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Honda-Toyota Record North American Output Helps Elvis Home: Cars

July 17, 2012

Honda-Toyota Record North American Output Helps Elvis Home

Rising production is particularly significant for states such as Michigan, Ohio, Indiana and Alabama that have the highest concentration of vehicle and parts plants, said Gus Faucher, a senior economist in Pittsburgh for PNC Financial Services Group Inc. Source: Toyota Motor Corp. via Bloomberg

Honda Motor Co. (7267) and Toyota Motor Corp. (7203)’s North American plants, stalled by parts shortages a year ago, are leading an industrywide assembly surge buoying cities from the Midwest to the deep South amid a languid U.S. economy.

In Tupelo, Mississippi, 18 miles from Toyota’s new Blue Springs plant, Elvis Presley’s birthplace has seen its jobless rate drop to 8 percent with the start of Corolla production last year, from 12.5 percent previously, said Mayor Jack Reed Jr. The arrival of the plant and parts makers helped the city of 35,000 rebound from furniture-making jobs lost to China, he said.

“Both unemployment and revenues have been affected by Toyota,” Reed said, adding that sales-tax collections have increased 6.4 percent this year. “It’s a great thing when you get people back employed; when instead of using a food pantry now they volunteer at one.”

Rebounding auto production and sales are bright spots this year amid tepid job growth and wavering consumer sentiment. Honda, with an industry-leading 75 percent output surge, followed by Toyota’s 66 percent increase, and Japan’s Nissan Motor Co. aim to keep raising North American assembly and parts purchases to blunt losses from the yen’s sustained strength.

Rising production is particularly significant for states such as Michigan, Ohio, Indiana and Alabama that have the highest concentration of vehicle and parts plants, said Gus Faucher, a senior economist in Pittsburgh for PNC Financial Services Group Inc. Toyota and Honda are both on pace this year to break their 2007 records for North American output.

“There is a lot of pent-up demand for autos, and it’s likely to stay strong for the next few years,” Faucher said. “The currency effects are also going to favor the U.S. for some time.”

Currency Impact

The Japanese currency traded yesterday at 78.8 yen to the dollar, compared with 86.6 yen to the dollar two years ago and 121.9 yen five years ago. The stronger yen makes it harder for companies to make vehicles in Japan and sell them profitably in the U.S., which encourages more North American manufacturing.

“Our fundamental philosophy is produce where we sell,” Tom Lake, Honda’s head of North American purchasing, said in a May interview in Raymond, Ohio. “That holds true of our purchasing plans as well. The philosophy hasn’t changed, but the urgency has stepped up.”

More than 87 percent of the Honda and Acura models sold in the U.S. through June this year were made in North America, up from 84 percent a year earlier.

Honda built a record 894,196 cars and light trucks in North America in the first half, up from 510,658 a year ago, while Toyota produced 944,570, a 374,429-unit increase from 2011’s first half.

Records Reachable

“Barring any unforeseen developments, it’s conceivable” that Toyota will make a record number of vehicles in North America this year, said Mike Goss, a spokesman for the automaker’s Erlanger, Kentucky-based manufacturing and engineering unit for the continent.

Toyota, which regained the global sales lead in the first quarter, and Honda both declined to provide their North American production targets for 2012.

The first half was “a great start and we’re expecting to continue strong production levels in the coming months,” said Ron Lietzke, a spokesman for Honda’s manufacturing unit in Marysville, Ohio. “We’re still scheduling overtime production, including daily overtime and Saturday work. We continue to produce beyond the capacity of our plants.”

Output Rising

North American auto production grew 21 percent to 7.9 million cars and light trucks in the first half, according to trade publication Automotive News.

General Motors Co. (GM:US), the largest U.S. automaker, built 6 percent more vehicles in the first half and Ford Motor Co. (F:US) raised production 3 percent. Chrysler Group LLC raised output 23 percent.

Nissan, which is adding 1,000 workers to make Sentra small cars at its Canton, Mississippi, plant, and is building a third auto-assembly factory in Mexico, raised production 21 percent.

Affiliates Hyundai Motor Co. (005380) and Kia Motors Corp. (000270), both based in Seoul, expanded assembly at plants in Alabama and Georgia a combined 18 percent, according to Automotive News.

“The first half was about rebuilding inventory, but demand has also been in the sweet spot for cars like Toyota’s Camry,” said Mike Jackson, at industry forecaster at IHS Automotive in Northville, Michigan.

With new versions of Nissan’s Altima, Ford’s Fusion and Honda’s Accord midsize sedans coming out in the second half, “that space is going be particularly strong,” Jackson said.

The rebound for Toyota and Honda and total industry growth should push North American production to 14.9 million vehicles this year, up from 13.1 million a year ago, according to IHS Global Insight.

Suppliers Benefit

Makers of automotive seats, brakes, tires, glass, carpet, plastics and electronics all benefit when automakers increase production and local parts sourcing.

“The effects of auto manufacturing are so much more than just the automakers themselves,” said Faucher, the economist. “And equipment and parts manufacturers account for much more employment than do the automakers.”

Steelmakers are among the biggest beneficiaries.

Honda uses an average of one ton of steel in every vehicle it builds in North America, said Randy Luther, the company’s U.S. senior administrator for purchasing. So as production rises, steel purchases do, too.

55% Increase

Honda is on pace to build 1.7 million autos in North America this year, topping its 1.43 million-unit record in 2007. That indicates a 55 percent increase in coated steel purchased from Midwest mills run by U.S. Steel Corp. (X:US) and ArcelorMittal (MT), compared with the automaker’s 1.1 million vehicles assembled in North America last year.

“The North American automotive market is performing well and has continued its gradual and steady recovery from the recession of 2009,” said Bill Steers, a U.S. spokesman for ArcelorMittal, the world’s biggest steelmaker.

He declined to discuss increased sales to Toyota and Honda, two of the Luxembourg-based company’s customers.

Alcoa Inc. (AA:US), the largest U.S. aluminum producer, last week reported second-quarter earnings and revenue that beat analysts’ estimates as a result of an increase in orders from the automakers including Ford, Toyota and Honda.

U.S. Exports

U.S. light-vehicle sales rose 15 percent in the first half to 7.27 million new vehicles, led by volume gains for Toyota, Chrysler and Honda. The world’s second-largest auto market remains on pace for a third straight year of at least 10 percent increases and the highest annual total since 2007.

Beyond rising deliveries in the U.S., North American auto plants will become a bigger source of exports, Jackson said.

“Certainly what we are seeing in production is strong domestic demand, but also some international pull,” Jackson said. “Particularly with German brands, but also with Ford, GM, Toyota, Honda and others, they are leveraging North America for international markets.”

Bayerische Motoren Werke AG (BMW) and Daimler AG (DAI)’s Mercedes-Benz export SUVs made in South Carolina and Alabama to Europe and other markets, while Honda and Toyota ship U.S.-built midsize sedans to South Korea.

Honda forecasts exporting about 100,000 vehicles this year from the U.S. to countries other than Canada, Rick Schostek, senior vice president at Honda of America Manufacturing, said today in Washington.

While Tupelo’s Reed is enthusiastic about continued auto industry benefits for his community, the city isn’t going to be a “one-company town,” he said.

“We’re still Tupelo, Mississippi -- not Toyota, Mississippi,” the mayor said. “We haven’t all of the sudden changed who we are.”

The home of the annual Tupelo Elvis Festival plans to unveil a statue of the singer at city hall next month in connection with the 35th anniversary of the King of Rock and Roll’s death.

“Elvis business is good too,” Reed said.

To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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