Changing Dynamics of the North American Automobile Industry:

Crisis or Opportunity for Michigan?

Kim Hill

Director, Automotive Communities Program

Associate Director, Economics and Business Group

Center for Automotive Research

Ann Arbor, MI

2

From the New York Times, January 24, 2006:

"This may not be the end, but it is certainly the beginning of the end of the

automobile industry as we knew it."

Gary N. Chaison, Professor of Industrial Relations, Clark University (Worcester, MA)

3

Some days……….

4

First, some questions:

Is the NA industry dying?

Is all the new investment occurring in the south?

Is the industry moving south?

Is labor a big issue/asset?

Why would new investment come to old “company towns”?

5

An integrated industry

6

Is the North American auto industry dying?

7

Stuck on a Plateau!

Total U.S. Sales of Light Vehicles:

1992 - 2007

8.2 8.5 9.0 8.6 8.5 8.2 8.2 8.8 9.0 8.7 7.7 7.9 8.0 8.1

2.5 2.6 2.8 3.0 3.1 3.43.8 3.8 3.9 4.2 4.7 4.8

2.6 2.93.4 3.3

4.3 4.1 4.4

9.0 8.9 9.0

7.88.3

2.5

4.03.74.4

3.64.64.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Car MV/CSU/CUV Other Truck/Van

Mil

lio

ns

Year

13.3 13.9

15.0 14.7 15.1 15.0 15.617.0 17.4 16.9 16.917.2 17.116.8 16.6 16.9

8

Truck sales headed…

in the right direction??

9

8.08.1

8.28.4

9.0

8.48.5

8.0

8.58.38.4

9.7

8.6

8.4

9.0

8.7

8.3

8.9

9.5

9.3

9.19.1

9.7

9.5

9.0

9.6

10.0

8.3

0.50

1.00

1.50

2.00

2.50

3.00

1999-I

1999-III

2000-I

2000-III

2001-I

2001-III

2002-I

2002-III

2003-I

2003-III

2004-I

2004-III

2005-I

2005-III

Gas

oli

ne

Pri

ces

$

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

Lig

ht

Tru

ck S

ales

SA

AR

(M

illi

on

s)

Light Truck Sales

Nominal Gasoline PricesAll Grades All Fuels

Sources: EIA, Ward's Automotive

Peak $2.62

Employee deal for everyone is over now for trucks!

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3,878,451

592,875

2,196,592

2,853,762

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Year

MA

V, C

UV

, CS

UV

2,000,000

2,100,000

2,200,000

2,300,000

2,400,000

2,500,000

2,600,000

2,700,000

2,800,000

2,900,000

All

SU

Vs

MAV, CUV, CSUV

All SUVs

SUVs & CUVs

Source: CSM, JD Power

11

Can’t understand why sales have tanked?

12

2004-2008Change in N. American vehicle production capacity

6.2

4.34.6

3.3 3.1

3.2

0

1

2

3

4

5

6

7

8

GM-2004 GM-2008 Ford-2004

Ford-2008

Chrysler-2004

Chrysler-2008

Source: AutoData

Mil

lio

ns

4.0

13

Oklahoma City-2006

Lansing Craft Centre-2006

Spring Hill - 2006

Atlanta – 2008

Oshawa 1 - 2006Oshawa 2 - 2008

Moraine - 2006

Lansing Metal - 2006

Pittsburgh Metal - 2007

Portland - 2006

Ypsilanti SPO - 2007

St. Catherine’sPowertrain -2008

Flint Engine 1 - 2008

Baltimore - 2005

Linden - 2005

Lansing M - 2005

Lorain - 2005

GM & Ford shutdowns: Retreat to the core?

St. Louis - 2006Doraville - 2008

Wixom – 2007

Batavia – 2008

Windsor Casting – 2008St Thomas – 2008

Nine more Ford shutdowns TBD

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TXMS

ALGA

SC

TN

KY

INIL

MI

MMM-USA

TOYOTA-PRINCETON

SUBARU-TOYOTA

HONDA EAST LIBERTY HONDA MARYSVILLE

TOYOTA

SPARTANBURG-BMW

I-65

NISSAN-CANTONHYUNDAI- HOPE HULLHONDA-LINCOLN

TOYOTA-SAN ANTONIO

MERCEDES BENZ-VANCE

TOYOTA-HUNTSVILLE

OH

NISSAN

I-75

Roads heading south!International supplier and manufacturer locations

KIA-WEST POINT

15

Transplant assembly facilities as of 2005

Company LocationEmployment as of

2004

Total Investment-through 2005

($ million)

Actual Capacity as of 2005

BMW

CAMI-GM

Spartanburg, SC

Ingersoll, ON

4,600

2,775

2,200

500 (original investment)

200,000

250,000

Honda Lincoln, AL

Alliston, ON

East Liberty, OH

Marysville, OH

4,300

4,375

2,230

4,315

1,200

1,500

920

3,200

300,000

390,000

240,000

440,000

Hyundai Hope Hull, AL 2,000 1,100 300,000

Mercedes-Benz Vance, AL 4,000 2,200 160,000

Mitsubishi Normal, IL 1,900 850 240,000

Nissan Canton, MS

Smyrna, TN

4,100

6,700

1,430

1,600

400,000

550,000

NUMMI-GM Fremont, CA 5,715 1,300 370,000

Subaru Lafayette, IN 1,315 1,350 262,000

TMM-Canada

TMM-Indiana

TMM-Kentucky

Cambridge, ON

Princeton, IN

Georgetown, KY

4,342

4,659

6,934

2,400

2,600

5,310

250,000

300,000

500,000

Total 5,152,000

Source: Automotive News, Harbour Report, CAR research64,260

16

New International assembly facilities: 2006-2008

Source: Automotive News, Harbour Report, CAR research

Company Location EmploymentInvestment

($ million)New Capacity

TMM-Texas

TMM-Texas (Addition)

TMM-Canada

TMM-Canada (Addition)

Toyota-Subaru

Kia

San Antonio, TX

San Antonio, TX

Woodstock, ON

Woodstock, ON

Lafayette, IN

Troup County, GA

2,000

-----

1,300

700

1,000

2,500

800

50

650

300

230

1,200

150,000

50,000

100,000

50,000

100,000

300,000

New Vehicle Total 750,000

7,500

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Major automotive investments from 1993-2005

Source: Book of Deals, CAR

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U.S. / Canada production by region

63%

37%

64%

36%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

1998 2004

ACP Non-ACP

ACP: Ontario, Michigan, Ohio, Indiana, Illinois, Missouri

Non-ACP: Rest of Canada and United States

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Automotive manufacturing in the Great Lakes region

Automotive Communities Program

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Why North:Tool & Die facilities compared to other automotive states

Source: 2002 Census Bureau

0 200 400 600 800 1,000 1,200 1,400 1,600 1,800

Michigan

Ohio

Tennessee

North Carolina

Kentucky

South Carolina

Georgia

Alabama

Arkansas

Mississippi

21

Why North: Large numbers of mechanical and industrial engineers

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Michigan

Ohio

Alabama

Arkansas

Kentucky

Mississippi

Tennessee

Mechanical

Industrial

22

Michigan: The Automotive Research & Development Center

65%-75% of Annual U.S. Auto R&D

$10.7 billion (2003)

55,000+ jobs

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Major automotive investment has an enormous economic and employment impact on the regional economy.

Why should we care?

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2003 average annual salary (U.S.)

$26,902

$31,661

$33,075

$44,675

$63,825

$40,506

$34,919

$0 $10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Non-Farm PrivateSector

Financial activities

Manufacturing

Durable Goods

Insurance carriers

MV Parts

Light Trucks & Autos

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TypicalAssembly Plant

2,000 Jobs

.56 Powertrain Plants or 560 Jobs

.56 Stamping Plants or 850 Jobs3,800 Parts & Component

Jobs or a Total of 7,210 Manufacturing Jobs!

…and another 7,700 Non-manufacturing jobs for a total of 14,910 jobs.

Vehicle assembly is a huge driver of economy

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7.5

Approximate National Automotive Manufacturing Multiplier

OR:

6.5 additional U.S. Jobsfor each Job at a U.S. Motor Vehicle Firm

Source: Average of many studies conducted by the Center for Automotive Research, including: Contribution of the U.S. Motor Vehicle to the Economies of the United States, California, New York, and New Jersey, Center for Automotive Research, 2003, Contribution of Toyota to the Economies of Fourteen States and the United States in 2003, Center for Automotive Research 2005

Automotive plant closures (and openings)

affect regional economies

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Automotive jobs drive all wages up

Grant County (Indiana) example — 10 county region:

A county with significant automotive industry employment (>6%) has higher salaries in all industries.

On average all jobs in a county will pay between 15% and 18% more than a similar county with low automotive industry employment.

This is true even in fields unrelated to manufacturing or the automotive industry.

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Bottom line

Retain and attract automotive investment

Look to attract suppliers to the new domestics

Emphasize assets (supplier infrastructure, educational levels, etc.)

Automotive R&D concentration

Competition for new sectors — Bio/Nano/Homeland — is fierce

49 other states want a piece of that pie

Once a strength, always a strength

Is Massachusetts attempting to attract auto?

Highest job impact numbers of any industrial sector

6.5 jobs nationally for every one job in an assembly plant