Executives of Magna International Incorporated (Aurora, Ontario), a global manufacturer of automotive assemblies and components recently spoke at the Deutsche Bank Auto Analyst Conference, held in Detroit alongside the North American International Auto Show. Executives spoke about the changing auto market and ways that Magna is changing along with the industry.
Chief financial officer Vince Galifi discussed the turmoil facing the automotive industry. "Today, we are facing a number of short-term challenges in our industry," he said. "Vehicle sales and production in our two primary markets, North America and Western Europe, have declined significantly in the past six months, and there are no signs of near-term improvement. Economic weakness has spread and has led to a global slowdown in vehicle sales and production."
Galifi pointed out that while North American production has for the most part been in decline since 2002, global emerging markets have, until quite recently, demonstrated strong growth. From 2006-08, light vehicle production in these markets accelerated rapidly, with China showing a 14 percent compound annual growth rate (CAGR), South America showing a 12 percent CAGR, Central/Eastern Europe showing 13 percent CAGR and Southeast Asia having an 11 percent CAGR in light vehicle production. Production is expected to decline in all of these regions but China in the immediate future, although in the long term, Magna expects light vehicle production to grow by 20 percent or 13 million units globally.
Magna is moving production facilities into these "low-cost regions." In China, for example, Magna already has 16 manufacturing facilities and just less than 4,000 employees. Magna has opened 31 plants in these developing regions since 2006 and plans on continuing this trend. The company currently has 24 manufacturing facilities in Mexico, 20 in the Asia-Pacific region, 12 in Central/Eastern Europe, and five facilities in South Africa and South America. These 61 plants account for 25 percent of Magna's total plants. By 2011, Magna would like to increase plant numbers in these regions to 81, or more than 30 percent of the company's manufacturing plants.
Despite the shift of manufacturing bases, North America and Western Europe will continue to be the main market for Magna's products. In 2008, North America accounted for 49 percent of Magna's sales. Western Europe made up 45 percent of the company's sales, while the rest of the world totaled 6 percent.
Along with changes in location come changes in products. Magna is currently performing much research and development in the area of fuel efficiency, focusing not only on reducing the weight of components, but also on alternative-fuel technologies including the hydrogen- and electric-powered vehicles. Magna has recently begun working with Ford Motor Company on development of a battery-powered electric vehicle. The vehicle, which is scheduled to be launched in 2011 will use a lithium-ion battery and will have a range of up to 100 miles on a single charge. By helping automakers such as Ford develop such vehicles, Magna is in no small way helping revitalize the ailing auto industries in both North America and Europe.
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