There's no slowdown in plant investment

If the U.S. auto industry is so worried about a slowdown, why are so many decision-makers suddenly writing checks to invest in assembly plants?

Automakers are thinking beyond the weakening market of 2019 to more robust times ahead.

• Last week found General Motors in discussions with Missouri officials about its plan for a billion-dollar project at its midsize pickup and commercial van plant in Wentzville, near St. Louis. Late last month, GM said it would expand production at its plant in Bowling Green, Ky., by adding a second shift.
• Fiat Chrysler Automobiles in February announced it will invest $4.5 billion in southeast Michigan to modernize several plants and usher in the next phase of Jeep products. The City of Detroit said last week it assembled around 215 acres needed for a key piece of the project: the conversion of the Mack Avenue Engine Complex into a hub for the next-generation Grand Cherokee and a three-row Jeep that potentially could slot below the upcoming Grand Wagoneer.
• Toyota Motor North America last week said it will spend $1.1 billion to move its Lexus NX crossover into production in Ontario. The company also has announced a U.S. manufacturing expansion, committing $749 million in new investments to add about 600 jobs at plants in five states.
• A $1 billion expansion project is underway at Mercedes-Benz's factory in Vance, Ala., for electric vehicle production.
• America Honda said last month that it will suspend the second shift on a line in Marysville, Ohio, to retool it to begin building electrified vehicles.
• Ford Motor Co. said in February that it will spend $1 billion on its plant in Chicago to launch three new utilities there.

Indicators of a North American industry slowdown?

Hardly — despite signs that might suggest otherwise.

April ended with sales of 1,328,649 cars and light trucks, a 2.3 percent decline from a year earlier. In mid-March, credit rating service Moody's cut its outlook for the auto industry from stable to negative, citing a worsening environment for consumer credit. And as of April 1, the U.S. industry was sitting on its largest inventory of unsold vehicles in nearly two years.

But from the looks of the amount of new investment going into North American plants, automakers are not alarmed.

Matt DeLorenzo, senior managing editor for Kelley Blue Book, said manufacturers are looking beyond the current market cycle and making these investments because of the shift to crossovers, SUVs and pickups from cars.

"In the case of GM, yes, they are expanding investments in places like Wentzville but also are closing aging capacity like Oshawa and Lordstown," DeLorenzo told Automotive News, referring to plants in Ontario and Ohio. "Jeep's investment is driven by the success of that brand in the booming SUV market. There will also be other plant investments as makers like Ford and GM gear up their EV efforts as well."

Charlie Chesbrough, senior economist for Cox Automotive, said with all of the uncertainty around the world, such as the China slowdown and Brexit in Europe, the U.S. remains a strong choice for business investment.

The U.S. economy, he said, is on solid footing. Even with a potential slowdown in the near term, the longer-term outlook for the economy remains strong. The country has "positive population growth, and massive economic resources, and thus remains a viable option for manufacturing investments."

"It may seem like a bad time for OEMs to be making large investments, but the auto industry remains focused on longer-term strategies," Chesbrough said. "Companies are thinking today about vehicles they will be manufacturing three to five years from now."

Mazda is capitalizing on this shift with a manufacturing joint venture in Huntsville, Ala., with Toyota.

The plant will produce the Toyota Corolla sedan and a yet-unnamed Mazda crossover that will be new to North America. The plant will have the capacity to churn out 150,000 crossovers per year. Production is set to begin in 2021.

Masahiro Moro, CEO of Mazda North American Operations, told Automotive News during the Los Angeles Auto Show in November that the crossover will be tailored for the U.S., which he says is notable because Mazda usually develops vehicles based on global demand.

While Moro wouldn't share details on where the crossover will be positioned in the lineup, he said he's looking for "mainstream territory so we can capitalize [on] that capacity as much as we can."

This crossover will bolster Mazda's utility portfolio along with the recently introduced CX-30.

FCA's pending Michigan investments will double down on the utility-vehicle wave. The cash will support production of a variety of nameplates such as the three-row Wagoneer/Grand Wagoneer, the Grand Cherokee and the unnamed three-row Jeep.

These three-row Jeeps will be a welcome sight for dealers who have wanted more options. While the boxy Commander offered an extra row, some say it was too cramped to be of much use.

Patrick Foster, an automotive historian who has written several books chronicling Jeep's history, thinks FCA has learned a lesson from the Commander. It was discontinued after the 2010 model year because of poor sales and called "unfit for human consumption" by FCA's CEO at the time, the late Sergio Marchionne. Foster said the vehicle "looked like a tank" yet didn't have any room.

"They tried to squeeze this third [row] in the back," Foster recalled. "I was there at the launch at the [2005] New York auto show. Even then, people were coming up and saying it doesn't look like that third seat helps anybody. I think they tried to do it on the cheap. You have to do it right or not at all."

Jeremy Acevedo, manager of industry analysis for Edmunds, said the unnamed three-row Jeep likely will take aim at the Ford Explorer, Honda Pilot and Toyota Highlander. It's slated to roll off the line at the Detroit plant by the end of 2020.

"Now with Jeep entering that segment, Jeep is a force to be reckoned with," Acevedo said. "The fact that they're going to be expanding their size and expanding their appeal to a bunch of shoppers who kept the Grand Cherokee off their list because it didn't serve their needs. Opening that whole sector is huge for them and bad news for everybody else in that space."