New Foreign Auto Plants In US May Bring Shakeout

EARNEST but off-key, the high school band blared from the back of the auditorium, while a procession of local leaders took their place on stage.

Then a motorcade pulled to a stop outside Princeton High School, in Princeton, Ind. Casual observers might have expected President Clinton to pop out. But to local residents, last week's visitor was far more important; he was bringing with him 1,500 jobs and a $700 million investment.

''We will invest our heart and soul to become good corporate citizens of this fine community,'' declared Toyota Motor Company president Hiroshi Okuda as he formally announced the site of the automaker's fourth North American assembly plant.

Toyota isn't the only carmaker making the move.

While the short-term impact on jobs and the trade deficit might be promising, the long-term effects are less clear. Some analysts see the threat of industry overcapacity - and problems for America's Big Three automakers.

Virtually every Japanese automaker operates at least one North American ''transplant'' assembly line, giving these firms a combined capacity of 3.4 million vehicles. Planned expansions mean that by 2000, transplants could be rolling out as many as 4.4 million cars and light trucks a year. When the Toyota facility goes on line in 1998, it will produce 100,000 T100 pickup trucks annually.

It was just 1983 when Honda Motor Company opened the first of these factories on a plot of fallow farmland in Marysville, Ohio. Initially, such plants were a response to mounting political pressures and so-called ''voluntary'' restraints on Japanese imports.

Manufacturers like Honda and Toyota wondered whether American workers could build quality products - and whether American buyers would accept the idea of an Accord sedan built in Ohio. Their worries proved groundless.

Today, these transplants are among the world's most efficient assembly lines. Honda claims that the quality of its Ohio products exceeds that of the vehicles coming in from Japan.

And consumers, ''don't really care where a product is built as long as it delivers the quality they expect,'' says auto analyst Chris Cedergren of the AutoPacific Group, Thousand Oaks, Calif.

Last spring, when the United States and Japan narrowly averted a trade war, Japanese automakers agreed to expand production in the US.

That promise didn't take much arm-twisting. Consider that when the Marysville Honda plant opened, the dollar bought nearly 300 yen. It fell to a low of near 80 this year - and is now hovering around 100. The shift has forced a steady series of price hikes on vehicles imported from Japan, hurting both market share and profitability. Foreign cars made in the US are largely shielded from such hikes.

''We hope to [reach a point where] we are not influenced by currency-exchange fluctuations, and we hope to achieve that in the next five years,'' Mr. Okuda said in an interview.

European carmakers are also coming to America. A year ago BMW opened a plant in Spartanburg, S.C. And in another year, Mercedes-Benz AG will open its first transplant in Vance, Ala. Company officials at Audi AG say they're also studying the idea of an American assembly plant. But they admit it could be a difficult sell to their parent company, Volkswagen AG.

Volkswagen has the dubious distinction of having built the only foreign-owned car line to close US production. Its Westmoreland, Pa., plant was set back by poor quality, labor strife, and low demand for its only product, the Rabbit. (A Canadian transplant that South Korea's Hyundai Motor Company built has been indefinitely idled).

Are other transplants vulnerable?

It's clear that the expanding transplant production base is creating a growing excess of production capacity in North America, according to the consulting firm Autofacts Inc. in Detroit. Depending on when all the new plants come on line and when a recession strikes, capacity could be 3 million units above what the market will support - the equivalent of a dozen assembly plants.

Autofacts president Bill Pochiluk says most or all of the Japanese-owned plants will survive, but ''we feel the Big Three, particularly General Motors, will face major pressures ... to close some of their plants.'' Ironically, the Japanese will feel pressure to close some plants back home, where the industry is being hollowed out by the rise of the transplants. Toyota expects to ship only about 500,000 vehicles from Japan to the US this year, down from more than a million in 1986. By some estimates, at least four assembly plants in Japan will have to close by 2000.