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Turning a liability — a mothballed plant — into an asset

When Fiat Chrysler Automobiles decided to invest $4.5 billion in five Detroit-area factories to add Jeep and Ram capacity in a hurry, it had an unlikely asset: an empty plant.

FCA's Mack II engine plant, part of a 110-acre complex, closed in September 2012 and has remained a sore spot on the company's books. But now, FCA plans to combine it and the Mack I engine plant to create a hub to build a Jeep Grand Cherokee and a three-row Jeep SUV.

Construction is to start this quarter, with vehicle production beginning by the end of 2020.

In the world of auto-plant construction, that's quick. Building and launching a greenfield plant typically takes twice that long. And that's after months of site selection and consulting work.

FCA's fast-moving plan is a reminder that mothballed plants might well be a financial liability, in addition to a towering public reminder of past failures. But they can also enable an automaker to chop months or years off the timetable to add capacity and seize on a market opportunity.

It's a competitive advantage that's mainly available to the Detroit 3, which closed multiple plants during the Great Recession.

Bernard Swiecki, director of the Automotive Communities Partnership at the Center for Automotive Research in Ann Arbor, Mich., said an automaker such as FCA has several advantages in reviving its own brownfield site: "In this case, it's all within the same automaker, which does make it easier because you're starting with the ownership of most of the land."

Old plants satisfy many points on the checklist for a greenfield site, Swiecki said. They're usually near suppliers and highway and rail access, and they typically have a trained automotive work force. And they previously met zoning and environmental requirements.

But it's not a slam dunk.

Patricia Spitzley, deputy redevelopment manager for the Racer Trust, which sells former General Motors properties, said restarting an old plant requires newenvironmental permits. And, she adds, some older plants are in cities that prefer alternative uses. Former GM assembly plants have been turned into retail and housing developments — even into a golf course, Spitzley said.

Valerie Sathe Brugeman, assistant director of CAR's Transportation Systems Analysis Group, said that a community's willingness to restart vehicle production "100 percent depends on the location of a plant. … Old plants in city centers tend not to remain in manufacturing anymore."

Still, Spitzley said the Racer Trust is encountering "a robust market" for former GM properties. Manufacturers like the sites, she said: "They don't have to worry about water, sewer, electrical. With a lot of the auto plants, their infrastructure was massive."

FCA will do substantial work to transform its two old engine plants into a vehicle assembly plant. Swiecki said that kind of revamp is more challenging when a different automaker, with its own production system and preferred floor layout, acquires a competitor's plant.

"If you're buying someone else's facility, you have less flexibility to customize to your own system," he said. "You're going to end up with a hybrid system."

But such compromises can be acceptable if the cost is attractive. For instance, Tesla bought the former GM-Toyota plant in Fremont, Calif., for $42 million, and electric-truck maker Rivian paid just $16 million for the former Mitsubishi plant in Normal, Ill.

"The cost savings are one of the drivers," Swiecki said. "That's what you're playing off against."

A 2017 CAR study estimated that 278 of the 455 automotive plants that operated in the U.S. from 1979-2017 had closed, Brugeman said.

Of those 278, 186 had been repurposed or have deals pending and 92 remain shuttered.

Although closings have declined since the recession, GM's late-2018 announcement that it has not allocated vehicles to five plants in the U.S. and Canada revived the issue. It means the likely end of GM vehicle assembly at its plants in Lordstown, Ohio, and Oshawa, Ontario. But last week, GM said it would convert Oshawa into a stamping and parts-making plant and autonomous vehicle test track. And the company said it was in talks to sell Lordstown to Workhorse Group Inc., a maker of electric trucks and drones.

Brugeman said that even with the varied uses for old plants, automotive sites are best suited for building vehicles: "We always say the highest and best use of an automotive manufacturing plant is another automotive manufacturing activity."

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