The Midwest automotive exodus—fact or myth?

Newspapers are filled with articles chronicling the growing automotive investment in the South and companies leaving the Midwest.

Automakers from Asia and Europe have located many of their new facilities in Southern rural locations. They often move into small towns where they become the dominant economic entity and have their pick of the region's best employees. Locating far away from the traditional home of the UAW decreases the risk of their facilities becoming unionized. While the UAW has tried, it has not been successful in organizing any of these facilities.

It is important to note that many of the international automakers' facilities are located in the Midwest (including Ontario, Canada), and the region actually has done very well in attracting international investment.

Midwest Automotive Sector

Figure 1 and Figure 2 detail existing international automakers' facilities in the traditional Northern and Southern regions. Employment at Southern facilities is approximately 32,634, while employment in Northern facilities is around 31,626. The South has an employment advantage of about 1,000 workers, or 3 percent—a fact that may surprise those who believe that the North is losing out on international investment.

The numbers are even more surprising when vehicle capacity is analyzed. At over 2.7 million units a year, international automakers have more vehicle manufacturing capacity in the North than in the South, where they produce about 2.4 million units a year.

The Midwest automotive sector is attracting new investment. However, the real problem may be the fact that investment is being outpaced by disinvestment as the Big Three lose market share and adjust their capacity accordingly.

Disinvestment, Reinvestment

Recent restructuring plans announced by Ford and GM include facility shutdowns in the Midwest and outside the traditional automotive industry footprint. Ford, for example, has announced the closure of assembly plants in St. Paul; Norfolk, Va.; Atlanta; and Wixom, Mich. While the Wixom facility is in the backyard of the Big Three, the other three facilities lie outside the traditional Big Three domain. Similar observations can be made when analyzing GM announcements.

It appears that the Big Three, particularly Ford and GM, are consolidating their manufacturing bases in the Midwest—;a retreat to the core. While the shutdowns are devastating to the regions, there is reason to believe that the worst is over.

Currently Toyota is searching for a future engine site and possibly a transmission manufacturing facility. The Midwest is considered the most likely area for the facility's location, and Michigan is one of the states in the best position to win this plant.

While Toyota, Honda, Nissan, and Mazda have numerous engineering and R&D facilities in Michigan, Toyota's potential decision to locate a manufacturing operation in the state would be groundbreaking. It would reveal the Midwest's strength of having an experienced and available labor supply, which outweighs negative factors such as apprehension about the UAW.

While the international automakers' facilities in Ohio, Indiana, and Ontario certainly lie in traditional Midwest union country, the psychological value of one of the facilities being located in Michigan would be huge.

Global Automotive Marketing Alliance

To assist Michigan and the Midwest in obtaining the international automotive investment it needs, the Center for Automotive Research established the Global Automotive Marketing Alliance (GAMA) in February 2006. GAMA is funded through the Charles Stewart Mott Foundation for the first two years of its operation. After that the alliance will become self-funding, with member communities paying for the program's costs.

GAMA seeks to provide new investment in Michigan and the partnering of international suppliers with Michigan suppliers. Initial contact with potential firms will be made through meetings arranged at automotive shows in Europe and Asia.

GAMA will focus only on Michigan for the first few years of its operation, but it will ultimately have a Midwestern (including Ontario) scope. The program addresses the fact that Southern states have been more aggressive in targeting international automakers. Southern governors, as well as their economic development officials, make more visits to foreign countries to attract investment. By working directly with communities, and not state governments, GAMA will serve the stakeholders that most need international investment.

While the Midwest has not lagged as far behind in international investment as many believe, the financial struggles of the Big Three have been a substantial economic burden for the region over the last three decades. Programs like GAMA, and the beginning of international automakers' tendency to view the Midwest as more site-friendly, should help the region recover from these losses.