Brampton & Windsor plus one additional plant: Magna could build the entire Chrysler & Dodge lineup (except SUVs)

 

So tell me again; Why do we need Sergio?

 

If Grand Wagoneer is shared with Ram at Sterling Heights, Warren could go to Magna as well.

This would give Magna 3 North American plants to make all Chrysler-Dodge vehicles, leaving the other plants to make Jeep & Ram.

With Windsor & Brampton in Canada (and Magna a Canadian company) it would make it easier to get Canadian government assistance updating Brampton. (very badly needed).

FCA would license use of GUS and CUSW to Magna, as well as powertrains, Magna would have full assembly control, just as they do in Gratz.

 

Did I read the article incorrectly? Magna is considering building a new plant in North America, not buying an existing plant.

And AFAIK, FCA is looking to offload production, not capacity. Why would they sell any of their plants to Magna?

 

Probably the same reason a lot of other industries do it. There is a different skill set between administering, design and manufacturing.
I work for a large company (non-automotive, though we do supply to automotives).
We hardly manufacture anything we sell. A lot of the design work is outsourced too, though not as heavily as the manufacturing.

 

In a dream world, Magna would present a premium offer to purchase all the Chrysler assets, brands and liabilities. Shareholders seeing no future in Fiat and Alfa brands would agree to sell. VW purchases the remains to expand their footprint in China, which proves to be a worthless strategy. Sergio finishes his career as CEO of Ferrari. Bob Eaton slips off a boat dock at his home in Florida and is eaton by an alligator.

 

I could see Magna taking Chrysler & Dodge off FCA's hands........

 

I agree, like aircraft, automobiles are still, for the most part, designed, engineered, and built in house. The only part that is contracted out is the sales. There are exceptions throughout automotive history.

Electronics are contracted out for different reasons. They are contracted out mosly because of EPA regualtions. It is very hard to manufacture electronics in the US. Labor was not the only reason electronic manufacture moved oversees en masse. It was the combination of labor costs, and EPA. In other countries, all the waste from electronic manufacture and assembly is easy to dispose of by means which would be illegal in the US. In the US, all the waste has to be recaptured, re-used, and recycled. You can't just put it in drums and bury it, or dump it into a river.

Autos are contracted out, usually to expand production into a region the company does not already have a presence.

 

I agree, like aircraft, automobiles are still, for the most part, designed, engineered, and built in house. The only part that is contracted out is the sales. There are exceptions throughout automotive history.

From my experience, aircraft OEMs are doing less manufacturing and more "final assembly" these days. Is the auto industry going that way as well or do they still fabricate (like body panels and frames) most everything in house?

 

I am not saying somebody else won't build the next Dart, I am saying that FCA will not be selling off production capacity to make it so. Their high margin products capacity contrained now.

 

Will this increase quality and reduce price?

 

Assembling somewhere else won't increase quality. Having someone else do testing and development might. They will be trying to reduce the price through engineering, I suspect. Two avenues would be reduced size and a less capable suspension.

 

FCA needs all the plants in their current portfolio to help with the purposed expanded future lineup. A Magna plant would be more than likely built south of the border. FCA says they aren't making enough money on the 200 and Dart as it is. Moving the products south of the border help solve that issue, unfortunately. Magna could be a logical answer. But I still see a deal with Mazda and their giant factory in Mexico as a solution to some of the product.

 

I've mentioned Fab-less ownership a couple times before. I still think it's a possibility. If you get to the point to where you're contracting and licensing your wares, you are in it, but abstracted from it.

Think of Labor being distant from your ownership ... Think of someone else having to manage utilities and land ... Someone else pained with the, pardon the pun, "nuts and bolts" of the day-to-day operations.

Perhaps Sergio is seeing the wisdom in managing that sort of life. You're not eliminating problems. But you are supplying yourself the buffer that keeps you afloat. If a Licensee doesn't live up to expectations, there are the dozen or more other major players from which to choose.

For every engineer required to run the components, you're exchanging that one engineer from your employment, but obtaining an attorney and a small support admin staff to manage the license/contract. The overhead is exchanged from real property to intellectual property, which can be exercised from anywhere - the Licensees and/or those under contract bear that burden.

At that point, you have your creative people creating the Style language and the model range working to apply those details to the wares made by the contracted plants.

Perhaps with Magna, Chrysler and Dodge can become a proper Canadian company in a place which highly favors those brands. Sergio would have a looser grip, perhaps?

 

I've mentioned Fab-less ownership a couple times before. I still think it's a possibility. If you get to the point to where you're contracting and licensing your wares, you are in it, but abstracted from it.

That works unless you're like Apple and Samsung. Where the company you are contracting with decides to compete with you and you end up sueing each other

 

A question I have from the article is regarding the timing. AFAIK, Dart and 200 are to cease production within the next 6 to 12 months. The capacity at Magna's plant in Graz is spoken for. Is there enough time for Magna to get another plant up and running without extended suspension of production of those two models?

With the factory changeovers coming so soon, I would imagine that the plant where they will be built must already be in existence, a deal must already be made, and plans must be in the process of finalization.

The Mitsubishi plant in Normal, IL, has been sold, so that's off the table.

The Mazda plant in Mexico seems to have the capacity but it is not tooled to produce CUSW vehicles AFAIK (maybe the plant is flexible enough that modifications can be made quickly to prepare it for the Dart and 200?).

The Tofas plant in Turkey is producing a wide range of vehicles, including the Doblo and its variants, and the Tipo and its variants. I don't know this for a fact, but I would imagine that it is at or near capacity. Also, like the Mazda plant, it is not, AFAIK, tooled for the Dart and 200's CUSW platform. All of its vehicles are on the "small"/SCCS/SUSW platform(s).

AFAIK, once TNAP and SHAP have been retooled for the Wrangler and Ram, respectively, there will be only two plants in the world with the CUSW tooling: Belvidere, and FCA/GAC's Changsha plant in China (unless the related Giuietta's plant in Cassino is capable of running CUSW also-- but we know that at least the Giulia, Stelvio, and Dodge D-CUV will be produced there, and that the "C-EVO" Giulietta will be discontinued within the next two years or so, so that plant seems unlikely).

Changsha truly seems like the most obvious choice. The tooling is in place. It has excess capacity. It already produces a modified version of the Dart's body as the Fiat Viaggio. As of the May 2014 product plan, it was planned to produce a CUSW Fiat D-sedan. In late 2014, a deal was announced that FCA/GAC would produce an unspecified Chrysler brand vehicle.

I suspect that this is a done deal and that FCA is simply waiting until the last minute to announce it because they are aware of the flack that they will take for moving production from the US to China. Luckily for them, GM was the first (but likely not the last) major automaker to make such an announcement.

 

The Mitsubishi plant in Normal, IL, has been sold, so that's off the table.

Yes, it was recently sold. Sold to a company that buys to turn a profit with a resale.

 

IMHO, China is where they are headed. Unless they become clones of someone else's cars, there doesn't seem to be enough time, sales, or motivation to do anything else. They literally could hand finish cars headed here from China and still be way cheaper to build. There isn't a car company around that wouldn't love to take advantage of Chinese dirt poor low wages to build cars. As long as oil prices stay low so shipping doesn't ruin things for their model, more will flock there to sell here.

 

'Made in China' labor is not actually that cheap

 

Magna is making vehicles for others today.....Mercedes, BMW, Jaguar soon. They made vehicles for Jeep.

This is nothing new for Magna.

I believe that an existing CUSW plant could be the key here as both 200 & Dart could be made there. That means Belvidere, Sterling Heights or Windsor. Very little delay in maintaining production.

 

Belvidere is getting Cherokee
Sterling is getting Ram Trucks
Windsor is building minivans.

Only time will tell.

Mike

 

Is VW out of the equation? Seems to me since their rep is in the toliet in the US why not build cars for someone else without the VW name on it. They have plants in Mexico that build cars already.

 

The answer there is VW may have plans to employ those facilities for its Skoda brand, since rumors have been flying they may bring the Czech brand to the US as the low budget alternative to VW models. They have already patented the names for the Octavia, Superb and Yet I with the US patent office.

 

For anyone hoping that Magna will go from a contractor to an actual auto company owner: Magna had their chance to purchase Chrysler Group for a relative pittance, and they passed on it. I think they've made it clear that they are comfortable in their niche...they just want to expand the niche.

 

Magna is expanding its business as supplier, one year ago they purchased 100% of Getrag for Euro 1.75 billion.
From FCA they could probably more interested in acquiring, for example, Automotive Lighting (a Magneti Marelli company) or the electric motors/inverters division of Magneti Marelli.

 

If there is a timeline for fca to stop producing the dart and 200, and that SM is "looking" for a partner, perhaps he has already found one? I'd imagine that the major portion of the debt will be paid off by the current company (I think I read 2018?), and a new company formed after (Or current company consumed?).
I don't know what is on the horizon. But it does seem that our new partner may be already in place.

 

Magna wants to expand as a car-builder but no contract with Apple

Sounds better than giving it to the chinese.

 

Back in the day many third party coachwork builders made bodies for the auto companies. Think Fisher, LeBaron, Briggs, Murray to name a few. It was quite common. Perhaps it makes sense to explore this option again.

 

Yes people like to think of this as a new phenomenon, but really, its the sign of a sick industry on a race to the bottom. There were several very real factors that caused companies that wanted to survive to move production in-house after the early years of the automotive industry--greater control over the end product and less cost over the long haul being two of the most important. The advantages of manufacturing in China (or Malaysia for that matter) will fade as that market matures and the government realizes that unfettered corporate abuse leads to social instability, regardless of how much they try to paper over it. Notice how even Apple is making moves to reintroduce small scale manufacturing into its American operations. If they are planing on making this move back to the states even with the huge profit margins they get from their outsourced production, you know they've see the tides beginning to shift.

 

Magna was simply unable to buy Chrysler in 2008. I remember this and they were unable to get financing. Remember, Magna is a supplier - and GM and Chrysler had been unable to pay their bills.

 

Thanks Gang, this Conversation is Beginning to Scare Me !

 

Interesting developments here, hope it does not lead to further product dilution. There was a time I could spot a Mopar a mile away, now I have to stare at most newley developed vehicles to fiure out who made them.

 

Especially the 200! I dunno from the side if its a Chrysler, Hyundai, Kia or whatever now.

 

I really would have hoped this would have all been figured out before Sergio blurted out his announcement. If not, making the announcement before negotiating doe not seem to put you in a position of strength during negotiations.

 

He just needs to keep his mouth shut. There's much stuff he says that the public really don't need to know about. Half the time it seems it's only half-truths anyways or taken in the wrong context. Zip-it Sergio!

 

What is written below in italics comes from a book chapter I'm writing that talks about the rise and fall of the US consumer electronics industry. Its development was impacted by "patent pools" (both domestic and foreign). In the US, this control over competition was ended via the court system and for a time (50s-60s) our industry prospered. You can measure that by any metric you like... Introduction of new technologies, sales, employment, contribution to GDP; but it's all positive. Have you ever wondered why an industry that basically invented technologies like color displays, stereo sound, miniaturization, remote control, video recording and solid state devices couldn't seem to find its [I should have my mouth washed out with soap for using such terms] with both hands outside its borders? Much like GM, why wasn't Chicago-based Zenith a preeminent name throughout the world?

And then the world started to get smaller. Corporations in other nations didn't necessarily need to follow "our" rules, yet their products served the same function. As foreign companies became ascendant, they learned how to work the US system from the inside (lobbyists). They were not bothered by the hypocrisy of keeping US investment out of their corporations or governments. This is where our (US) government is supposed to play a role in a capitalist system. But our politicians haven't fulfilled those lofty ideals. The decline is ever so slow that it can only be seen by standing at the end of a decade, by which point it's already too late.

The auto industry isn't exactly the same. But there are enough parallels that anyone commenting upon it should have a cursory understanding of what happened in electronics.

----------------
The United States has a pioneering history of breaking-up trusts. I would suggest it has roots in our rebellious spirit against even benevolent or efficient dictatorships. On a federal level, our history begins with the Sherman Anti-Trust act of 1890. The press of the day was filled with condemnation of such trusts. How could any good American defend granting such dictatorial power over commerce in a free and democratic nation? The old-world was made of cartels that discouraged competition and America would be the first to grant freedom from this form of economic tyranny. Or at least it would attempt this feat.


The rest of the industrialized world generally does not share this sense of individualism, especially if a monopoly makes their industrial concerns stronger in the face of foreign competition. Multi-national companies have learned to create monopolies in nations that do not suffer this uniquely-American sense of outrage at even beneficial cartels. Borderless companies soon learned how to use patent pools, rather than actual ownership, as a means to block unwanted competition from abroad. In the electronics industry of the early to mid-20th century, shared patents took the place of the trust-era’s stock certificates.

 

I don't see how Magna as a contract manufacturer is going to save money and make the Dart/200 more profitable. It would free up FCA plant space to produce other vehicles but that is all. Any cost savings would be small (you now have to provide profit to both Magna and FCA which would eat up any savings from Magna possibly being a lower cost manufacturer than FCA). This plan does not leverage platform or engine design with another manufacturer.

 

I agree with that. I dunno how they could make it any cheaper, just free up plant space and let Magna worry about the manufacturing of it. I am not really sure how they could save money. If Magna was building other cars and they could just slap an FCA badge on one and call it their own, well, that would be a different story. Sort of like what VW/FCA was doing with the Routan.