Texas and the Automotive Industry

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Texas and the Automotive Industry

• A Presentation for the TEDC Automotive Conference

August 26, 2005
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Agenda

• Introduction
• Economic and community development trends
• Automotive industry in Texas
• Supplier strategy considerations

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TIP Strategies, Inc.

• TIP is an economic development consulting firm
  based in Austin, Texas. Our services include
• Strategic Planning
• Target Sector Analysis
• Marketing
• Economic Impact Analysis
• Site Selection

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Representative Clients

• Suburban
• Austin-area
• Round Rock
• Georgetown
• Cedar Park
• Dallas Metroplex
• Rowlett
• Denton
• Benbrook
• Houston area
• Conroe
• League City
• Pearland
• Rosenberg
• Watsonville, CA
• Gresham, OR
• Kirkland, WA

• Metro Areas Regions
• Envision Central Texas
• Southwest Mississippi
• Chicago-Milwaukee Corridor
• Richmond, VA
• City of Dallas
• City of Houston
• Jefferson Parish, LA
• San Antonio EDF
• State of Texas
• Northern Ireland, UK
• The Netherlands

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TIP Projects
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Related Experience

• Led Texas Maquiladora Supplier Project
• State of Texas international programs
• Invest in TEXAS Alliance (1995-2001)
• New Braunfels automotive supplier strategy
• Texas Automotive Profile

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Manufacturing vs. Services
Source US Bureau Labor Statistics Economy.com
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U.S. Job forecast, 2005-2015
Source Economy.com
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Texas 10-year Job Forecast
Office Activities1) Health Education
Services Retail, Leisure Hospitality Government
Other Logistics Wholesale Trade Industrial
Activities2)
NOTE 1) OFFICE ACTIVITIES include Information,
Financial Activities, Prof. Business
Services 2) INDUSTRIAL ACTIVITIES include
Mining, Construction, Manufacturing, Utilities
Source Economy.com
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Approaching Worker Deficit
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Economic Development Goals
Talent Place
2010
Knowledge
2000
1990
Higher Wages
evolutionary scale
More Jobs
1980
Buildings
1970
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Growth in China

• Low cost competitor?
• Yes, but also competing for
• Investment
• Resources
• Talent

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U.S. Truck Sales Now Outpace Car Sales
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Light trucks are imported at about half the rate
of cars
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Big threes share of the U.S. Market is falling
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(No Transcript)
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In U.S., Toyota has passed FordHonda is ahead of
DaimlerChrysler
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But in the light truck market, the Big Three
still dominate
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Assembly Plants In North America
Legend
General Motors
Ford
Daimler-Chrysler
Nissan
Volkswagen
Hyundai
Honda
BMW
Toyota
Subaru-Isuzu
Mitsubishi
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Assembly Plants By Age
Legend
Year of Production Start
pre-1950
1950-1989
1990-2008
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Mexican production varies by company
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Mexican-produced vehicles still account for less
than 5 percent of units sold in the U.S.
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WHO'S SOURCING WHERE?Customers of Existing Auto
Suppliers in Texas and Northern Mexico
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Location of Existing Supplier Jobs in Texas
Mexico
Texarkana
Chihuahua
Legend
250 supplier jobs in Texas
250 supplier jobs in Mexico
Source ELM Guide.
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Texas Retail Auto Market
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Toyota - San Antonio

• Production estimated to begin in 2006
• 800 million investment
• 2,000 jobs to start
• 150,000 Tundras will be produced annually
• 6th North American Assembly plant
• Will supplement Tundra production at Toyota Motor
  Manufacturing, Indiana, Inc. (TMMI), which is
  currently the exclusive manufacturer of this
  model.
• Stamping, body weld, paint, plastics, and
  assembly

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Toyota San Antonio Expansion

• Toyota will expand its San Antonio plant capacity
  by a third more than originally announced.
• An additional 50 million investment will bring
  the plants capacity up to 200,000 (from the
  original 150,000) by the time it opens in 2006.
• (source TheStreet.com, 8/2/05 San Antonio
  Express-News, 8/3/05)

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Toyotas North American Assembly Plants
Production Year Model California 1986 Corolla,
Tacoma Canada 1988 Corolla, Matrix,
Lexus Kentucky 1988 Camry, Avalon,
Solara Indiana 1998 Tundra, Sequoia,
Sienna Mexico 2005 Tacoma Texas 2006 Tundra
Source www. toyota.com
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Toyota Suppliers in U.S.
Source ELM Guide to U.S. Suppliers Database, 2003
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Toyota Suppliers

• Toyotas U.S. sales have grown 40 since 1999,
  and it is already 6 years ahead of the targets it
  set for itself in that year.
• Three new plants are underway in Mexico, the U.S.
  and Canada, and yet another one is still rumored.
  This is big news for suppliers. Toyota
  purchases as much 25 billion a year in supplies
  for its North American plants, with 75 purchased
  in the U.S., Canada, and Mexico.
• (source Automotive News, 2/7/05 1/17/05)

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Toyota Supplier Locations

• 18 companies in supplier park (San Antonio)
• Koyo Seiko (Steering Systems) - Ennis
• Asmo (Windshield Washer)- Ennis
• Tasus (plastic molding) - Georgetown

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Toyota Dealers

• Toyota actively planning to add dozens of retail
  outlets in Texas outside the big cities in order
  to reach the market for full-size trucks in rural
  areas. Texas will be used as testbed for
  expanding dealerships in other states to rural
  areas.
• (source Automotive News, 7/26/04)

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Toyota Risks

• Rising gasoline prices could eventually affect
  full-size truck sales
• Investing heavily in North American just-in-time
  supply chains while competitors are turning to
  Asia for lower cost options
• Experimentation with new supplier arrangements
  that are untested
• (source Automotive News, 6/13/05)

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August 12, 2005
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Toyota Indiana

• 1160 acres 4 million sq. ft. (up from 2 million
  sq. ft. initially)
• Original 700 million investment is now 2
  billion
• 4,700 employees at full capacity 220 million
  payroll
• Tundra pickup, Sequoia SUV, Sienna minivan (2003)
• Stamping, body weld, paint, plastics assembly
• Originally 150,000 vehicles, now capacity for
  300,000
• In 2002 (109,025 Tundras, 77,561 Sequoias)

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Selected TMMI Suppliers

• TMMI buys parts from 200 suppliers nationwide.
• 72 of these suppliers (36) are within 200 miles
  (IL, KY, IN)
• Each supplier employs 50-200 workers in the
  region for a total of 5,000 supplier jobs
• TMMI purchases 1 billion worth of parts each
  year

Futaba
Dana Corporation
Excell USA Vincennes, IN
Toyotetsu
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Mid-America Airpark
Owensboro, Kentucky
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TMMI Supplier Observations

• Many suppliers driven by production threshold
• Just-in-sequence was critical
• Not being in Toyotas shadow was important
• Wage differential mattered

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New Braunfels Airport Park
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Arlington Plant

• Produces the Chevy Tahoe, Chevy Suburban, GMC
  Yukon, Cadillac Escalade
• Will spend 160 million on upgrades at its
  Arlington plant. (source Automotive News,
  6/24/04)
• Unlikely to be closed in the near future.
  Reasons include
• Product Cycle. The Arlington plant will be
  producing the next product cycle of vehicles for
  GM.
• Efficiency. Arlingtons production quality and
  efficiency are considered relatively good. The
  time to produce a vehicle at each plant is 22.71
  hours (Arlington), 25.46 (Janesville, WI), and
  28.47 (Silao, Mexico).

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Sealy Plant

• Manufactures tactical military vehicles
• 500,000 SF production facility
• Suppliers of engines, transmissions, axles, and
  other components are selected and approved by the
  U.S. Army, which is the primary customer. SS
  has to defer to DoD on major supplier choices.
• Plant is booming due to Iraq War shortages of
  labor (welders) and supplies (ballistic fiber,
  glass, steel).
• source CSM article from 2/05 http//csmonitor.co
  m/2005/0202/p03s01-usmi.html

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Considerations

• Toyota and the Texas choice marketing driven?
• Real winners are ad agencies
• Meeting the workforce need
• Border security
• Texas and Japan

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Strategies

• Think beyond Toyota
• Have prepared site(s)
• Think long term
• Relationships matter
• Take care of your customer

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Tom StellmanPresident CEOTIP Strategies,
Inc.7000 N Mopac Ste 305Austin, Texas 78759ph
512.343.9113fax [phone]www.TIPstrategies
.com

• TIP Strategies, Inc.
• Theory Into Practice