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Monday, October 30, 2006

Car Mini Mills (TM)(GM)(DCX)(F)

Stocks: (TM)(GM)(F)(DCX)

Back when Big Steel was crushed like a roach by slowing demand from Detroit and cut rate product from Japan, some manufacturing genius came up with the idea of the min-mill. Companies like US Steel were having trouble keeping their large mills open due to high overhead and labor costs. Most of the large mills are gone now, and companies like Nucor product steel in much smaller facilities.

The New York Times has a modest proposal. Now the US car companies are losing share, perhaps they could “down size” and resort to more specialized manufacturing facilities like many car companies have in Europe. None of the car companies in Europe has a dominant share, so most have resorted to modest complexes. Companies like BMW do not make a large number of cars compared to Detroit, so for the luxury car company, it makes sense. Toyota only focuses on one car segment in Europe, so modest facilities do the job for them as well.

There are, of course, some items that may have been lost in the translation of European practices. For starters, the UAW, which has seen its membership shrink almost every year as GM and Ford try to cut costs, will have to draw a line somewhere on employment. Fewer, smaller factories may not be a hit with labor.

Also, Detroit has shown no interest in cutting the number of model lines it produces. Having fewer and smaller factories would probably mean having fewer product lines. GM is not taking any of its brands off-line, even loser like Saturn. And, Ford still has Mercury, so no sign of cutting there.

The other problem Detroit has in moving in the “niche” direction is that the Japanese are coming. They are coming in a way that is even worse than it has been as they take share from the US companies on American soil. Beyond the manufacturing facilities already in the US, word from Japan’s Mainichi newspaper is that He does not own securities in companies that he writes about.

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