The evolving geography of the North American auto industry

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1 The evolving geography of the North American auto industry Automotive Policy Research Centre McMaster University Hamilton, Canada November 18, 2014 Thomas Klier Federal Reserve Bank of Chicago Disclaimer The analysis and conclusions set forth are those of the author and do not indicate concurrence by other members of the research staff or the Federal Reserve Bank of Chicago

2 Outline Three layers of auto industry geography North America U.S., Canada, and Mexico Auto Alley The view from Canada (as seen from Chicago) Summary

3 Vehicle production in North America 2013 Thomas Klier, FRB Chicago

4 Parts and vehicle assembly co-locate Thomas Klier, FRB Chicago

5 North America in the world North America s vehicle production share % 17% 20% The growth markets are outside North America.

6 Most vehicles produced where sold 100% 90% U.S. light vehicle sales by major production region 80% 70% NAFTA 60% 50% 40% 30% 20% 10% 0% Europe Asia

7 Outline Three layers of auto industry geography North America U.S., Canada, and Mexico Auto Alley The view from Canada (as seen from Chicago) Summary

8 Within N. America, gains for Mexico Share of light vehicle production Country * Canada Mexico U.S N. America

9 Percent Millions Exports drive Mexico s growth Mexico s light vehicle exports Other OEM's exports Detroit 3 exports export share of production Annual exports have increased by 2.3 million units since 1985

10 Those exports go north and south Vehicle exports from Mexico by destination Region 2012 export share NAFTA 71% Latin America 16% Europe 9% Africa 2% Asia 2% In 2013, 82% (2.38 million units) of Mexico s LV production was exported.

11 Outline Three layers of auto industry geography North America U.S., Canada, and Mexico Auto Alley The view from Canada (as seen from Chicago) Summary

12 Emergence of auto alley in U.S. Two main factors: Detroit carmakers abandon the branch plant assembly system. Overseas-headquartered carmakers enter the U.S. and Canada as producers.

13 From manufacturing belt 1985 Thomas Klier, FRB Chicago

14 to auto alley 2013 Last year, auto alley captured nearly 90% of U.S. light vehicle production. Thomas Klier, FRB Chicago

15 Close-up of auto alley Who s where in auto alley? Thomas Klier, FRB Chicago

16 A dozen new producers in 30 years Foreign headquartered carmakers, by first year of production US Canada Mexico VW ( U.S.: closed in 89, new in 2012) /2016* Honda /2014 Nissan Toyota Mazda (U.S.: closed in 2012) Mitsubishi Subaru BMW * Mercedes * Hyundai (CDN: closed in 93) Kia * CAMI (CDN: GM in 09)

17 In 1985: Detroit dominates Thomas Klier, FRB Chicago

18 Today: two distinct footprints Thomas Klier, FRB Chicago

19 Growth concentrated in the South U.S. light vehicle production within auto alley Percent Auto alley share Northern half Southern half D3 share: 72% 19% Note: North = WI, IL, MI, IN, OH South = KY, TN, AL, MS, GA, SC

20 Detroit s dominance waning Production mix by OEM home region U.S. Canada Mexico OEM by HQ Detroit Asia Europe

21 Motor vehicle parts geography Before 1980 Since 1980 Thomas Klier, FRB Chicago Thomas Klier, FRB Chicago

22 Parts plants also cluster by nationality Since 1980 Thomas Klier, Federal Reserve Bank of Chicago

23 U.S. Parts imports: Mexico extends lead 35% U.S. motor vehicle parts imports (%) 30% 25% 20% 15% 10% 5% 0% Source: ITC dataweb

24 Outline Three layers of auto industry geography North America U.S., Canada, and Mexico Auto Alley The view from Canada (as seen from Chicago) Summary

Linkages between Canada - US 1965 -- Auto Pact 1987 -- FTA 1995 -- NAFTA In the mid-1960s, Hamilton was

25 Linkages between Canada - US Auto Pact FTA NAFTA In the mid-1960s, Hamilton was home to the only Studebaker plant. It produced for all of North America. (Anastakis, Autonomous State, 2013)

26 Relative output change: US vs Canada 350 Light vehicle production index (2009 = 100) Canada: Detroit 3 US -- Detroit U.S. -- Asia Canada: Asia

27 Mexico dominant export hub 3.5 Ratio of light vehicle production and domestic sales Mexico U.S. Canada

28 Index (2001 = 100) Employment trends Motor Vehicle Manufacturing (NAICS 3361) U.S. Canada Year

29 Index (2001 = 100) Employment trends (ctd) Motor Vehicle Parts Manufacturing (NAICS 3363) U.S. Canada Year

30 Assembly productivity gap shrinking Light vehicles produced per job in NAICS ,000 70,000 Canada 60,000 50,000 40,000 U.S. 30,000 20,000 10,

31 Summary North America remains a viable location of light vehicle production. Within North America, Mexico has been gaining vehicle production share. Currently, re-shoring from Asia to North America leads to Mexico, especially for small cars. Canada s auto region, while strongly linked to auto alley, is facing a number of challenges.

32 Extras

33 Mexico s assembly plants

Integration of the auto industry under NAFTA: Who makes what and what goes where?

Integration of the auto industry under NAFTA: Who makes what and what goes where? Thomas Klier Federal Reserve Bank of Chicago DABE/Wards Auto Automotive Insight Conference Detroit, MI January 18th, 2018