Magna Steyr is good at building vehicles.
The supplier has been making cars and trucks for auto makers in Graz, Austria, for nearly 100 years, at a complex complete with on-site engineering.
Magna has proven itself, building 11 models on seven platforms for five different brands from a number of auto makers. It operates six body shops and five assembly lines, running three shifts and juggling the logistics of 680 million parts arriving annually from 1,800 suppliers.
And the 260,000 vehicles it pumps out a year emerge with world-class quality scores.
The model works, and the contract assembler long has wanted to duplicate its efforts in North America.
Magna has scouted sites in the U.S., Canada and Mexico. The company even had earth-moving equipment on a site in the southern U.S., but the client abandoned the project.
Despite all its efforts, Magna’s North American aspirations have not come to fruition.
And the supplier is adamant it will not build a plant without contracts to build multiple vehicles.
Magna argues General Motors and Ford, as they struggle to restructure North American operations to boost profitability in the face of declining market share, need a paradigm shift.
With the Big Three closing plants and reducing capacity, it arguably is the best time to try something new.
Magna proposes a strategy it calls “peak shaving,” whereby OEMs install capacity for 70% of what they consider to be peak sales of a vehicle. The supplier would be contracted to handle the extra 30% when demand strains capacity and when a vehicle program is winding down or the auto maker is preparing to launch a new model.
And Magna has its boot on the ground in Toledo, OH, where it operates the paint shop at a Jeep plant for Chrysler.
But Magna accepts the reality it likely will be at least five years before there is a need to build a greenfield plant in North America for vehicle assembly.
And there is the question of how Magna would work with unions if a Graz-type plant were to be built on this side of the ocean.
In the face of such hurdles, Magna a few years ago started thinking more globally, saying it is just as eager to set up a niche-vehicle assembly plant in China, Thailand or Eastern Europe.
Now, Magna is teaming up with Russia’s largest auto maker, OAO AvtoVAZ, to build a plant to produce a new C-segment car. The $800 million joint venture will have an initial capacity of 220,000-240,000 cars in 2009, with the possibility of a new partner or co-owner and a bump to 450,000 units in the second stage.
Magna will have a stronghold in the exploding Russian auto industry, where every major auto maker is either launching output or studying the possibility. It puts Magna in the right place, with the right skill set.
This high-functioning top-tier supplier continues to prove that world-class production is not the sole domain of auto makers.