Oil Price Spike Makes Auto Flexibility Crucial
With oil surging to $138.54 and being projected by some to hit $150 by July 4, it's putting immediate pressure on automakers to adjust production and push small cars and crossovers while pulling back on trucks and SUVs. On paper, this shift seems simple enough. In reality, it's not so easy.
Auto assembly plants are much more flexible today than they were five or 10 years ago. Back then a smaller number of plants had the ability to shift between building cars and trucks, if demand quickly rose or fell for a particular type of vehicle. That's less of an issue today, especially for the Asian automakers, which have more flexibility than the domestics. So Detroit's auto companies find themselves in a tough spot trying to adjust their mix in weeks.
Take General Motors. Earlier this week the automaker said it would expand production of cars that are in demand, like the red hot Chevy Malibu, and emphasize development of compact and hybrid models. Sounds great. But while GM can add a shift at its Malibu plant to crank out more cars, it has limited options when it comes to taking a truck plant and converting it to build cars.
This is why plant flexibility will become a huge factor in determining which automakers do the best job of surviving this switch in demand from SUVs to crossovers. It's estimated that fewer than 25 percent of the Big 3's U.S. plants have the flexibility needed to switch platforms. By comparison, an estimated 75 percent of the Asian-owned auto plants here in the States have platform flexibility.
Which is why the latest reports about Toyota Motor are intriguing: Toyota is reportedly considering building more Camrys here in the U.S., following blockbuster sales of the car last month. Smart move, given the car outsold the Ford F-Series for the first time ever. Toyota is looking at making more Camrys at its SUV and pickup plant in Princeton, Indiana, which is buidling fewer of the latter vehicles because they have fallen out of favor. If this happens, Toyota will show the advantage of having flexible manufacturing.
Yes, the shift from trucks to cars is on. Not just in showrooms, but also on assembly lines.
Questions? Comments? BehindTheWheel@cnbc.com