Shifting Automotive Geography and Michigan Labor Markets Automotive Communities and Workforce Adjustment Detroit, MI October 8, 2009 Thomas Klier Senior Economist Federal Reserve Bank of Chicago tklier@frbchi.org www.chicagofed.org
Outline Detroit s decline Why geography matters Labor market diagnostics Footprint for recovery
Tough times in the auto sector Total Light Light W eight Vehicle Vehicle Retail Sales Sales {Autos+Light {Imported+Domestic} Trucks} Light vehicle sales, saar, million units SAAR, Mil.Units 22.5 22.5 20.0 20.0 17.5 17.5 15.0 15.0 12.5 12.5 10.0 10.0 7.5 90 90 95 95 00 00 Source: Source: Bureau Bureau Autodata of of Corporation Economic Economic Analysis/Haver Analysis/Haver Analytics Analytics Analytics 05 05 7.5
1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 percent Market-share shift accelerates in late-90s Detroit Three U.S. market share 100 90 80 70 60 50 40 Note: 1955-1979 share of car sales, 1980-2008 share of light vehicle sales
U.S. auto industry goes international Share of light vehicle sales percent 100 90 80 70 60 50 40 30 20 10 0 imports new domestics Detroit-3 1980 '83 '86 '89 '92 '95 '98 '01 '04 '07 percent 100 90 80 70 60 50 40 30 20 10 0 Imports refer to production outside of NAFTA
Outline Detroit s decline Why geography matters Labor market diagnostics Footprint for recovery
From 4 to 14 carmakers in 30 years Foreign carmakers, by first year of producing in U.S. VW (1) 1978 Honda 1982 Nissan 1983 Toyota 1984 Mitsubishi, Mazda 1987 Subaru 1989 BMW 1994 Mercedes 1997 Hyundai 2005 Kia 2009 (1) Closed in 1989, new plant to open in 2011
Industry map Auto Alley rules Thomas Klier, FRB of Chicago
Assembly line density in 1980 Thomas Klier, FRB Chicago
Assembly line density in 2010 D3 close 19 U.S. assembly plants between 2000 and 2010. Competitors open 6 new plants. In 1980, there were 53 light vehicle assembly plants in the U.S. 52 were D3 plants. In 2010, there will be 40, 24 of these are D3 plants. Thomas Klier, FRB Chicago
The tyranny of geography Detroit Three 2010 Others Thomas Klier, FRB Chicago Thomas Klier, FRB Chicago
Industry restructuring since 2000 Restructuring accelerates after 2000: 6 Detroit 3 assembly plants close by end of 06, 13 more by end of 10; 6 new foreign plants since 00. Spin-offs of large parts divisions by GM (Delphi) and Ford (Visteon). Delphi to emerge this month from CH 11 after 4 years with only 3 of its 33 (in 2005) U.S. manufacturing plants. None of the three will be unionized. 2007 labor agreement between UAW and D3 establishes trust fund (VEBA) to take on D3 health care obligations, as well as much lower 2 nd tier wage for new hires.
Outline Detroit s decline Why geography matters Labor market diagnostics Footprint for recovery
Index Michigan employment down 18% since 2000 Total Nonfarm payroll employment, 2000Q1 = 100 20001=100 Non-farm All Employees: payroll employment, Total Nonfarm 2000Q1 Payrolls = 100 110 110 105 105 100 U.S. 100 95 95 90 Michigan 90 85 85 80 00 01 02 03 04 05 Sources: Bureau of Labor Statistics /Haver Analytics 06 07 08 09 80
Michigan s key industry is shrinking (LAG63 + LAG61) (thous) Motor vehicle assembly and parts employment (1000) 1200 (MILG63 + MILG61) (thous) 350 U.S. 1000 Michigan -50% 300 250 800-70% 200 600 150 400 90 95 Source: Haver Analytics 00 05 100
Percent Percent Percent Labor market diagnostics (1) 16 14 12 10 8 6 4 2 0 Michigan unemployment rate, by age 55-65 25-54 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 16 16 14 14 12 12 10 10 88 66 44 2 2 0 0 Michigan unemployment rate, by gender Male Female 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009
Percent Percent Labor market diagnostics (2) Michigan unemployment rate, by industry Michigan unemployment rate, by education 30 30 25 25 20 20 15 15 10 10 5 5 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Manufacturing Manufactuing (ex (no motor Motor vehicles) Vehicle) Service Sector Motor Vehicle Mfg Less than HS Some College Masters & above HS College
Outline Detroit s decline Why geography matters Labor market diagnostics Footprint for recovery
Geography of recovery U.S. light vehicle production capacity, 2010 11 of all 24 Detroit 3 U.S. assembly plants in Michigan. 2009 YTD capacity utilization rate in light vehicle assembly at 38%. Sales comeback can easily be accommodated with existing facilities. At sales of 15 million units, current capacity will be utilized at about 84%. Will Detroit 3 market share stabilize?
Shifting Automotive Geography and Michigan Labor Markets Automotive Communities and Workforce Adjustment Detroit, MI October 8, 2009 Thomas Klier Senior Economist Federal Reserve Bank of Chicago tklier@frbchi.org www.chicagofed.org The End