What's the word for production in 2010?

Capacity utilization rates for automotive assembly plants are good indicators as to how the industry is performing. Since 2005, the plants' rates have been on a steady decline. From 2003-2005, capacity utilization lingered around 80%. By January of 2009, rates were at 25.6%. Rates fell due in large part to massive inventories after the recession which killed further production.

But now, as consumer demand for new cars beings to slowly come back, production rates are also increasing. By the end of the year, production rates should rise 45%, which should hopefully put capacity utilization rates back at 2007-pre-recession levels of around 70%. In January of this year, the CU rate was 57.5%. While this is a drastic improvement from earlier years, so much wasted capacity means significantly less profits versus running at near-full capacity.

How will automakers make up for a decrease in capacity utilization? There are many answers to this. I think automakers will really start capitalizing on what people want, rather than what they want. U.S. auto companies have been focusing on the production of large gas guzzlers due to the production methods they already have in place, and they need to make a shift to compact, fuel efficient, hybrid, and electric vehicles, which they have begun to do (yet not on a large scale). In the midsts of rising prices of fuel, steel, and everyday living, U.S. automakers meed to make the switch to a new market of small cars to contend with foreign manufacturers. This would mean not only more profits but also maximizing efficiency and squeezing all the profit they can from their existing capital.

Capacity utilization rates for 2010 (which we will know by the end of the year) will hopefully be back to pre-recession levels, due in part to adaptive efforts of US automakers. But if manufacturers employ some innovative and effective strategies to deliver cars people really want, they might be able to maximize their production. Automakers are currently wasting their resources, and until they respond to global demand, it will be hard to operate at capacity.

Source: IBISWORLD Industry Report