Imagine a prosperous city--fifth largest in the United States--boasting over 1.8 million people. The Big Three automotive companies, and a cluster of suppliers churning the economic engine of the entire Great Lakes super region. Due in part to low-density housing and an inferior urban transportation system, as well as large corporate enterprises locating away from the center, the city became America’s first suburban super city, a thriving and formidable metropolis.
As more auto suppliers setup shop in the city, they created tens of thousands of jobs that brought untold wealth and economic development. Industries have a tendency to cluster in regions, attracted by knowledge, expertise, and ease of doing business. Plus, it helped that government politicians had a vested interest in the industry’s success, banks understood the cycles, and there was a knowledgeable, interconnected workforce.
So as the Post War domination of American Capitalism spread its wings across the globe, led by the auto manufacturers, so did the growth of (if you haven’t guessed it) Detroit. But one cannot assume that being the primary region is guaranteed. It has to be earned. And Detroit, the unions, and civic leaders took their position for granted.
Detroit now ranks 23rd in total population, and its desolate, inner-city is well-documented. Oh, how the mighty have fallen.
No one understood that the region's economic engine was in peril, and would be challenged by nimble and aggressive competitors playing by a different set of rules. Bringing innovation, luxury, and lean manufacturing, the auto manufacturers from World War II aggressor states--namely Japan and Germany--were now attacking the U.S., not with weapons, but with economics.
They were beating America at its own game.
Japanese auto manufacturers began to own up production in the U.S. As the Economist describes, “In the projectionist mood of the times, the only way Japan’s car companies could get round import restrictions was to invest directly in America.”
First came Honda. Then Nissan, and last Toyota. But they did they did not cluster in Detroit. They chose friendlier climates and areas starved for jobs.
Honda chose Marysville, Ohio as its first plant, with the first car rolling off in 1982. The choice of Marysville was intentional. At 165 miles away, it was far enough from Detroit that it wouldn’t be under the clutches of the United Auto Workers, but close enough it could tap into the supply-chain of suppliers in the region. Toyota followed, opening a plant a little further south in Georgetown, Kentucky--now Toyota’s largest plant globally.
Nissan continued the trend, locating in Smyrna, TN, with the same strategic logic: open an auto plant in an economically starved region, offer higher paying jobs with few choices, get state governments to provide nine-figure, tax-incentive programs, and locate within a day’s drive from major suppliers.
Mercedes, which opened its first US plant in Vance, Alabama was able to do so with automotive suppliers already located in the area. BMW chose Spartanburg, SC, primarily because of the proximity to the East coast ports, which made bringing in parts from overseas efficient, and also close enough to the automotive suppliers that had already taken up shop south of the Mason Dixon line.
Hyundai and Kia also chose the deep South, adding Montgomery and West Point, Georgia respectively.
When Volkswagen chose Chattanooga, TN it was met with great fanfare. One of the largest auto manufacturers in the world would chose a region that had struggled since the textile and heavy manufacturing industries had left a void for lucrative jobs that didn’t require a college degree. Interestingly enough, not long after the auto plant moved to Chattanooga, Volkswagen also ended up moving its research division to the Scenic City, turned-on by the better quality of living and lower costs than the likes of Detroit.
On Wednesday, Toyota and Mazda will announce a new auto plant in the Sunbelt, this time choosing Huntsville, Alabama. Huntsville, slightly smaller than Chattanooga, has more engineers that its Tennessee rival. During the space-race, Huntsville was a huge beneficiary of NASA operations, helping to attract a legacy of engineers.
Huntsville, like Chattanooga, received significant dollars from the Tennessee Valley Authority (TVA) for economic development. The TVA megasites are branding the cities and states as having demonstrated infrastructure to support thousands of jobs, complemented by a mature and developed supply-chain, and regionally-available education/training programs.
Even without Federal and State dollars throwing carrots at the auto players, the region remains a top contender with world-class automotive supply-chains and freight transportation infrastructures. The area isn’t called Freight Alley for nothing. There are more people in the U.S. freight industry stretching from Atlanta, Birmingham, Memphis, Nashville, and Knoxville than anywhere else in the country.
The future of the region is promising, but there is more to be done to promote the growth of the transportation sector. Autonomous is quickly coming, and with it dramatic impacts to the demand and purchasing cycles of consumers. Less consumers will own cars, choosing to take advantage of on-demand, self-driving car services.
Most of this research is being done in other states, far away from this part of the U.S. Places like California, Detroit, Singapore, and Pittsburgh are fast becoming the new epicenters of research in this sector. For those areas of the country that have been blessed with the influx of good-paying jobs, investing in research and innovations would pay off handsomely.
No one wants a brain drain the way Detroit experienced forty-years ago.
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