12.5 Auto Industry Case Study Name - Auto Industry Case... · 12.5 Auto Industry Case Study Name_____

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  • 12.5 Auto Industry Case Study Name____________________________ __

    Through this extensive case study, you will apply the concepts that you have learned about in chapter 12 to an authentic situation.

    For each of the 12 documents document: 1. Highlight important information about industrial location in blue. Especially focus

    on how industrial production has changed over the past few decades with the influx of foreign automobile manufacturers.

    2. Highlight chapter 12 terms in . Even if the term is not explicitly stated, greenhighlight where the term applies. This should be done for seven terms.

    3. Summarize (Using a couple of sentences) your document and how it connects to

    industrial location.

    After you are done analyzing each document: 4. Paragraph summary (8-10 sentences)

    o Discuss how the industrial location of the auto industry has changed in the past 20 years (use three vocab terms). Why did these changes take place?

  • Restructuring of the Auto Industry: Geographic Implications of Outsourcing

    James M. Rubenstein Miami University (Ohio) rubensjm@muohio.edu

    Thomas Klier

    Federal Reserve Bank of Chicago tklier@frbchi.org

    BECOME A MEMBER OF THE INDUSTRY STUDIES ASSOCIATION BY VISITING

    http://www.industrystudies.org

  • Restructuring of the Auto Industry: Geographic Implications of Outsourcing Thomas Klier and James M. Rubenstein

    Industry Studies Association U.S. carmakers once produced most of their own parts themselves and dominated the

    suppliers from whom they purchased some parts. In the twenty-first century, responsibility for making most parts has been passed to independently owned suppliers. This paper discusses key elements of changing carmaker-supplier relations and the impact of these changes on the geography of motor vehicle production.

    The analysis is based primarily on plant-level data constructed by the authors. The database includes detailed information on 3,179 parts plants in the United States, 416 in Canada, and 673 in Mexico.

    Key structural changes in carmaker-supplier relations include:

    Suppliers provide large modules rather than individual parts. Carmakers sign multi-year contracts with a handful of suppliers, who in turn contract

    with so-called lower-tier suppliers. Suppliers assume many research and design responsibilities. Suppliers deliver parts to the final assembly line just-in-time.

    Geographic impacts of these structural changes include: Coalescence of U.S. motor vehicle production along so-called auto alley formed by

    I-65 and I-75. Regional-scale supplier networks based on a one-day delivery radius around a final

    assembly plant. Globalization of parts production, with more than one-fourth of new vehicle parts

    imported and more than one-fourth made in the United States by foreign-owned companies.

    Dispersal of final assembly plants within auto alley based on minimizing competition for labor.

    Division of auto alley between a northern node dominated by U.S.-owned firms and a southern node dominated by foreign ones.

  • The current geography of North American motor vehicle production The auto industry includes two types of plants. Several thousand plants make parts that go

    into motor vehicles. The parts are put together into finished vehicles at several dozen final assembly plants.

    The U.S. portion of the North American motor vehicle industry is highly clustered in the interior of the country between the southern Great Lakes and the Gulf of Mexico. The Canadian industry is clustered in southwestern Ontario, adjacent to the U.S. producing area.

    Final assembly plants are clustered in this region because the most critical geographic factor for them is minimizing the cost of shipping finished vehicles to consumers. If the entire North American market is served from one factory, then the optimal location for that facility is in the interior of the country.

    Parts makers are also clustered in the interior of the country. For some, proximity to the final assembly plants in the region is most critical. For others, the most critical factor is proximity to raw materialsespecially steel, which is produced primarily in the southern Great Lakes region.

    Document 1

  • Auto Alley The auto-producing region of the United States has been called Auto Alley. It is focused on

    two north-south interstates: I-65, which runs between Indiana and Alabama, and the portion of I-75 between Michigan and Georgia. East-west interstate highways, notably I-20, I-40, I-64, I-70, and I-80, form rungs along Auto Alley.

    Document 2

  • Assembly plants in 1980 In 1980, assembly plants were arrayed in an east-west distribution centered on southeastern

    Michigan. Numerous assembly plants were located along the east coast, Atlanta, and (not shown) California.

    The 1980 distribution was a remnant of a geographic pattern that originated in the 1910s. Most final assembly plants were located in major metropolitan areas. Parts produced in the Midwest were shipped to these plants, where vehicles were assembled for regional distribution. Thus, a Chevrolet purchased in New England had been assembled in Tarrytown, New York, a Chevrolet purchased in the southeast had been assembled in Atlanta, and a Chevrolet purchased in the southwest had been assembled in Van Nuys, California. Ford had a similar pattern of assembly plants in major metropolitan areas for regional distribution.

    Document 3

  • Assembly plants 2009 In three decades, the geography of assembly production within the United States has

    changed. All but one (the NUMMI GM Toyota joint venture in the Bay area) assembly plant have been closed on the west coast, and all but one on the east coast (the final coastal survivor in Wilmington, Delaware, is vulnerable to closure at the time of this writing).

    New assembly plants have been opened in the southern portion of Auto Alley, between central Indiana and Ohio on the north and central Alabama and Mississippi on the south. Kentucky and Tennessee lie at the center of this region of assembly plant investment.

    Document 4

  • Nationality of assembly plants, 2009

    The final assembly plants owned by the Detroit 3 carmakers (Chrysler, Ford, and GM) are distributed differently than are those operated in the United States by the internationally owned carmakers like Honda and Toyota. The Detroit 3 assembly plants are clustered in southeastern Michigan and nearby communities along the southern Great Lakes between Chicago and Cleveland.

    International carmakers have selected locations for assembly plants south of Michigan and the Great Lakes area. Honda has several facilities in central Ohio and eastern Indiana, Toyota in Kentucky and southwestern Indiana, and Nissan in central Tennessee. The clustering of plants in the Deep South represents investment by eight different international carmakers.

    Several assembly plants shown on the Detroit 3 map will be closed as a result of restructuring ongoing at the time of this writing. The resulting distribution will be even more highly clustered around the southern Great Lakes.

    Detroit 3 assembly plants International carmakers assembly plants

    Document 5

  • Parts suppliers also cluster in Auto Alley These two maps compare the distribution of parts plants that opened prior to 1980 with those

    that opened since 1980. The earlier map shows a higher concentration of parts plants in Michigan and other southern Great Lakes communities, especially between Milwaukee and Cleveland. The map of more recent openings shows that many parts plants have continued to locate in and near southeastern Michigan, but a larger percentage are located further south, especially in Kentucky and Tennessee.

    Before 1980 Since 1980

    Document 6

  • Foreign plants gravitate southward

    Parts plants opened since 1980 by international companies are more likely to be located in the south, whereas those opened by U.S.-based companies are more likely to be in Michigan and northern Indiana and Ohio. In part, this represents a need by parts plants to locate near their customers, the final assembly plants. Internationally-owned parts plants are more likely to be shipping to internationally-owned assembly plants, which are clustered in the south. U.S.-owned parts plants are more likely be shipping to Detroit 3 assembly plants, which are clustered in the southern Great Lakes.

    Document 7

  • Regional supply base linkages This map shows the location of suppliers to Toyotas North American assembly plants. The

    concentric circles are drawn around Toyotas principal final assembly plant complex in Georgetown, Kentucky. One-fourth of Toyotas suppliers are located within the inner circle, one-half within the middle circle, and three-fourths within the outer circle. The other one-quarter are located elsewhere in North America.

    The map shows that three-fourths of Toyotas suppliers are located within 483 miles of Georgetown. That distance translates into a radius of a one-day drive. This is not a coincidence: with adoption of just-in-time, most suppliers need to be within one day of their customer.

    Just-in-time does not mean right next door. Only a handful of suppliers are located within an hour of a final assembly plant. The map shows that only one-fourth are located within 194 miles, which tran