Global automotive production efficiency on the decline

Posted on 26 Jun 2009 by The Manufacturer

The automotive industry’s use of its production capacity has experienced a steep decline in the last two years, according to data released by the Price WaterhouseCoopers Auto Institute.

The 2009 figures show EU car manufacturers are running at 67.4% of their production capacity on average, down from 83.2% in 2007, with other regions having followed a similar trend. PWC said 80% would net a “decent” return on assets

According to Calum MacRae and Michael Gartside of the PwC Automotive Institute, the main reason for the decline is that manufacturers failed to adequately predict the downturn in the market, with both domestic and export orders dropping significantly. This subsequently resulted overproduction and has required them to enter in to a period of de-stocking.

“Although OEMs boast about flexibility of modern plants,” said MacRae, “they can only really be flexible within the usual demand cycles of vehicles, and when a major, unexpected event occurs, this is going to show up flaws in the system. This particularly extends to negotiating with labour satisfactorily.”

PwC predicts that the North and South American markets will reach the 80% benchmark in 2012. However, no other markets are predicted to achieve this level within the next 3-4 years. The reason for the North American buoyancy, according to MacRae and Gartside, is the US Government’s focus on restructuring the industry rather than simply supporting the market. “The much needed clearout of failing OEMs (original equipment manufacturers) in other regions is not happening, and this is leaving the industry, in regions like Europe, with more players than market demand can realistically support.”

The introduction of more achievable growth targets and the employment of contract workers may help improve capacity utilisation, according to the analysts. “One thing car companies can do is to use temporary contract workers to add shifts and capacity to plants – this allows the manufacturer to be more reactive to variations in demand and is something we have seen at a number of plants such as Nissan and Mini in the UK.”