The Auto Industry Relocation Phenomenon
In the US, the auto industry is moving south. The relocation of auto industry is threatening to economic growth of the north. And because of this, it appears that there is a regional competition that is happening among communities for automotive capital investment.
Jobs concerning about automobile industry is increasing so fast in the south. It is happening for more than a decade. The questions regarding the reasons for this movement to the south will be discussed in this paper. Because of this relocation phenomenon of the auto industry to the south, the upper US Midwest of the United States and southern Canada are no longer the exclusive domains of the North American automobile industry and the traditional geographic base of automobile industry.
But why does there is a dramatic change in location of auto industry? What is in the south that makes it attractive to the automotive capital investors?
Tony Grande, a Tennessee Economic Development Corp. director refers the relocation of automotive manufacturing as ‘Manufacturing Revolution.’
The reasons for this relocation of auto industry to the south are numerous. These include low wage rates, non-unionized labor, low wage rates, and market share redistribution from the traditional domestic manufacturers.
The costs of moving in and out of the freight of a manufacturing facility are one of the factors that contribute to the cost or price of a finished vehicle. Because of this reason, the automobiles industry prefers location for building their vehicles as close as possible to the consumers or customers in order to reduce the shipping cost of the finished vehicles.
Firm’s recurring costs fall into three areas. Those are freight, labor and utility costs. According to McAlinden, the most powerful variable and most controversial motive is labor because labor is just cheaper in the south. Besides from that fact, the average of the workforce to be unionized is only 4% to 5% compared to the 30% average of unionized workforce in the north. If there is no union, then there is no strike. According to Grande, because of this non-union status and right to work status in the south continues to become a great attraction, more particularly to the foreign manufactures. The southern states are actually promoting and advertising about their lack of unions. The southern states do it so because the many transplant companies actively chose locations in right to work states and these companies actually found it in the south because they are avoiding the unionized labor in the north.
These companies are also looking to fulfill their relentless campaign to drive excess costs out of their supply chain and because of this very reason, suppliers, who have high labor content, are actively seeking for low-wage markets. This reason also triggers suppliers to choose south as their location.
The automobile industries are also concerned about the quality and quantity of their end products. They wanted to keep the labor down and avoid union, as much as they also wanted the best quality and great quantity of their outputs. Good examples of this are the Japanese investors. According to Rubenstein, Japanese owned manufacturers struggled to find potential communities, where their transplant companies can be located, wherein the residents have non-union attitudes and the local workforce is well-educated. They chose communities away from the nearest auto plant so that their transplant companies will not compete for workers in a community. Transplant companies do not like competing for workers. They like to attract the best workers available in large numbers so that they can choose from a large pool of workers that will help them attain their agenda—that is to have best quality and great quantity of their outputs. Thus, they have reluctance to locate near the existing manufacturing facility that can be found in the north. And so they deviate from the traditional location of the automobile industries. This is start of the phenomenon onto why automobile industry has a change in its geography—from north moving to south.
The foreign owned manufacturers saw the success of the first automobile manufacturers in the south, and so the floodgates opened and begun the rushing of many companies to locate in the south.
Another reason for this change is that taxes paid in the south states are lower than in the north states. Also, property is less expensive to buy in the south and the construction labor is cheaper, too.
Furthermore, the utilities costs are lower. According to McAlinden, there is a big difference in utilities costs per kilowatt. In the south, it is 5 cents per kilowatt while in the north it is hard to get an industrial rate lower than 7.5 cents per kilowatt.
Also, there are fewer environmental issues and activism is not prevalent in the south. And because the industry is relatively new in the south, new assembly plants do not have to over-compensate for older companies which are contributing disproportionately to the emission totals.
The change of geography of automobiles companies because of the numerous reasons indicated in this paper, gave rise to a competition between south and north. And so, there is what is called incentives. Within this competitive atmosphere, communities offer incentives to the companies so that the companies will be attracted to locate their companies in their place. Why do communities do that? It is because new companies mean new income, thus creating a high economic growth. But incentives are not what the companies find attractive about the place. The reasons are still the things mentioned above. Incentives are ultimately the things that help to close the deal.
As long as the automobiles companies get a higher market share because of this relocation of transplant companies, then there will be a continuous increase in the population growth in the south and the movement of high paying jobs will also continue to rise.
Bailey, W. Scott (2007 June 15). Automakers See the Future Moving South. San Antonio
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Center for Automotive Research (1993 December 15). The Auto Industry Moving South: An
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