PACCAR and Isuzu invest in the US, but aim for Europe?

Commercial Motor
January 10, 2007

The news that both Paccar and Isuzu are to develop new manufacturing facilities in the US comes at an interesting time. Isuzu is to establish a plant in Birmingham, Alabama, and, whilst Paccar is rather coyer as to its plans, we’d put some money on it opting for the same state.

Why? Try aggressive incentive packages, a good climate, no unions and ready access to ports. Little wonder then that Alabama has become a hub for US auto manufacturing in recent years, with Isuzu – and probably Paccar – joining Mercedes-Benz, Honda and Hyundai in the Yellowhammer state.But hold on a moment. Is not the US economy fast approaching bended knees? Why invest in a faltering, increasingly isolationist economy when there’s now a whole globalised world out there from which to choose? And this is where things might get exciting.The US economy is faltering, and the decline in the value of the dollar was pretty marked during 2006. Indeed, since 2002, the $:€ rate has seen the Euro steal a 35 percent march on the dollar. This is not simply because the rest of the world doesn’t like the greenback’s colour: take a look here for a more informed analysis of the dollar debacle.But US interest rates are low, and so the attracting this $75 billion takes a bit of sweet-talking. Interest rates seem unlikely to rise in the near term, and so the dollar looks set to remain soft.And what has this to do with trucks? In Paccar’s case, plenty. We reckon that the MX is due for EPA 10. The new plant comes on stream in 2009, one year before EPA 10. Importing said lump from Europe at a 30 per cent premium over 2002 Forex rates would take some selling. But how about the notion of two-way traffic? Mercedes-Benz is already punting the M-Class back into Europe from its Alabama plant, so why should Paccar not do the same with the MX? Similarly, Isuzu is reckoned to be sorting it manufacturing issues out in Europe too, with a shift from SCKD through to CKD. Would it not make sense to supply the new European Isuzu facility with CKD kits from the US as opposed to Japan?Paccar isn't saying what sort of capacity its new facility will have, but spokesman Andy Wold told me that both the 12.9 and 9.2 variants of the MX will come off the line. Moreover, he was keen to point out the huge logistical advantages offered by the South East US in terms of both domestic and international supply. Could the new facility supply EU demand? Yes is the word from Bellevue. And is you assume a forecast $:€ rate of 1.35:1 by the end of 2007, it'd be daft not to consider such a move.It’s rather ironic that one of the great battle cries in the US at present is that which bemoans the outsourcing of jobs to the likes of China, and yet the decline in the value of the dollar could yet turn parts of the US into a Maquiladora for Europe.

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