Auto’s Regional Change

Auto production has moved south in the past decade. I have developed a series of slides for one of my talks that show auto plants in the 1980s, 1990s and in the 2000s. The 2000s slide vividly shows how the new plants have moved south, particularly into Alabama and Mississippi. This month’s Federal Reserve Bank of Chicago’s Fed Letter is titled “Caution ahead—Challenges on the Midwest’s role in the auto industry.”

The Fed points out that the Chicago District, which encompasses Michigan, Indiana, Illinois, Wisconsin and Iowa, share of passenger car production has fallen to 32% in August, 2004 compared to 50%+ as late as 2002. “Until the end of 1996, the core of the auto region, the states of Michigan, Indiana, and Ohio was home to the majority of auto industry jobs.”

I’ve never thought that the agurbs® made any sense for an auto assembly plant. These plants are too large and totally dominate any economy. There generally isn’t a good diversification in the communities in which they are located. When the plant is humming, times are good. But, they don’t always hum.

However, I’ve always been much more interested in auto parts suppliers, feeling that they can add a great deal to an agurb®. Agracel has several clients who make auto parts in several of our buildings and have spent a great deal of time studying trends in this industry.

As the Fed points out in their study, “on average for every auto assembly job in the U. S. there are six in related parts production, as well as ancillary jobs.” These parts plants are usually in close proximity of up to a day’s drive away. With numerous assembly plants in the upper Midwest, a large number of parts suppliers located there also. In the three year period from 2000 to 2003, “the industry shed 155,000 jobs, the vast majority of these are concentrated in the auto supplier segment of the industry. Michigan, Indiana, and Ohio fared worse than the rest of the country, losing 17% of their parts industry jobs.”

The Fed’s conclusion is that this shift from the dominance of autos in the upper Midwest is not over. They point out that another four Big Three assembly plants are scheduled to close in the next year in the upper Midwest. The surge of auto production in the south, due to changing demographics and much more favorable labor laws, will be a huge boost to that region even as the normal “auto zone” upper Midwest loses dominance and sheds jobs.

Tomorrow’s blog is on the impact of one auto assembly plant in Mississippi.