Southern Hospitality

Honda workers crank out Accords at the oldest of the import domestic plants. Honda opened the Marysville, Ohio, facility in 1982.

The Lincoln Highway could come to serve as a solid line of demarcation between the U.S auto manufacturing industry of the last century and the burgeoning new industry of this century. Nearly all of the new auto assembly plants in place or going into place are located south of the Lincoln Highway as it meanders across the countryside. Yes, the strategy seems to be shifting to the mid south and deep south, but that’s not where it all started.

Brought into being through the efforts of Indianapolis Speedway creator Carl Fisher, Goodyear’s Frank Seiberling and Packard’s Henry Joy, the Lincoln Highway was conceived in 1912 as the first paved highway running from coast to coast, connecting New York to San Francisco.

Although it starts and ends in large cities, the only large cities that lie in its path are Philadelphia and Pittsburg. In Gettysburg, Pa., it lies just 10 miles north of the Mason-Dixon Line. This highway is all about rural settings that shun complexity, sophistication, overtaxed and strangled infrastructure. It travels through latitude that’s largely devoid of attitude. Honda’s Marysville, Ohio, plant is just south of the Lincoln Highway, as is Mitsubishi’s Normal, Ill., plant and so is the Toyota/General Motors NUMMI joint venture in Fremont. Calif., which does happen to be a UAW shop. Hey, GM’s Saturn operation is situated there as well.

Dotting the Tennessee Valley, the foothills of the Appalachians, the Mississippi Valley, thousand of suppliers and service providers have set up operations to service the new, but established OEM operations of the overseas based domestic assemblers.

It started with Honda’s Marysville plant, celebrating its 21st year next month, but that proved to be no more than a wake up call for the deaf. It was a treated as a curiosity, but even after the trend became contagious and overseas based assemblers spread elsewhere no substantive actions were taken to level the playing field.

Honda remained on the move. The engine plant in Anna, Ohio, opened in 1985. A Canadian assembly plant was added in Alliston, Ontario, in 1986. An assembly plant went into place in East Liberty, Ohio, in 1989. Automatic transmissions started production in Russell Point, Ohio, in 1996. Honda Manufacturing in Lincoln, Ala., started producing the Odyssey and V6 engines in 2001.

Plants were also added for other products like lawn mowers, ATVs and the engines that power them in North and South Carolina. To date, Honda has now built more than 20 million vehicles and 50 million other power products here in North America.

But it would only a matter of time before these plants got union organized, right? That would square the deck. After 20 years it is demonstrably apparent these workers like the way they are treated, are satisfied with their benefits, their lifestyle and their job security. They simply don’t see the need to have a third party between them and the company. To the UAW, they just say No!

In 1982, the domestics did get lucky with the onset of the minivan, pickup truck and SUV craze. It was like hitting the lottery for the domestics. The Japanese and Europeans didn’t see that coming at all and these were vehicles of little interest in home or other markers. But the very success of the domestics in these models served to mask the market share problems they were having with conventional automobiles. The war of attrition in passenger car market share was taken square on the chin.

Big 3 UAW negotiations recently concluded peacefully and with some concessions that attempt in small ways to close the gap between transplants and domestics. But strapped with delirious pension costs, medical benefits only a teacher would expect, and substantially higher wages, that gap is still a chasm.

The new mood of collaboration is a hopeful sign, but not much has been accomplished in two decades and it’s doubtful the Big 3 will have 20 more years to solve the puzzle. It could be argued that had they not caught that truck craze right, there would have been no reprieve from the transplant onslaught. Without the minivan bonanza, Chrysler would clearly be history.

The temporary hiatus has ended. The earlier paucity of product offerings in the minivan, truck and SUV segments among Japanese and European builders and their heavily skewed U.S. market specific consumption have served to accelerate the assault of overseas based assemblers and they have chosen the mid south and deep south as the current destinations of choice. Now they have the truck and SUV product well in hand, a second wave is now surging. These topics were extremely active subjects of discussions at the recent Management Briefing Seminar in Traverse City, Mich.

Presentations by Japanese auto executives were particularly well taken in and attended. What are their secrets to success? What can we emulate and build into our own processes and products?

A Nissan worker (above) assembles a Quest minivan at the Canton, Miss., assembly plant. Along with Quest and the Altima and Maxima sedans, Nissan will also build the Titan pickup (below) as well as the Pathfinder and Infinity large SUVs.

Suppliers believe they are more fairly treated and rewarded by the overseas based domestic assemblers and they are keen to get aboard these new initiatives and those in the future. Tadao Takahashi, executive vice president of manufacturing, Nissan Motors, discussed the company’s bold “180” program, which calls for an increase new unit sales by 1 million vehicles between October ’02 and September ’05; achieve an 8 percent operating margin; and “0” net automotive debt. Boosting global sales to 3.6 million translates to a 38 percent increase over three years.

This will be achieved, says Mr. Takahashi, “In a combination of new capacity and increasing existing capacity utilization, we will be able to manufacture 1 million more units by 2005. We anticipate our existing capacity utilization rate will rise to about 87 percent in 2005 from around 73 percent in 2001. By increasing capacity utilization, we are able to increase production volume while reducing costs.”

Nissan is adding the next generation of the Pathfinder SUV to the line at Smyrna, Tenn., in the fall of ’04, bringing production capacity there up to 550,000 vehicles per year. “But Nissan’s big manufacturing news,” says Takahashi, “is the brand new Canton, Mississippi, plant which will have a capacity of 400,000 vehicles annually. The second stage of construction is under way right now.”

The Nissan Quest minivan launched last May, followed by the Pathfinder Armada in August, the King Cab and Crew Cab Titan in October. A full size Infiniti SUV launches in the first quarter of 2004 and Canton becomes a second source for Altima later next year. Altima is currently built in Smyrna.

Nissan has developed what it calls the Nissan Integrated Manufacturing System (NIMS) and it is based on highly flexible lines that can handle four platforms and eight body types on the same main line at the rate of 60 jobs per hour. Modules are delivered to the main assembly line in sequence from suppliers who are either on-site, in nearby supplier parks or in a nearby supplier logistics center. At this center, suppliers put finishing touches on components without the expense of building a complete plant. The NIMS assembly process is being implemented on a global basis.

Through this process, says Takahashi, “Different models sharing similar platforms are being produced in Kyushu, Smyrna and Canton. It’s possible for each of these models to be manufactured in each plant because of NIMS. This is what we mean by efficiency and flexibility of production.

“Although they share the same platform, they have unique body structures and different wheelbases. But what is more interesting is that these models are using the same assembly line. Another feature that we realized through NIMS is that the capacity level is firm even when new models are introduced.”

The motivation for states like Mississippi to pony up $363 million plus tax incentives, which it took to deliver Nissan to Canton, is the immediate economic impact of creating 5,300 jobs at the plant itself but even more so for the multiplier effect auto plants bring through component, logistic and other service providers. A multiplier of 5 to 6 is typically applied. But there is also this, deals beget more deals. Big deals beget big deals and establish the state as a global player.

Toyota is another manufacturing powerhouse of the overseas based domestic assemblers, having built 1.2 million vehicles and 1.4 million engines and transmissions in 2002 and likely to build something more than that this year.

According to Atsushi Niimi, president of Toyota Motor Manufacturing NA, “Toyota has invested nearly $14 billion in North America in plants, land, machinery, people and more. Nearly 100 percent of the earnings from our North American operations are retained or reinvested here.”

There are four Toyota assembly plants in North America, three in the U.S. at Georgetown, Ky., Princeton, IN, the NUMMI joint venture in Fremont, Calif., and a Canadian plant in Cambridge, Ontario. Assembly operation opens next year in Tijuana, BC, for truck bed and in 2006 for the complete Tacoma assembly.

A welder at Toyota’s Kentucky manufacturing plant lights up the line. Toyota will build the next generation Tundra pickup (the current DoubleCab shown below) at a new $800 million San Antonio, Texas, plant opening in 2006.

But the big Toyota project news is the plant announced in May for San Antonio, Texas, where 2000 new employees will start assembling the Tundra pickup in 2006. The $800 million investment results in capacity for 150,000 full size Tundra’s annually, and will be Toyota’s southern most location in the U.S. Locating a truck plant in the top selling truck state in the union sounds like nothing but a good idea. After all, what will Buba drive now? A Texas truck built by Texans will surely give legs to market share gains. It can’t fall otherwise. Toyota consistently tops the J.D. Power surveys and the secret seems to be as much in the employee training and product development process as in the production machinery. And that training has as much to do with company culture as it does with equipment and technique.

Behind the development process is Toyota’s “obeya” concept, which translates to “big room” in English. The obeya group is like a ‘cross functional team.’ But instead of weekly meetings, it is an ongoing session. The group would typically include engineers, design stylists, suppliers, assembly workers and members of our marketing team.

“One of the ideas behind obeya,” says Niimi “is to shorten the PDAC cycle. In the concept of PDAC or Plan, Do, Check, Action, each part of vehicle development goes through certain steps — planning an activity…conducting the activity…checking the results…and acting on those results.

“In the past, each PDCA cycle would take weeks — with site visits, video conferences, and countless e-mails. But with obeya, there could be several PDCA cycles per day.” For the development of Sienna, the concept was expanded and elevated to a much broader level. The obeya location was physically moved based on the development need, a “traveling obeya.” It moved from Japan to Ann Arbor, to manufacturing headquarters in Erlanger, Ky.…back to Japan and then to Princeton, IN, where Sienna is built.

“The reason obeya works so well,” says Niimi, “is that it’s all about immediate face-to-face human contact. Also, new computer software enabled us to ‘virtually’ design and assemble nearly every component of the new Sienna prior to the production of a single prototype part.

“Thanks to this we were able to look at ‘ergonomic human factors’ from the initial design stage. The digital assembly software was so detailed and true-to-life that animated human workers were programmed to perform each assembly task.

“We gained a clearer, cleaner more accurate blueprint of how the vehicle would emerge from the assembly line. The result? Fewer changes, saved time and reduced cost.”

A somewhat surprising new manufacturing entry in the deep south is Hyundai, which is investing $1 billion for an assembly plant in Montgomery, Ala., to build 300,000 vehicles, half of them Sonata’s and half Santa Fe SUVs.

The 1,700 acre site was given to Hyundai by the state of Alabama and in its initial phase the plant will employ 2000 workers when fully operational. Hyundai will bring approximately 400 employees to Korea for training.

The facility will include stamping as well as engine assembly. Transmissions will be imported. A two mile test track is planned for testing every vehicle before shipment. Start up on the Sonata is March, 2005, with the Santa Fe SUV to follow in January, 2006.

Announcing the start up, Mong Koo Chung, chairman of Hyundai Automotive Group, said “Hyundai is in the process of doing more design and engineering in the United States so our products will be even better adapted to the American consumer’s needs and tastes.”

Some 36 Tier 1 suppliers have already signed on to this project, 13 of them committing to building facilities near the plant. Most of them (see list) are Korean based companies making their first venture into the North American market. They will supply on a just-in-time, in-sequence basis. Those facilities alone represent an additional investment of $500 million and are projected to generate another 3,500 jobs. The state is expanding the Port of Mobile to accommodate Hyundai and others, including the Tuscaloosa, Ala., plant of Mercedes Benz.

There a new $600 million expansion is underway to produce the successor to the M-Class SUV as well as the all-new Mercedes Grand Sports Tourer (GST). The workforce is being doubled to 4000 and will now have production capacity of 160,000 vehicles.

Making the announcement in late September, Professor Jurgen Hubbert, DaimlerChrysler Board of Management member responsible for the Mercedes Car Group, said “The plant expansion and the addition of another production series give the Tuscaloosa site a more prominent place within the global Mercedes-Benz production network. The key reasons for Mercedes-Benz U.S. International’s success are the excellent partnership between the state of Alabama and our company and, of course, our employees’ dedication and team spirit.”

And so the cart of the juggernaut moves forward seemingly crushing all in its path. That’s probably overstated, but the exploits of the overseas based domestic assemblers do have an excellent track record with product, price, productivity and profitability. Quality is also on the money.

Analyzing all this activity at Traverse City, Mike Wujciak, vice president, Global Automotive Consulting, Cap Gemini Ernst & Young, explained that overseas based assemblers invest in manufacturing here because it is the largest market, has little political tension, has strong potential for growing sales, and to capture incremental worldwide sales and also provide some insulation against currency fluctuations.

He makes the point that American consumers do benefit from more manufacturers, more products, more choices, more competition resulting in better quality and higher overall value.

Of Nissan, Wujciak believes momentum and history are on their side with strong new products that improves its prospects in spite of the generally stagnant demand in North America. “The Titan launch and Canton Plant are a clear indication they can crowd the market in all major segments and are comfortable taking on Detroit’s Big 3,” he says.

Of Toyota, he notes the Japanese market at home is stagnant and even saturated and its plants here are operating at full stretch. “Adding yet more capacity to this region is a bold move, and forms part of Toyota’s plan to take a 15 percent global market share by the end of the decade,” he commented.

And there is much to be said for the Greenfield site anywhere, the tabula rasa, the clean slate. In particular on the logistics side there are opportunities to leverage such that on the inbound alone the savings can amount to 10-20 percent.

Wujciak and his fellow analyst at Cap Gemini, Gary Allen, released a study in late September indicating that third party logistic suppliers (3PLs) were eminently successful. When quantified on a five point scale in a study of 13 of the largest OEMs and auto suppliers, the mean response for success or extreme success was 4.3.

Allen feels the overseas based domestic assemblers do it better. “Not that they couldn’t actually leverage it even more,” he tells AI, “and one of them is on the verge of doing just that. Generally, they are just more consistent day to day and year to year. Management is more consistent. It may take them longer to build consensus, but once they do the plan is set.

“They are also better at partnering, making joint ventures, owning a piece of the action so the costs are transparent to both parties and there is a commitment to make the venture profitable. The transplants are certainly better positioned to tap into this potential.”

As an island nation, Japanese industry has always been all about logistics. If there are no inbound raw materials, there surely can’t be any outbound goods. It’s a mindset. So it doesn’t make much difference if materials are coming by ship into Yokahama or Mobile or by interstate truck into San Antonio? Just another part of the process. The overseas based assemblers simply know how to continuously add value, lower costs and consistently turn out quality products.