Employment and economic growth in the U.S. automotive manufacturing industry: considering the impact of American and Japanese automakers.

• Author: Thompson, Michael F.

What can we learn about recent trends in the automotive manufacturing industry that may help us understand factors behind the current downturn, as well as potential for future growth? This article looks at states across the contiguous United States to understand employment and gross domestic product (GDP) growth within this declining industry and its automotive parts manufacturing sub-sector between 1998 and 2008. This research also assesses the influential impact of the annual revenues earned by the top six automotive companies in the United States--the Detroit Three (General Motors, Ford, and Chrysler) and the top three Japanese companies (Toyota, Honda, and Nissan). Controlling for several influential factors, we find that employment and GDP growth among states is generally linked to the improved revenues of U.S. companies relative to Japanese companies. The one notable exception is Toyota whose revenues were not significantly associated with increases or decreases in state employment or GDP.

Companies in the automotive manufacturing industry are classified by the North American Industrial Classification System (NAICS) as part of the larger transportation equipment manufacturing industry (NAICS 336). (1) Specifically, this research will focus on the employment and GDP associated with the production of cars, as well as light and heavy-duty trucks, by analyzing manufacturers in the following three 4-digit NAICS categories:

* 3361: Motor Vehicle Manufacturing: Establishments (often called original equipment manufacturers or "OEMs") that primarily assemble entire motor vehicles including cars, mini-vans, light trucks, sport utility vehicles (SUVs), electric automobiles for highway use, fire-trucks, tractors, and buses.

* 3362: Motor Vehicle Body and Trailer Manufacturing: Firms that manufacture motor vehicles bodies as well as cabs and trailers. Often these include assembling cars in kit form, special purpose vehicle bodies, stretch limo assemblies, dump truck lifting mechanisms, flatbed trailers, and self-contained Recreational Vehicles (RVs).

* 3363: Motor Vehicle Parts Manufacturing: Firms that do not assemble complete motor vehicles or bodies but focus on manufacturing motor vehicle parts, engines or rebuild motor parts. Such components include hoses and belts, springs, diesel engine parts, brake and electric system components, steering and suspension, and seats and trimming for automobiles.

The automotive manufacturing industry is an important component of the U.S. economy and is particularly important in several Midwestern and Southern states. Figure 1 shows the average proportion of each state's GDP that can be attributed to the automotive manufacturing industry over the past decade.

[FIGURE 1 OMITTED]

As expected, the Midwestern states of Michigan (10.3 percent), Indiana (6.3 percent), and Ohio (4.7 percent) are among the four states with over 4 percent of state GDP dependant on automotive manufacturing, with Kentucky the only other state with such a high percentage of GDP directly linked to this industry. Figure 1 also shows the concentration of the automotive manufacturing industry along the corridor of states stretching from the Great Lakes to the Gulf Coast--often referred to as "Auto Alley." (2)

Interestingly, most employment in this industry is upstream of the original equipment manufacturers (OEMs) since Klier and Rubenstein emphasize that carmakers increasingly focus on final assembly having largely passed on the responsibility of manufacturing the bulk of their auto parts to independent suppliers. (3) Figure 2 summarizes the percentage of each state's automotive employment that works for automotive parts manufacturers (NAICS 3363) and we see they are the largest sub-sector of employment in all but ten of the contiguous states.

[FIGURE 2 OMITTED]

Job and GDP Growth in the Automotive Manufacturing Industry

Within this industry, the overall trends are declining employment and GDP growth volatility between 1998 and 2008. However, these trends gain complexity when we pay particular attention to parts suppliers and when we consider differences between Midwestern states and the rest of the country. Figure 3 shows a fairly constant decline in the automotive manufacturing industry and for the parts manufacturing sub-sector over this ten-year period. However, the employment pattern was noticeably different for other states between 2002 and 2006 where automotive manufacturing employment held constant and even increased slightly before declining between 2006 and 2008.

[FIGURE 3 OMITTED]

One of the primary drivers for the job loss was a disproportionately high growth in automotive parts imports. Collins, McDonald and Mousa explain that, between 2000 and 2006, the trade gap (imports over exports) had grown from 7 percent to about 51 percent and, coupled with the declining sales of the Detroit Three, this trade deficit led to a downward employment trend in parts manufacturing nationwide. This drop in employment was particularly severe in the Midwest, which experienced increased domestic competition for jobs from southeastern states where wages were 23 percent lower than corresponding automotive parts jobs in 2006. Additionally, as output per worker grew 28.6 percent, fewer employees were needed in the Midwest. (4)

Figure 4 shows that GDP growth is noticeably more volatile among the three Midwestern states compared to other states; however, real GDP levels (in chained 2000 dollars) are roughly the same today as they...