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Automakers Looking at Add Plants in US

Friday, 16 Mar 2012 | 11:23 AM ET
Ros Roberts | Stone | Getty Images

Here's something few could have imagined two years ago: the Big 3 are once again looking at opening new plants.

Take a second to let that idea sink in.

It says volumes about how far the auto industry and America's economy have come. And yes, it's the kind of news that will stick in the craw of those workers and cities the Big 3 cut loose over the last two years.

So how close are Detroit's automakers to opening new assembly plants or expanding current ones to add capacity?

It won't happen this year and probably not until 2014. But to quote one auto executive, "This is a conversation we are starting to have because we have to be ready."

Big 3 executives will be careful to publicly play down expansion talk, but make no mistake, they see the need coming much faster than anyone expected.

During the recession/auto meltdown America's automakers closed 12 plants and stripped out 5.5 million vehicles of capacity. They right-sized an industry to be break-even with annual sales of 10 million vehicles and be near full capacity at close to 15 million in annual sales.

Well, after finishing last year with annual sales of 12.8 million vehicles, look at what's happened so far this year. The sales pace (thanks to pent-up demand and an improving economy) is well over 14 million. Many now believe the industry will finish the year with a sales pace of at least 14.5 million.

The Big 3 have responded to higher sales by ramping-up production, adding third shifts and scrambling to keep up with demand. Their engine plants are running full steam. In February, auto plants in the U.S. utilized 85% of their capacity.

In the world of manufacturing, that's practically full capacity.

So why don't the Big 3 just go back to the plants they shut down and reopen them? On paper that sounds good. In reality, you can't just unlock the doors and fire up a plant. The truth is, when the Big 3 expand, they want to do so prudently and limit the capital investment.

I'd look for them to first investigate adding assembly lines at existing plants. That's not always possible given the footprint of the plants. Another option is adding capacity in Mexico where expansion could happen a little easier. Finally, if the Big 3 talk of building an all new plant, it will be in the Midwest corridor (Michigan/Ohio down through Alabama/Mississippi) where they have consolidated operations in the last two years.

By the way, it's not just the Big 3 looking into adding more plants here in the U.S. The foreign automakers are already in expansion mode. Toyota opened a new plant in Mississippi. BMW and Mercedes are both adding an assembly line to their facilities in the U.S.. And don't forget Volkswagen’s new plant in Tennessee.

This is the renaissance of America's auto industry and it's coming much faster than many could have imagined back in 2009.

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___________________________ Questions? Comments? BehindTheWheel@cnbc.comand Follow me on Twitter @LeBeauCarNews

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  • Phil LeBeau is a CNBC auto and airline industry reporter based in the Chicago bureau and editor of the Behind the Wheel section on CNBC.com.

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