Global Insight Perspective | |
Significance | The Saltillo plant will become the second Freightliner facility to be located in Mexico and joins DCX's existing huge light vehicle factory in the town. |
Implications | Groundbreaking is planned for the second quarter of 2007, with production set to begin for early 2009, with a capacity of up to 30,000 trucks a year, and employing up to 1,600 production and management personnel. |
Outlook | DCX's truck division is investing in future capacity just as the trend for next year is predicted to swing sharply down, and is largely designed to ensure that company has plenty of capacity in the future. DCX Commercial struggled to fulfil demand in North America in 2006 as upcoming emission regulations caused a spike in truck sales. The Saltillo plant should be on line for the end of the decade when the truck market is expected to recover. |
DaimlerChrysler (DCX) has announced that it will invest US$300 million in building a second heavy truck manufacturing plant in Mexico. Groundbreaking for the plant, to be based in Saltillo, Coahuila, in northern Mexico, will begin in the second quarter of 2007 and production will begin in 2009. Maximum capacity at the plant is expected to be 30,000 units per annum and will produce the company's Freightliner and Sterling branded trucks.
The move comes as Freightliner prepares to cut up to 4,000 jobs in North America in its commercial division in 2007, as heavy truck sales are set to slump up to 40% (see United States: 13 December 2006: DCX May Cut 4,000 Heavy Truck Jobs in North America). Commercial truck production leapt this year and DCX struggled to keep pace. Freightliner President and CEO Chris Patterson said that the truck division wants to be ready to meet the next surge in demand. "Frankly, we were not able to produce what we could have sold in 2006 due to capacity constraints," he said.
Heavy truck sales soared this year as new Environmental Protection Agency emission regulations (EPA 07) go into effect from January 2007. The new regulations, which have seen the wholesale switch to low-sulphur diesel fuel, poses stricter limits on the emission of particulate matter and nitrous oxide (NOx), which increases purchase costs and resulted in a large "pull forward" of many heavy truck sales.
DCX said that the new facility will provide additional capacity to accommodate Freightliner's long-range product planning including an expected upturn in industry demand in 2009. The next round of EPA emissions regulations goes into effect from January 2010 (EPA 10), and another spike in truck sales is expected ahead of that.
It will be Freightliner's second plant in Mexico, joining the Santiago Tianguistenco plant.
Outlook and Implications
DCX's commercial division has been steadily ramping up production at its existing Mexican heavy truck facility in recent years, with production reaching a peak this year at 23,304 units. The new plant's location in Saltillo ties in with DCX's existing light vehicle plant in the area, which makes the Dodge Ram pick-up trucks, largely for the U.S. market.
The loss of 4,000 U.S. and Canadian jobs and the investment in Mexico is bound to raise questions again over the long-term future of manufacturing in high-cost countries, but essentially, it is not as bad as it first appears. The lay-offs in the United States and Canada were temporary staff taken on recently to deal with the upsurge in demand, largely felt this year, and therefore this move is more a case of DCX returning to normal size, than cutting existing jobs. Temporary staff do not hold the same benefits and therefore cost DCX less.
However, the investment in Mexico, and the potential capacity of 30,000 units pa indicates that longer term, DCX intends to absorb the next forecast upswing in demand from Mexico, where costs and benefits are significantly lower. It also represents a sizeable shift in its heavy truck production base, meaning the 4,000 jobs in the United States and Canada will not necessarily materialise again and indeed may be followed in the future by more permanent reductions.