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How Long Will Motown Be Motown?

Industrial Management: Autos

How Long Will Motown Be Motown?

Plants are sprouting elsewhere, but Detroit has a lock on R&D

Quick, what's the automotive assembly capital of North America? Yes, it's still Michigan--but maybe not for long. The state produced 3.1 million cars, just a hair ahead of the 3 million made in Ontario in 1999. What's more, capacity is growing faster in the Canadian province, putting Ontario on track to usurp the title in the next couple of years.

Are carmakers forsaking Michigan? Not at all. But they are expanding their operations in other regions much more aggressively than in past years. Since 1990, Michigan has increased its capacity by a total of 16%, according to data from Ward's Automotive Reports. In the same period, however, capacity exploded in nontraditional regions. Production in Ontario grew by 61% over the decade and by as much as 135% in the southeastern U.S. and northern Mexico.

At the root of this drift away from Michigan is a single factor: lower costs. In Canada, lower health-care payments have been a big draw. U.S. auto makers, as well as Toyota Motor Corp. and Honda Motor Co., all have major facilities in Canada, where they save about $500 per vehicle in health-care costs compared with U.S. plants, estimates Dennis DesRosiers, president of Toronto-based DesRosiers Automotive Consultants Inc. Also, with the Canadian dollar perennially lagging the U.S. dollar, it's cheaper to produce goods across the border, he says.

That helps to explain all the recent plant construction in Ontario. Honda plans to build about 40,000 of its Acura luxury SUVs per year at a new plant in Allisonton. In Cambridge, Toyota is expanding a plant to produce 60,000 Lexus SUVs in 2003. DaimlerChrysler's $1 billion plant upgrade in Windsor will add nearly 120,000 pickups by 2004.

In the South, the rise of the auto industry is driven largely by the desire of Asian and European carmakers to open plants in nonunion areas. Nationally, salary plus benefits for non-unionized labor average $38 per hour per worker, compared with $50 at unionized plants in Michigan. The base pay for union and nonunion autoworkers is similar--both receive about $22.50 per hour--but union workers receive better benefits.

Despite the cost savings, the Big Three aren't headed southward themselves. DaimlerChrysler, Ford, and General Motors are blocked from building nonunion plants under collective agreements with the United Auto Workers union. Foreign auto makers aren't encumbered with union agreements, so they are continuing to boost their presence in the South. Nissan Motor Co. plans a new plant in Mississippi. Honda is building in Alabama. As a region, the South has enjoyed a 90% hike in auto production since 1990.

The lure is similar south of the border. At about $5 per hour per worker, the cost of wages and benefits in Mexico amount to just one-tenth of Michigan's. Of course, Mexico is distant from most U.S. population centers, auto makers point out. This means higher transportation and supply costs offset much of the benefit of Mexico's low labor costs. Still, the auto makers are flocking there: Plant capacity expanded by 87% during the 1990s. And Chrysler gave Mexico a big vote of confidence when it chose to build its popular PT Cruiser there.

Mexico may be a relative newcomer to the carmaking scene, but the shift away from the Midwest is nothing new. While Henry Ford's decision to built his first Model Ts in Highland Park gave Michigan its auto capital status in the early 1900s, production soon shifted elsewhere, says James M. Rubenstein, author of a book on auto-production geography and chairman of the geography department at Miami University in Oxford, Ohio. By the mid-1910s, Ford had 32 regional assembly plants outside of Michigan, he says. By the 1950s, only luxury models were built in the state.

The 1970s, however, marked a return to Motown. In the wake of the oil shock, domestic auto makers closed factories as far off as California and concentrated their production once again in Midwestern plants in an effort to achieve economies of scale, Rubenstein says. Michigan once again dominated. In the decades since, however, the growth has been almost entirely to the north and to the south.RESEARCH HUB. It's not all bad news for Michigan. Even as the state loses auto assembly, it's picking up more research and development, says Sean P. McAlinden, director of the economic and business group for the Center of Automotive Research in Ann Arbor. Even foreign auto makers tend to concentrate R&D in the Detroit area. "Even if chips aren't built in Silicon Valley anymore, no one would suggest it's not the center of the high-tech world," says Martin Kenney, a professor at the University of California at Davis who has studied the auto migration.

Reflecting larger trends in the U.S. economy, the state seems to be trading its blue collars for white, its brawn for brains. If so, Motown should keep its top-flight reputation in the automotive world, if not all its plants. And a good thing, too. "Motor Province" just doesn't have the same ring.By Jeff Green in DetroitReturn to top

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