A Profile Of The Automotive Sector In The U.S. And Southeastern States

The benefits of this industry’s growth to theSoutheast are undeniable. The introduction ofnew assembly facilities has helped transform theSoutheast’s manufacturing sector, moving it awayfrom its historical reliance on low wage and lowcapital intensity production of nondurable goods.In fact, this movement is much stronger and muchmore important than simple numbers can suggest.The assembly facilities themselves represent newinvestments, embodying new technologies andproduction processes, and new styles ofmanagement. The supplier linkages that havefollowed the assembly facilities have been forcedby market pressures to become ever moreproductive and efficient. The result is a broadbased industry in the Southeast that competes wellin the global economy. The economic contributionis notable, with jobs in Tennessee’s automotiveparts manufacture and automobile assembly sectorproviding worker earnings that are about 40percent higher than the average earnings in thestate’s overall manufacturing sector.This report is a continuation of CBER’songoing examination of the automotive industryin Tennessee and the Southeast. The purpose ofthe current study is to document and detail themovement of assembly and supplier activity to theregion, with particular emphasis on Tennessee.The discussion begins with a national perspectiveon the automotive industry’s development to placetrends for the Southeast in context. The focusthen turns to the movement of assemblers andsuppliers to the region.2II. THE SIZE, SCOPE ANDPERFORMANCE OF THE MODERNU.S. AUTO INDUSTRYCommercial production of automobiles in theU.S. is believed to have begun with the DuryeaMotor Wagon Company of Springfield,Massachusetts in 1895. Duryea was the industrysales leader that year, with the production of fourmotor cars.1 Henry Ford’s introduction of themoving assembly line in 1912 heralded thebeginning of the American Dream, as car pricesfell and automobiles became accessible to theaverage consumer. By 1935 motor vehicle andparts production had become the most importantmanufacturing industry in the country, rankingfirst in the number of production workers, size ofpayroll, value added during manufacture, cost ofmaterials and overall value of shipments. TheU.S. automobile industry endured serious hardshipin the 1970s and early 1980s in the face of risingfuel prices, problems of product quality and sharpinroads from foreign producers, most notably theJapanese. As the decade of the 90s approaches itsclose, the U.S. automobile industry hasrepositioned itself as a global leader in automobileproduction. Within the southeast in 1992,Tennessee’s transportation equipment sectoraccounted for over 45,000 jobs, making it thelargest component of the state’s durable goodsmanufacturing sector. By 1998, Tennessee’stransportation equipment sector accounted forover 54,000 jobs.There are both narrow and broad definitions ofthe automobile industry. Narrowly, the automobileand equipment manufacturing industry (StandardIndustry Classification 371) includes

establishments whose primary activities areproducing motor vehicles and car bodies(SIC 3711), truck and bus bodies (SIC 3713),motor vehicle parts and accessories (SIC 3714),truck trailers (SIC 3715), and motor homes(SIC 3716). A broader definition would includeall transportation equipment (SIC 37), whichincludes automobile eq u i p m en t andmanufacturing, as well as aircraft and parts, shipand boat building, railroad equipment,motorcycles and bicycles and guided missiles andspace vehicles. This broader transportationequipment sector, which has a strong presence inTennessee, utilizes similar inputs, similar workerskills and similar production techniques.Because of the complexity of automobileproduction and the fact that most modernautomobile plants are actually engaged inassembly of motor vehicles from purchasedcomponents (or components shipped from otherdivisions within the same company) rather thancomplete vehicle production, the actual scope ofautomobile-related manufacturing industries ismuch broader than these narrow classificationssuggest. Based on figures from input-outputtables of the U.S. economy—which show thedetailed inputs required to produce the finalautomobile—motor vehicle and car bodyproducers utilize inputs from over 170 differentindustries in their manufacturing process. Table1 lists the key supplier industries to automobilemanufacturers, along with estimates of thepercentage of their output supplied to theautomotive industry (SIC 371) in 1992. Note thatonly sixteen industry classifications are shown inthis table. The contribution of these and otherindustries to the broader transportation equipmentsector (SIC 37) would be much larger than thatindicated in the table.Given the number and variety of industriessupplying inputs to the automobile industry it isno surprise that the fortunes of automobilemanufacturers have a significant impact on theU.S. economy. In 1998, the industry employedjust over 988,300 workers, representing nearly 9.0percent of total employment in durable goodsmanufacturing and about 5.3 percent of allmanufacturing employment.2 These figures makeautomobile manufacturing one of the largestthree-digit SIC manufacturing industries in theeconomy. In total for the U.S., about 1 percent ofthe 105,970,000 workers on total private payrollsin 1998 were employed directly by automobileand equipment manufacturers.Because of the vast network of automobileindustry suppliers, however, these data understatethe employment impact of automobile productionon the national economy. Still, estimation of thenumber of automobile-related jobs in supplierindustries is difficult because most supplierestablishments do not produce exclusively forautomobile industry consumption, as is clear fromTable 1. Some suppliers may produce for broaderelements of the transportation equipment sectorwhile others will supply a significant share oftheir output to sectors unrelated to thetransportation sector. As shown in Table 1, eventhe automotive stampings industry on averagesupplied about three-fourths of its output to motorvehicle and car body producers. In total, thesesupplier industries employed an estimated1,875,600 U.S. workers in 1998. If this figure is3

Table 1: Key Automotive Supplier IndustriesSICValue of Purchasesby Auto Industry(Millions)Percent Outputto AutoIndustrySteel springs, except wire349340686.1Automotive Stampings346511,76273.7Motor vehicle parts and accessories371440,18653.4Fabricated Textiles, nec23991,47846.5Auto Apparel & Trimmings23962,58242.3Engine Electrical Equipment36942,29433.4Radio & Television Receivers36511,77022.9Internal Combustion Engines35192,02017.2Carburetors, pistons, rings, valves359230016.4Hardware, nec34291,31115.3Tires & Inner Tubes30101,51112.8Refrigeration & Heating Equipment35852,22512.1Glass & glass products32101,50411.5Fabricated Rubber Products, nec30601,26311.2Lighting fixtures and equipment36405586.5Storage batteries36911955.7Supplier IndustrySource: Author’s calculations from data in 1992 Benchmark Input-Output Tables.adjusted to account for the percentage ofproduction by these industries that is dedicated toautomotive inputs, these supplier establishmentsemployed about 740,173 automobile-relatedworkers in 1998, or about 40 percent (on average)of their total 1998 employment.3 Adding thesesupplier industry jobs yields a conservativeestimate of total employment in automobilemanufacturing and directly-related industries in41998 of almost 1.7 million. Thus in terms of jobs,the automotive industry directly represented about9.2 percent of the manufacturing sector of thenational economy in 1998 and about 1.6 percentof workers on all private nonagricultural payrolls.But even this measure understates the industry’scontribution to the economy by ignoring the rippleeffects of the multiplier.

Other measures of the size and impact of theautomobile industry on the U.S. economy can befound in data on consumption expenditures,wages, and personal income. Between 1972 and1992, consumption of motor vehicles andequipment consistently accounted for between 3.0and 4.0 percent of inflation-adjusted grossdomestic product (GDP). This is a substantialimpact for a three-digit SIC industry, accountingfor over forty percent of all expenditures ondurable goods. In 1998, consumption of newautomobiles alone accounted for 1.1 percent ofinflation-adjusted GDP, with sales ofapproximately 82.8 million in 1992 dollars.The automobile industry also has a relativelylarge impact in terms of wages and personalincome. The average auto manufacturing jobgenerates double the wage, property, and profitincome produced by the average job in the U.S. 4In 1998, the industry's average weekly earnings of 780.39 were 39 percent higher than the averageearnings in all manufacturing industries and 77percent higher than the average for all private nonagricultural workers. In terms of personal incomegenerated, which includes property, interest, andother income in addition to wages and salaries, theautomotive industry generated 1.4 percent of allprivate non-farm income in 1997, or about 1.2percent of total non-farm personal income.5Again, for a three-digit manufacturing industrythis represents a significant impact on the overalleconomy.The first years of this decade were not banneryears for the profitability of the nation’sautomakers. During the period of generaleconomic growth in the 1980's, the industrymanaged an annual after-tax rate of profit of about 5.5 billion. By the fourth quarter of 1990,however, the economy had entered a recession andthe automakers’ profits dipped into the red aswell. Between 1990 and 1992, the industry lost 3.3 billion per year, on average. As the recessionended, however, profitability quickly returned tothe industry, as is typically the case. In the springof 1999, U.S. automobile production was beingstretched to its capacity by strong domesticconsumer demand.The wide fluctuation in profits demonstrateshow closely linked the automobile industry is withthe national economy. Because of its size andscope, the automobile industry tends to lead theeconomy throughout the business cycle,precipitating its decline during recessions anddriving it toward the next peak during periods ofgrowth. This pattern is shown in Figure 1, usingtime-trend employment data for thenonagricultural sector of the national economy,the overall manufacturing sector and the narrowlydefined automotive sector (SIC 371).Employment in manufacturing is clearly morevolatile than is overall employment. Similarly,the automotive sector displays greater variation inemployment over time than manufacturing.During periods of expansion, employmentexpands sharply, but during periods ofcontraction, job losses are rather dramatic. Notealso that automotive sector employment has beenuncharacteristically stable since the mid 1980s(which corresponds to the beginning of theindustry’s growth in Tennessee).A snapshot of the 1997 North Americanautomobile industry in terms of assembly capacityand the intensity of production, is provided inAppendix Tables 1 and 2, which list car and truck5

Figure 1: Percent Change in Average Annual U.S. Employment 1950-1998Source: Bureau of Labor Statistics, Current Employment Statistics.production and capacity by manufacturer,including models produced, for each plant in theU.S., Mexico and Canada. As Appendix Table 1shows, there were forty-nine passenger carproduction lines in operation for the 1997 modelyear in the U.S., Canada and Mexico: five ownedby Chrysler, ten by Ford, seventeen by GeneralMotors, and seventeen belonging to foreigntransplants or joint ventures between foreign carmakers and their Big Three partners. In total theseplants produced 8.1 million vehicles in 1997,including 5.4 million in output from Big Threefacilities and 2.7 million from transplant or jointventure plants. As the figures on capacityutilization demonstrate, the 1997 model year wasoutstanding in terms of output as thirteen of theseplants operated either at or above their normalcapacity. The most extreme example of overutilization is the Toyota production line in6Georgetown, Kentucky, where the Camry isassembled. This plant operated 30.7 percent aboveits rated capacity of 198,016 vehicles per year. Intotal, the 5.4 million cars assembled at Big Threefacilities accounted for 87.6 percent of theirnormal capacity (down from 95.3 percent in1994); the output at transplant and joint-ventureplants of 2.7 million represented 88.7 percent oftheir typical year’s production.Another notable feature of the plant datareported in Appendix Table 1 is that only a few ofthe models produced by any of thesemanufacturers required more than one productionfacility to satisfy demand. At Chrysler, only theStratus and Neon were assembled at more thanone facility. Despite the popularity of the FordTaurus and Mercury Sable, Ford’s most popularcorporate twins, only two of Ford’s ten production

facilities were needed for production. Thislimitation of production to a single facility for allbut the most popular models is a directconsequence of the maturation of the U.S. vehiclemarket. The mature stage of the auto industry’sevolution is, in part, characterized by the need forincreased variety in the number of differentplatforms offered by automakers. Because of theproliferation of models, very few reach the salesvolumes required to warrant more than a singleproduction line. Further, the minimum efficientscale of production at the plant level has declinedand the production line has become more flexibleallowing multiple platforms to be produced in asingle facility, as is the case for the majority of theplants listed in Appendix Table 1.Geographically, there are fourteen U.S. states(California, Delaware, Georgia, Illinois, Indiana,Kansas, Kentucky, Michigan, Missouri, Ohio,Oklahoma, South Carolina, Tennessee, and Texas)and three Canadian provinces (Nova Scotia,Ontario, and Quebec) represented in this listing.The geographic dispersion of the plants is shownin Figure 2.An additional outgrowth of the structuralchange that has taken place in the Americanautomobile market since reaching its mature stageis the increased popularity of light trucks andsport-utility vehicles, especially since 1981. Notonly are consumers demanding a wider variety ofpassenger car offerings, but segmentation of themarket has spilled over to more heavy-dutyvehicles, which at one time was only a specializedniche market catering to agricultural users and offroad enthusiasts. Sales of light trucks (0-14,000lbs.) accounted for about half of the light vehiclemarket in 1997, compared to only twenty percentin 1980 (see Figure 3). This increase in truckdemand is clearly evident from the capacityutilization data shown in Appendix Table 2. Ofthe forty-two lines assembling trucks in the U.S.,Canada and Mexico in the 1997 model year,sixteen (or 38 percent) operated at or above theirnormal capacity. Overall, the industry output of7.2 million light trucks (up from 6.5 million in1994), 6.8 million from Big Three facilities and0.5 million from transplant facilities, accountedfor 98.7 percent of total U. S.-Canadian-Mexicantruck assembly capacity. In addition, thepopularity of trucks is evidenced by the fact that,in contrast to passenger cars, multiple plants arerequired to produce many of the various truckmodels. A prime example of this is the popularFord F-series pickup which was produced in fiveof Ford’s thirteen truck facilities. The continuedexpansion of the light truck market inducedToyota to build a truck assembly facility inIndiana.The top ten states for both car and light truckproduction are shown in Tables 2-5. Tables 2 and3 show top car producing states in 1980 and 1998,respectively; Tables 4 and 5 show the top lighttruck producing states for the 1990 and 1998. In1980, Tennessee did not even appear in theranking for cars, but rose to fourth in 1998, withproduction of more than 466 thousand units,7

Figure 2: Number of Assembly Plants by State, 1997WASHINGTON(2)MAINEMONTANANORTH DAKOTAOREGONVTMINNESOTANHIDAHOSOUTH DAKOTAWISCONSINNEW W XASGEORGIA(2)Car Assembly PlantsALABAMATruck Assembly PlantsLOUISIANAMISSISSIPPIARKANSASHeavy Truck Assembly PlantsNote: Symbol location is not indicative of plant location.FLORIDASource: Crain Communications, Automotive News 1998 Market Data Book, May 27, 1998.

Figure 3: U.S. Light Vehicle ProductionSource: Crain Communications. Automotive News Market Data Book, various issues.which represented nearly 6 percent of industryproduction for the year. Tennessee was rankedtenth in 1990 in light truck production, but in1998 the state had fallen out of the rankings.(Nissan truck production in Tennessee in 1996was 136,162, falling to 118,798 units in 1997.)Despite the strong showing in 1998, automobileproduction in Tennessee actually slipped by84,272 units from 1997. Automobile productionin Kentucky witnessed a decline of 16,870 unitsfrom 1997 to 1998.The split in sales across domestic versusimported light vehicles is shown in Figure 4.Over the period illustrated there appears to belittle movement in the trends. However, beneaththe surface is a fundamental shift in the locationof production on the part of internationalproducers.6 As shown in Figure 5, there has beena marked shift in production into the U.S.,particularly after 1985. In 1985, 4.2 millionimported vehicles were sold in the U.S. andanother 700 thousand units were produced byforeign automobile producers with U.S.-basedfacilities. By 1996, the U.S. production ofvehicles by international producers outweighedimport sales by over 600,000 units.The international automobile sector’s U.S.facilities and capacity are shown in Table 6. Totalcapacity across these producers was 2.7 million,with actual production of 2.4 million units in1996. Note that most of these facilities are9

III. THE EXPANSION OF THEAUTOMOBILE ASSEMBLYSECTOR INTO THE SOUTHEASTTable 2: Top Ten Statesin Car Production: 1980State1. Michigan2. Ohio3. Georgia4. Delaware5. New Jersey6. Missouri7. Illinois8. Oklahoma9. Kansas10. New YorkProduction% 370, 76.25.85.75.14.94.5Source: Crain Communications, Automotive News1981 Market Data Book, April 29, 1981.concentrated in the same general region of thelower midwest and upper Southeast of the U.S.A total of 140,963 heavy trucks were producedin the U.S. in 1997. Heavy truck production, likethe production of light vehicles, has importantimpacts both in

U.S. automobile industry endured serious hardship in the 1970s and early 1980s in the face of rising fuel prices, problems of product quality and sharp inroads from foreign producers, most notably the Japanese. As the decade of the 90s approaches its close, the U.S. automobile industry has repositioned itself as a global leader in automobile .