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America’s “auto corridor” may soon be referred to as the “auto backdoor.” Most media outlets lead us to believe that the auto manufacturing industry in general is declining, but that isn’t true. In fact, there were more employees in the auto sector in 2000 than in 1990. The jobs are coming from non-traditional companies, i.e. foreign companies, and landing in non-traditional locales, i.e. the South. Since the late 1980s, a number of high-profile automotive assembly facilities have located in the southern portion of the U.S. - taking their associated jobs and supplier organizations with them.
When “Detroit Iron” ruled the road, the economic health of the corridor fluctuated with the cycles of the domestic auto industry. But as Detroit’s claim on the U.S. market continues to erode, that link is disappearing. Even as U.S. auto sales have been doing better, auto employment in the Upper Midwest has been slumped. The employment hit isn’t only at the auto manufacturing plants. As the foreign carmakers assembling in the U.S. claim a bigger share of overall production; they are pulling their suppliers south as well. It is estimated that for every auto assembly job there is a tail of five or six jobs producing parts.
Why did foreign carmakers like Honda and Toyota choose to locate many of their production plants in or near the southern U.S. when they began building cars in North America? Why didn’t they locate in the Upper Midwest, so loaded in the auto industry that it was known as the “auto corridor”? Mainly, to get out of the reach of the regions United Auto Workers union with its members’ wages and benefits, but also to profit from lower freight costs, and market share redistribution from the traditional domestic manufacturers.
A study published in December of 2003 by the Center of Automotive Research found that auto manufacturing site selection is being navigated primarily by the changing population growth patterns in the U.S. According to the study, auto manufacturers prefer to build vehicles closer to their primary markets to reduce the cost of shipping finished vehicles to their customers. From 1990 to 2000 the combined population of six southern states (AL, GA, MS, SC, TN, TX) increased by 19.7% while the auto corridor (IL, IN, MI, MO, OH, WI) population increased by only 7.7%.
The study concluded that the industry is going through a “right-sizing” of its regional and North American capacity. The auto corridor is a region that is growing slowly at the same time the domestic automakers entrenched there are collectively losing market share. The transplanted foreign companies are predominantly locating in the southern states at the same time their aggregate market share is growing. It appears that as long as the foreign companies continue to increase market share and the population of the southern states keeps growing, the movement south of automotive plants is likely to continue.