Academic journal article Economic Perspectives

The Geographic Evolution of the U.S. Auto Industry

Academic journal article Economic Perspectives

The Geographic Evolution of the U.S. Auto Industry

Article excerpt

Introduction and summary

For months now, the U.S. auto industry has been making front page news. The Big Three automakers continue to restructure and cut production capacity amid ongoing market share losses. The debt of both Ford and General Motors (GM) has been downgraded substantially below investment grade status. Some analysts have even raised the possibility of bankruptcy for one of the large Detroit-based carmakers. Related to the market share losses by domestic producers and their supplier base is a profound regional redistribution of production activity. (1)

This article takes a long-term view regarding the changing geography of the U.S. auto industry over the past 25 years. Since 1979, Michigan alone has shed almost one-third of its auto industry employment. (2) During the same period, southern states, such as Kentucky, Tennessee, Alabama, and the Carolinas, more than tripled their employment in the auto industry. Detroit has historically been and continues to be the center of the U.S. motor vehicle industry. Michigan is by far the state with the greatest concentration of auto industry jobs in the country, with 35 percent of its manufacturing employment in the auto sector (here, defined as the sector that involves the assembly of light vehicles and the production of motor vehicle parts). Indeed, the motor vehicle industry continues to be concentrated in the Midwest: 47 percent of motor vehicle employment resides in the industry's three core states of Michigan, Indiana, and Ohio.

Yet, several separate developments continue to reshape the U.S. auto industry. In the late 1970s, domestic vehicle producers began shutting down their coastal vehicle assembly plants in response to the changing economics of transportation costs associated with serving the national market. In addition, there was the arrival of the so-called transplants--production facilities located in the U.S. but owned and operated by foreign-headquartered companies, such as Honda and Nissan. Since their arrival in the early 1980s, these plants have gained 23 percent of U.S. light vehicle sales. These foreign-owned plants, while located in the center of the country, tend to be sited away from where the Big Three have traditionally established their assembly plants. Finally, domestic producers also had to scale back operations as they lost 10 percentage points of market share during the past decade to brands and nameplates produced outside North America. The combination of these trends, plus related developments in the auto supplier sector, has noticeably changed the face of the U.S. auto industry over the past 25 years.

In this article, we trace the changes in the footprint of the auto industry. We start in 1980 and track the evolution of the auto industry's geography through 2003. The early 1980s represents a key period of interest as foreign-based auto assembly and supplier companies started opening up production operations within the U.S. The market share of transplants has been growing quite steadily over the past 20 years. By utilizing historical data on assembly plant locations, we are able to compare spatial developments in this industry during the 1980s and 1990s. In addition, we compare changes in the location patterns of assembly and supplier plants over each decade separately and across the entire span of the two decades combined.


For many years, economists and economic geographers have tried to understand why economic activity is clustered (for example, see Krugman, 1991; Ellison and Glaeser, 1997). A number of papers directly address the geography of the auto industry. Of primary interest is the relative location of assembly plants and supplier plants. Also important is the location of suppliers relative to the assembly operations, as well as the location of assembly plants relative to their customers.

In describing the location pattern of assembly plants, Rubenstein (1992) reveals the rise and subsequent disappearance of the system of branch assembly plants. …

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