WILL AUTO MANUFACTURING JOBS FULFILL MICHIGAN’S ECONOMIC DEVELOPMENT JOB QUEST?

On the way home from Gaylord last week, under a beautiful blue Michigan early spring sky, I found it easy to let my mind wander.

With little traffic on I-75 to give attention to, I began to think about the I-75 of the mid 1980’s and the formation of the Auto-nation alley corridor where manufactures began locating from Canada to the southern states of Alabama, Tennessee and the Carolina’s, all being connected by easy access to Detroit by I-75 where the “Big-3” car companies made a large portion of the 60% of the cars annually sold in the US.

Tool & die shops, plastic parts producers, and other suppliers, both big and small, sprang-up along this corridor as the “Big-3” began to out source and move toward what we now refer to as Tier I and Tier II (among other) suppliers.

Economic development in Michigan, for the most part, focused on new business location or expanding existing businesses into new buildings in industrial parks or on free-standing industrial sites.

Even studies I completed in the mid-80”s as a real estate consultant for the Detroit office of a national accounting firm endorsed the notion that the “Big-3” outsourcing of auto parts would continue to provide a continuous supply of new businesses and jobs.

Community economic development strategy focused on industrial parks and sites, both private and public owned, many developed using Michigan Community Development Block Grant, US Department of Agriculture, US Economic Development Administration and local government funds for infrastructure.

Today, it’s a completely different story. 

As my mind wandered, I began to think about the many Michigan communities I recently visited or worked in during the past 35-years and how many of them no longer have their auto related employers.  Many of these lost employers were the single reason for people living in the community.

It’s a hard realization that today the “Big-3” market share is in the 20-30% range of cars and trucks annually sold in the US and there is no longer a need for these smaller community-based employer’s products.

In southwest Michigan, where I spend most of my time today consulting and teaching, I studied the loss of manufacturing employment between 1980 and 2008.  I found County Business Pattern data showing that manufacturing employment, while continuing to make an equal contribution to the gross county product (the total value of goods & services), has decreased employment by 55% over 16,000 jobs.

What I also found is that southwestern Michigan has replaced the lost manufacturing jobs with HEART jobs – hospitality, entertainment, arts, recreation and tourism.

On the surface this sounds good but, looking at the average wage contribution by job ratio, one finds a hard fact – a HEART job, at best, contributes only 20% of the wages of a manufacturing job.

So as I journeyed home on this warm spring day, my thoughts focused on what’s important for Michigan communities to “think about” and what do they do to strengthen their economic vitality.

In my opinion Michigan’s future community economic development will be shaped by the following: 

  •  the recognition that the local economy will change,
  • an understanding that consumer spending patterns will likely decline until population, more specifically, household growth resumes,
  • an understanding that future local government tax revenue for expanded governmental services economic development strategy requires population growth and new jobs,
  • governmental “sustainability” must first focus on service maintenance and service expansion later,
  • the realization that household income will not increase until new job growth returns and under and unemployed residents are working in “good jobs” defined as 35-hours per week providing county average household incomes. and
  • acceptance that HEART jobs create seasonality in the business economy adding a new requirement to business planning and cash flow management.

To help my understanding, I picked-up two books to read –

The End of Detroit – How the Big Three Lost Their Grip On The American Car Market by Micheline Maynard.

Overhaul – An Insiders Account of the Obama Administration’s Emergency Rescue of the Auto Industry by Steven Rattner.

Several interesting thoughts emerged from these readings. Maynard in her book, published in 2003, states that the auto industry suffers from “myopia, stubbornness and bureaucratic malaise among other maladies” that:

  • prohibit them from supplying products to smaller market segments,
  • prohibit them changing away from mass auto supply manufacturing strategy to a more customer based selection methodology, and
  • embraces an economic model that results in diminished profitability that precludes them from having enough income to support the vast changes needed.

She concludes that in the future customers will only support “the best quality and most desirable products” which may not be products offered by the “Big-3”.

By 2010 according to her:

  • One, or more, “Big-3” company will shrink forced by financial crisis even seeking Chapter 11 reorganization protection,
  • One “Big-3” company will seek a foreign partnership for survival, moving management control into foreign hands, and
  • The remaining two will service a much smaller market share.

Looking back over the shoulder of time, her predictions were extremely profound, to say the least.

Fast forward to Rattner’s history of the “Obama Auto Team” provides another view. 

In his opening remarks, Rattner credits the demise of the “Big-3” to:

  • Failure of management,
  • Globalization,
  • Oil prices,
  • Organized labor, and
  • Dysfunction of Congress.

It’s interesting to read a “before and after” the economic crisis summary of the “Big-3” auto industry’s ability to manage and reorganize their businesses in face of crisis.

Because so much Michigan’s manufacturing job base is connected to automobile production and  now that national public policy has venture into the realm of industrial policy to retain the economic viability of automobile production, the question is whether Michigan’s manufacturing jobs will return.  Will auto manufacturing replace the lost jobs, and will those jobs return to the now vacant plants and facilities scattered throughout Michigan.

In Rattner’s opinion “manufacturing as a percent of total jobs were inevitably going to decline; the more reasonable objective – still tough – should be to try to maintain and ideally grow the absolute number of these jobs.

[With the auto bailout] we chose to move dangerously close that discredited approach [industrial policy] again, in our well-intended effort to jump-start the economy.  When the dust settles we will be disappointed by how little lasting benefits we get.”

The question remains, will future Michigan auto jobs be sufficient in quantity to have an impact upon Michigan’s population and household growth and ultimately “full-time – good paying” employment.

My honest evaluation is that Michigan cannot go back to the economic development strategy that places its greatest emphasis on repopulation of next generation auto manufacturing jobs.

The state economic development strategy must acknowledge the need for wide diversity  of jobs – especially jobs that can located in our small to medium sized communities as well Michigan’s “core communities” where historic state economic development strategy has focused.

The future of many of the smaller communities that once relied on an auto related major employer for their economic survival need this “life line” for future economic sustainability.

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