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Transfer pricing is a major issue in the automotive industry, and this article gives an overview of “production capacity management”, and how transfer pricing comes into play whenever a new plant opens or an existing plant expands, contracts or closes.

Written by PricewaterhouseCoopers' automotive transfer pricing expert Bill Hahn, the article discusses how to maximize capacity adjustments — for automakers or suppliers. With nearly 2 million units of capacity added and around 800,000 units rationalized in 2005, there is plenty of this going on.

When the average greenfield plant investment ranges from $400 million to $1 billion, new tools must be brought to bear to ensure the success of the efforts. Both automakers and suppliers tend to leave a lot on the table in these transactions, and a well-thought-out transfer pricing methodology can help maximize the benefits of these capacity adjustments.