6 long-range trends are reshaping North American auto making

DETROIT—Along with everybody else in the global auto industry, Dave Gardner has been dealing with one manufacturing and supply chain headache after another this year.

In an era of wildly changing plans and rapidly emerging new technologies, those challenges are sure to continue.

Gardner, American Honda Motor Co.'s executive vice president of national operations, has been trying to get vehicles from factories to dealer lots to cash in on the reawakening U.S. retail market. But he says he has been fighting developments on multiple fronts.

There has been COVID-19, of course, the international health crisis that halted assembly lines and supply chains across North America, Asia and Europe. And there have been issues with individual pandemic-affected parts suppliers that are struggling to get their volumes back up to customers' expectations.

There are lingering tariff and other trade issues that preceded the pandemic, still complicating the flow and price of certain imported vehicle parts and materials.

Now there is a bedeviling international shortage of microchips, making it impossible to assemble all the vehicles that manufacturers want to build. And if all that wasn't enough, the pandemic has also resulted in a global shortage of cargo containers, leaving critical materials sitting undeliverable at ports and warehouses.

On top of all that came the confounding winter storm that shut down large parts of Texas in February, interfering with the movement of petrochemicals and clipping production of critical oil-based materials and foam that the auto chain relies on.

"There's a whole lot that's coming at us that we're trying to manage," Gardner confessed to a group of reporters this month.

"We hold weekly sales and production meetings with all of our factories," he said. "We look at what we can build and what we can't build, what we're short of, and then make decisions on a week-to-week basis. We've been managing that way since March of last year.

"It's not easy."

Barely a week later, Honda said it would be forced to shut down North American production.

But what lies ahead for Gardner and the rest of the auto industry longer term may be even more disruptive than the past year of disasters and irritations.

The industry is moving into a new era of operations that will require new solutions, different tools, investment in new factories and technologies, and more of a strategic disruption than the unexpected whipsawing of unexpected problems and natural disasters.

That evolution is playing out across the North American manufacturing landscape. Vehicle models are not merely changing—they are being reimagined as part of low- or zero-emission electrified portfolios. And as vehicle architectures change, their supply chains also are being redrawn, with some traditional parts, and their makers, and their business relationships, investors, employees and even their communities being cast into an uncertain long-range period.

Multiple factors are pummeling the status quo. But six trends in particular are changing the way auto makers and their suppliers are planning for the future.

Trend 1: Electrification

Since 2017, 80 percent of all investment in North American automotive manufacturing has been electric vehicle-related, according to Bernard Swiecki, who tracks industry spending as director of the Automotive Communities Partnership at the Center for Automotive Research in Ann Arbor, Mich. Yet EV strategies are only beginning to unfold among the world's auto makers.

Last year, auto makers offered 67 nameplates in the U.S. market that were electrified, including hybrid models. By 2024, according to CAR, there will be 200.

The supply chain implications are enormous.

Every EV requires a battery, and if industry forecasts bear out, millions of batteries a year will have to be manufactured to supply them, from battery module lines and high-precision battery cell plants that are only beginning to be constructed. Also required will be millions of inverters and electrical control systems.

In factory terms alone, that switch in technologies is dangling a question mark over the galaxy of engine assembly and engine component plants that dot the landscape from Ontario to Alabama. Many parts will no longer need to be produced, including mufflers, exhaust pipes, stamped engine cradles, engine control modules, oil pumps and spark plugs.

Exactly how the supply chain's manufacturing formula will change is far from certain.

Volkswagen illustrates how cloudy the crystal ball is. The German giant opened a U.S. assembly plant in Chattanooga in 2011 to build gasoline-powered Passat sedans. In 2019, it launched an $800 million construction project at the plant to produce EVs. At the same time, South Korean battery maker SK Innovation began building a $1.67 billion EV battery-cell plant 175 miles away in northern Georgia to supply Volkswagen and other customers. Last year, SK began raising its initial investment there to $2.5 billion and said it eventually would invest $5 billion.

But this month, VW stunned many in the industry when it announced it is opting for a new technology in EV batteries later this decade, embracing an emerging architecture referred to as "prismatic." It was not immediately clear where the change in VW's plans leaves SK as its U.S. supplier. But the auto maker's new strategy includes the construction of battery-making factories—six of them by itself or with partners — to produce the components in-house instead of outsourcing.

Trend 2: Trucks

The industry may be buzzing over EVs, but one existing industry segment continues to churn North America's manufacturing plans like no other: light trucks.

Pickups alone have triggered major manufacturing investments at General Motors, Stellantis, Ford Motor Co., Toyota Motor Corp. and Tesla Inc., which is constructing a U.S. plant in Texas to enter the segment, as well as from new players such as Rivian and Canoo.

According to forecasting company LMC Automotive, North American output of pickups will reach 4.22 million in 2027. That represents a 620,000-unit increase in production from the 3.6 million built in 2019, the last full year of industry operations before the pandemic.

The rise in SUV and crossover production will be even bigger, according to LMC. That segment will see production of 9.42 million vehicles in 2027, up from 7.33 million in 2019, the company forecasts.

The rise in light-truck manufacturing corresponds with consumers' long-term shift away from traditional sedans and coupes. But that shift is not a one-for-one change in the type of body shape an auto plant assembles. The transition is requiring auto makers to spend billions to retool lines and, in some cases, construct new factories.

Fiat Chrysler Automobiles, now Stellantis, threw down the gauntlet in February 2019 with the announcement that it would invest $4.5 billion in Michigan sites to build more crossovers, SUVs and pickups.

Last November, GM said it will spend $1.1 billion to add pickup production with a new assembly line for the Chevrolet Silverado and GMC Sierra. The push has also required GM to invest in multiple other locations to create more truck capacity, including at its stamping plants and transmission operations.

This month, Ford expanded its truck line with a new compact pickup it began producing in Hermosillo, Mexico.

Trend 3: Logistics

How components and vehicles are moved in and out of factories will be a major issue that shapes the next few years, says Trevor Pawl, chief mobility officer for the state of Michigan.

The state is working to improve its cross-border links with Canada, Pawl said. The Michigan-Ontario corridor will become particularly vital as auto makers develop what Canadian officials hope will be an EV production base in Ontario. Just since September, the Detroit 3 have committed to a kind of rebirth of the province's auto industry, pledging $3.9 billion in new investments in plants there.

"The days of clustering in one area are numbered," Pawl said. "You have to look at the role that autonomous technology will play in reducing logistics costs in automotive. You're going to see multimodal changes in the supply chain that are going to change where things can be located. That innovation is going to affect economic corridors."

South Carolina represents an industry corridor that continues to expand. Auto makers and suppliers have invested $9.2 billion in the state in just the past 10 years, according to Bobby Hitt, the state's secretary of commerce and a former executive at BMW Manufacturing in Spartanburg. Hitt believes logistics will be a key area of industry change in the years ahead. South Carolina is spending $2 billion to upgrade port operations in Charleston, where modernized rail links are expected to shuttle a growing volume of vehicles, parts and materials for the U.S. industry.

Hitt also hints at automated logistics activity in the near future: "We'll see more automation going forward," he told Automotive News. "I'm aware of plans to consider moving material on automated carriers from one building to another, from one plant to another, along a wired corridor."

During the Trump administration, political friction also became a factor in automotive logistics decisions. It is not yet clear how Trump-era issues such as steel and aluminum tariffs and the trade feud with China will play out in the Biden era. But apart from politics, manufacturers have been taking a more long-range view of international sourcing, and reconsidering their reliance on manufacturing bases in China and elsewhere in Asia, Eastern Europe and Latin America—more as a way to protect supply lines from such unexpected headaches as the current shortage of shipping containers.

Trend 4: Portfolio gaps

Even though the U.S. is a mature vehicle market, it continues to morph as consumers develop tastes for different body styles and niche vehicles. Brands large and small are still pursuing "white space" opportunities, and those typically require a manufacturing solution.

Mazda Motor Corp.'s desire to add new products to its U.S. portfolio prompted it to enter into a joint venture with Toyota to build a $1.6 billion assembly plant, now under construction in Huntsville, Ala. That project will launch late this year. Mazda and Toyota will each get a new product from the plant, neither of which has been identified.

Last August, the partners committed another $830 million to the project to introduce additional manufacturing processes there, addressing changes to the auto makers' future vehicles. The total price tag: $2.3 billion.

To support their product foray, numerous suppliers are moving into the Huntsville region, said Brooks Kracke, CEO of the North Alabama Industrial Development Association, which recruits industry to the 13-county area.

"We have seen 16 projects come into this area as a result of the Mazda-Toyota project," Kracke said. "We expect more to come."

Tesla also is pursuing its own market white space with the construction of its Austin assembly plant. The company is creating a $1.1 billion production base to produce both its first pickup and a long-haul semitruck.

Trend 5: Market share

The quest for market share is as old as the rivalry between Henry Ford and William Durant. But it's still roiling the auto industry and resulting in manufacturing mutations. Stellantis' Ram and Jeep brands have been pushing to carve more U.S. light-truck sales from their bigger Detroit competitors, but doing so required more factory capacity.

Hyundai Motor Co.—made up of the Hyundai, Kia and Genesis brands—also is determined to grow its U.S. market share by selling 1 million vehicles a year in 2025, up from 638,653 last year. But Hyundai and Kia each has a single U.S. vehicle plant.

Trend 6: New entrants

Whatever challenges the North American market might present, they do not scare away new companies that want to vie for a sliver of U.S. sales. Invariably, that desire leads to manufacturing and supply chain investments.

New players either planning to take the plunge or already engaged in creating a U.S. manufacturing presence include Rivian, Lucid, Fisker, Haah Automotive Holdings, Workhorse, Arrival, Lordstown Motors and Aptera Motors Corp.

Skepticism rages across the industry that all of the startups can really transition from "wannabe" to "successful auto maker." This month, a shareholder filed suit against Lordstown in U.S. District Court in the Northern District of Ohio, alleging that the venture made false statements about how many preorders it has received for its trucks.

Haah's initial plans were set back last year when Zotye Auto, the Chinese manufacturer of the vehicle brand it wanted to import into the U.S., encountered financial difficulties in its home nation, leaving Haah to move on to a different partner.

Starting a new brand is difficult. But startups also have an advantage in being small and agile.

"You're seeing new companies come into the business and they don't have a lot of books laying around telling them how they're supposed to do things," noted Sandy Munro, CEO of Munro & Associates, a manufacturing consulting firm in Auburn Hills, Mich. "Decisions can be made quickly and they can start with the most modern tools with no legacy."

Munro invested in one of his consulting customers, Aptera, after visiting its early operations and seeing how it intended to build vehicles. Aptera's EVs will be made of composites, similar to the materials used in boat making.

"They will require no stamping or casting," Munro said. "Their development costs are nothing, which is a competitive advantage."