years for the first time since 1984 and grew at a faster rate than China, the world’s biggest auto market, for the first time in at least 13 years. States that were hard-hit by the downturn, such as Michigan and Ohio, are among the biggest beneficiaries, adding jobs at places like Ross’ Eatery & Pub and Tony M’s Restaurant that operate near GM auto factories."

41 Comments:

At 1/18/2012 5:45 PM, Blogger Buddy R Pacifico said...

This could be a very good year for automakers because the average vehicle in the U.S. was built in 2000 or 2001 (10.7 years). I was surprised the average car was this old. If the average car is driven 12,000 annually, then the odometer reads at least 120,000 or 192,000(km)!

Auto manufacturing strength is very good news.

 
At 1/18/2012 7:28 PM, Blogger Marko said...

Pent up demand, the first sign things are getting better.

I bet the president will come out and take credit for this, when the real credit goes to those hard working employees and executives at those companies.

 
At 1/18/2012 7:41 PM, Blogger juandos said...

Bet it aint happening at the Chevy Volt plant...:-)

 
At 1/18/2012 7:41 PM, Blogger juandos said...

This comment has been removed by the author.

 
At 1/18/2012 8:03 PM, Blogger Cabodog said...

If you enjoy reading good economic news, here's more:

http://www.latimes.com/business/money/la-fi-mo-auto-industry-hiring-20120112,0,7863302.story

It's not just consumer autos, but heavy trucks also.

 
At 1/19/2012 2:51 AM, Blogger FANdoo deals said...

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At 1/19/2012 7:33 AM, Blogger Methinks said...

So delighted that a company dependent on myself and other taxpayers for life-giving subsidy is adding third shifts.

Now, there will be more "jobs" to "protect" the next time Government Motors comes to Washington to convince congresscritters they must have more of my money.

Normally, I'd take this as a good sign, but with the distortions piled on by government, it's difficult to tell if the market is recovering or if it's just the result of government smoke and mirrors. The signals are all messed up.

 
At 1/19/2012 9:16 AM, Blogger Jon Murphy said...

So delighted that a company dependent on myself and other taxpayers for life-giving subsidy is adding third shifts.

While I agree with your assessment, Methinks, there is some more going on here. The article only mentions GM, but Ford (who never received subsidies) and Chrysler (who is now owned by Fiat) are both doing very well.

As Buddy mentioned, the average vehicle on the road is nearly 11 years old. Additionally, consumers have been going for luxury vehicles and those with fancy add-ons, further signs of increasing demand. Annual Production is at 2007 levels! So are retail sales! This is all good news.

Should we be skeptical of the auto companies and their unions? Of course (they should probably start paying us back at some point like the banks already have done). But, as a sign of the overall economy and consumer demand, this is a very positive sign.

 
At 1/19/2012 9:17 AM, Blogger Jon Murphy said...

Ford (who never received subsidies)

I should mention I mean subsides from TARP in 08-09.

 
At 1/19/2012 10:04 AM, Blogger Methinks said...

Jon, you make some very good points.

However, how much of that is real recovery and how much is the effect of artificially low interest rates?

Is the economy recovering or is the Fed fueling another credit bubble? Artificially low nominal interest rates make it difficult to discern.

Also, I'm not sure that replacing 11 year old cars is necessarily a sign of recovery. The cost of maintaining old cars is quite high.

 
At 1/19/2012 10:16 AM, Blogger Jon Murphy said...

Is the economy recovering or is the Fed fueling another credit bubble? Artificially low nominal interest rates make it difficult to discern.

Also, I'm not sure that replacing 11 year old cars is necessarily a sign of recovery. The cost of maintaining old cars is quite high.


You also make some very good and legitimate points.

Allow me to address your second point first. The replacing of aging cars in and of itself does not mean anything. People replace old cars all the time. It's more an age thing. During a recession, or even a period of mild economic expansion, consumers are often unwilling to take on another loan payment, and will opt to repair cars as opposed to buying new. This is why we have seen the average age of cars (and heavy duty truck fleets) go up. As the average age drops, it will signify consumers are opting for newer cars as opposed to repairing the ones they have.

As to the artificially low interest rates, I think you're giving the Fed too much credit here. Interest rates have been at or near historically low rates for the last several years. Why are consumers now starting to buy? I think it's confidence in the economy. As I mentioned, consumers were unwilling to stomach another monthly payment over the past two years and did their best to avoid extending their credits with new loans. Now, I think we are seeing demand begin to react to a more positive economic environment, not to the low interest rates.

Of course, I may be wrong.

 
At 1/19/2012 10:51 AM, Blogger morganovich said...

i'm a bit confused by this.

in 2005-6 us vehicle sales were 17-17.5 million.

in 2011 they were 12.7mm.

that's down over 25%.

so how is it that these plants are all suddenly running at capacity?

were there a large number of plant closures?

has there been a huge market share shit toward cars made here?

i was not aware that either of those things had happened at a large enough scale to account for a market that is 25% smaller eating up all the capacity.

anyone have any info there?

 
At 1/19/2012 10:54 AM, Blogger morganovich said...

jon-

another factor worth considering is that the age of the us vehicle fleet is at record highs (10.8 years).

cars only last so long.

when you start to push the age of the fleet out that far, replacement becomes less and less optional.

this may be playing a role in demand as well.

 
At 1/19/2012 11:00 AM, Blogger Jon Murphy said...

so how is it that these plants are all suddenly running at capacity?

Plants have closed, or gotten more lean. Also, (and this is big) the Japanese auto makers have shifted more production here from Japan since our exchange rates are more favorable than the Yen.

 
At 1/19/2012 11:00 AM, Blogger Methinks said...

Jon Murphy,
Sure, I can see the argument for decreasing average age of cars.
I think it's confidence in the economy
A recovery in PCE could be a sign of increased confidence in the economy. But, confidence does not reality make (note that all bubbles are positively brimming with confidence in the economy). It could just be that people are realizing that at negative real interest rates toilet paper is a better investment than most safe assets. And it could also be a result of moral hazard. There are a lot of people who have found that defaulting on their mortgage has not been accompanied by the consequences they expected. Plenty continue to live in properties on which they have stopped paying their mortgage and defaulting on debt just doesn’t carry the stigma it used to. People learn and adapt to new realities.
Although PCE has recovered, investment has not. You would think that if the economic outlook were truly better, investment would have also rebounded.
It’s not that what you say hasn’t any merit, it’s just that government distortion makes the signals a lot less clear.

 
At 1/19/2012 11:12 AM, Blogger morganovich said...

jon-

"Plants have closed, or gotten more lean. Also, (and this is big) the Japanese auto makers have shifted more production here from Japan since our exchange rates are more favorable than the Yen."

do you have any data on that?

on what are you basing that?

thanks.

 
At 1/19/2012 11:17 AM, Blogger Jon Murphy said...

Morganovich:

Here is an article on the Japanese auto makers: http://www.torquenews.com/397/japanese-automakers-moving-more-production-north-america

As for data on plant efficiency, I don't have any rock-hard data at my fingertips, but anecdotes from my dealings with industry executives.

 
At 1/19/2012 11:19 AM, Blogger Jon Murphy said...

Methinks:

You are correct. In reality, it's probably a combination of our theories that is the real truth.

 
At 1/19/2012 11:31 AM, Blogger Methinks said...

Yes, Jon Murphy, IMO one tragedy of government meddling is that it makes it so much harder to figure out what the hell is really going on.

 
At 1/19/2012 11:32 AM, Blogger morganovich said...

jon-

but if japanese manufacturers are adding capacity in the US, that would up capacity and thus drive down the utilization rate making it even less likely that plant would need to run 3 shifts.

it seems to be that you'd get more slack, not less.

it seem like this would offset closures, not enhance their effects.

so i am still left puzzled by this purportedly tight capacity.

 
At 1/19/2012 11:35 AM, Blogger morganovich said...

jon-

plant efficiency would seem to also keep utilization low, not drive it up and require third shifts when output remains off 25%.

the trends you cite (other than plant closures) seem to work against needing a third shift, not creating it.

 
At 1/19/2012 11:41 AM, Blogger morganovich said...

"Although PCE has recovered, investment has not. You would think that if the economic outlook were truly better, investment would have also rebounded."

a worrying trend within this is that savings rates have plummeted again and we are seeing huge increases in people raiding their IRAs and 401k's (up 60% in the lower income brackets)

something like 1/3 of 401k's now have a loan out against them as, unable to tap home equity, people are borrowing against whatever they have left.

chicago fed president evans was also concerned about a recent spike in credit card balances.

some of this may have to do with how low returns to investment have been, but running down savings to pay for current consumption is neither sustainable nor an enhancer of future stability/prosperity.

 
At 1/19/2012 12:43 PM, Blogger sethstorm said...


Jon Murphy said...

For as much de-Americanization of their lineup, Ford should be classes as an import manufacturer. Seems like they let a bunch of hippies & Europeans in for doing the car design. Given that, I'd rather consider a Chrysler than a Ford these days as an alternative to GM.




Buddy R Pacifico said...

About where my Michigan-built Oldsmobile stands. Still don't regret buying it.

 
At 1/19/2012 12:53 PM, Blogger morganovich said...

buddy-

"Auto manufacturing strength is very good news."

well, that sort of depends, doesn't it?

one could look at it another way and say that the fleet of cars is old enough that people who do not really want to be buying (or can even necessarily afford to buy or want to go into debt over) a new car are going to be forced to do so as their existing vehicle wears out.

sure, it's great news for the automakers, but that would be bad news for the consumer.

i have no idea how to try and apportion additional demand between a need to replace a worn out car vs better demand due to a better economy, but to the extent that it's the former, isn't calming that strength in auto sales a bit of a broken window fallacy?

i mean you could prop up the real estate and home-building industries with a tornado too, but it's hard to see that as a good thing.

 
At 1/19/2012 1:30 PM, Blogger Jet Beagle said...

morganovich: "so how is it that these plants are all suddenly running at capacity?

were there a large number of plant closures?"


In 2009, GM announced 13 plant closings. Not sure if there were more.

 
At 1/19/2012 1:31 PM, Blogger Methinks said...

Agreed, Morganovich.

 
At 1/19/2012 1:34 PM, Blogger Jet Beagle said...

morganovich,

In 2009, Chrysler announced that 8 plants would close.

 
At 1/19/2012 1:44 PM, Blogger morganovich said...

jet-

ah, ok. thanks.

that looks to have been about 40% of GM's NA plants which would wind up making this make sense.

i did not realize they had cut so deeply.

 
At 1/19/2012 1:48 PM, Blogger Buddy R Pacifico said...

morganovich,

Yes, U.S. automobile manufacturing strength is very good news.

Is a generation of autos the same as a wave of broken windows or a tornado? No.

Auto consumers are deciding that higher maintenance and and fuel costs for their old cars, is no longer economically rational.

Other points to consider:

Borrowing rates are low.

Employment is gradually rising.

Overall energy costs are dropping and that frees-up other purchases.

All this puts the consumer in a new driver's seat, of a more economical and even longer lasting ride.

 
At 1/19/2012 2:03 PM, Blogger morganovich said...

buddy-

if you buy a new car because your old one breaks down and isn't worth fixing, that's an expense.

if you ran a factory and your die cutter broke so you had to buy a new one, it would hurt profits.

a car could well be no different.

to the extent that the current impetus to buy is driven by a need to replace a worn out car, it's a sign of fiscal stress, not success.

that's money that cannot be spent on other items.

at a time when savings rates are plummeting and retirement accounts are being raided to buy food, i have some doubts about people really being in such an ebullient mood about buying new cars.

overall energy costs are up 6.6% from a year ago in the latest CPI.

i'm not sure how you get "dropping" from that. you always get a seasonal drop in prices around now that picks up in the spring/summer for driving season. be careful looking at sequential moves as opposed to year over year.

 
At 1/19/2012 2:37 PM, Blogger Buddy R Pacifico said...

morganovich states:

"if you ran a factory and your die cutter broke so you had to buy a new one, it would hurt profits.

a car could well be no different.

to the extent that the current impetus to buy is driven by a need to replace a worn out car, it's a sign of fiscal stress, not success."


I disagree. A worn out car is a cyclical interval. A broken die cutter is a crisis. Waiting to replace that die is a sign of fiscal stress. One is a mainteance/replacement cycle and the other is unplanned.

Alternately:

The die cutter replacement could be a result of the availability of stronger new alloys. The new alloys may provide higher tolerance cutting and longer life.

The new automobile purchase is probably the result of the availability of lower maintenance vehicles, with much better fuel efficency.

On lower energy costs, I should have said lower heating costs, becuase of natural gas price drops.

Morgan, I would be guess your occupation requires much skepticism, but you are over thinking about strong auto sales.

Yes, savings and investments are dropping, but an auto purchase after 120,00 miles could be a rational use. Maybe the savings from little maintenance and less fuel from new vehicles, will inspire extra $ into S&I.

 
At 1/19/2012 2:59 PM, Blogger morganovich said...

"I disagree. A worn out car is a cyclical interval. A broken die cutter is a crisis. Waiting to replace that die is a sign of fiscal stress. One is a mainteance/replacement cycle and the other is unplanned."

this distinction seems meaningless to me. a broken down car when you need it to commute is a crisis too.

die cutters are cyclical, just like cars. they wear out. when they break, you make a repair vs replace decision.

it's exactly like a car, and in both cases, you can be forced to spend money that you really didn't want to, but need to.

you make this claim:

"The new automobile purchase is probably the result of the availability of lower maintenance vehicles, with much better fuel efficency."

but i don't see how you could possibly back it up. how do you know why they are buying cars? you yourself cited the age of the fleet, yet now you seem to want to dismiss that as a factor.

sure, some cars are likely being bought for the reasons you describe. i'll be getting a new car delivered in the spring because i want one and can afford it. i'm not denying that that happens. but i do think that more so than in typical periods, cars are being bought out of need as the existing ones break. to the extent that that is true, it is s sign of stress on consumer balance sheets and will result in a decline in other purchases. a new monthly payment has to come from somewhere.

maybe yo get better fuel efficiency and less maintenance, but you are also putting money down and picking up a new payment.

i think you are really ignoring the distinction here between buying somehting new for a reason and being forced to replace somehting that broke.

general consumer behavior around savings and credit current shows a consumer having trouble making ends meet. that's not when you generally go buy a new car.

 
At 1/19/2012 3:04 PM, Blogger morganovich said...

also worth noting:

while 12.7 million is certainly a lot better than the numbers from 2009-10, it's still a very depressed sales number.

sales were 13.6 million in 1973 with a population nearly 1/3 less than now.

 
At 1/19/2012 3:07 PM, Blogger Jon Murphy said...

Morganovitch:

I do have an answer for you, but it's busy here. I'll try to remember to drop by after work.

 
At 1/19/2012 3:28 PM, Blogger Ron H. said...

morganovich: "has there been a huge market share shit toward cars made here?"

Did you mean to write: "has there been a huge market share toward shit cars made here?"

:)

 
At 1/19/2012 3:44 PM, Blogger morganovich said...

ron-

no, that would be redundant.

 
At 1/19/2012 4:00 PM, Blogger Jet Beagle said...

morganovich: "sales were 13.6 million in 1973 with a population nearly 1/3 less than now."

Not sure if I'm a typical Boomer, but I certainly keep vehicles longer than I did back in the 1970s. Styles seemed to change every year back then. Engines/transmissions/brakes/shocks had to be replaced or repaired frequently.

 
At 1/19/2012 4:14 PM, Blogger Jet Beagle said...

Ron H:'Did you mean to write: "has there been a huge market share toward shit cars made here?"'

Ron, are you implying that autombiles built in the U.S. are not high-quality?

My wife recently purchased her fourth U.S.-made Honda Accord since 1986. The first three were quality automobiles, and she kept each one 8 years.


Not sure if there's a correlation, but not one of those high-quality Hondas was produced by a UAW member.

 
At 1/19/2012 7:30 PM, Blogger Ron H. said...

Jet: "Ron, are you implying that autombiles built in the U.S. are not high-quality?"

No, I was having fun with morganovich's typo, knowing his opinion of domestic cars.

"My wife recently purchased her fourth U.S.-made Honda Accord since 1986. The first three were quality automobiles, and she kept each one 8 years."

I agree that those are very high quality cars. I am driving a 2010 Camry that has so far, in the 2 1/2 years I've owned it, required no repairs. I've changed oil, and rotated tires only. I'm very pleased with it, and hope to drive it for many years.

I can't help contrasting the great treatment I've received at the Toyota dealership with the indifferent treatment I've received at a nearby Ford dealership who has serviced my truck.

 
At 1/19/2012 7:36 PM, Blogger Buddy R Pacifico said...

morganovich states:

"you make this claim:

"The new automobile purchase is probably the result of the availability of lower maintenance vehicles, with much better fuel efficency."

but i don't see how you could possibly back it up. how do you know why they are buying cars? you yourself cited the age of the fleet, yet now you seem to want to dismiss that as a factor."


Whoa Morgan. Dismissive, no. The interval is the life-cycle of the vehicle vs. choosing to go beyond with much higher maintenance costs. So, the choice is to buy a new car that also gets much better fuel mileage.

 
At 1/20/2012 8:48 AM, Blogger Jon Murphy said...

Morganovich:

Sorry about the lateness of this reply. Last night got a little busy.

I think the thing to remember here is that we are in the short run. Plants are increasing production and adding shifts because they cannot expand their plants at this moment in time (over the next year or two, sure, but not right now).

 

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