Communities Must Play a Role in the Road to Renewal

Reprinted from Great Lakes Manufacturing Council Focus, February, 2009

The uncertainty surrounding the automotive industry, the national economy and the Great Lakes Region will continue throughout 2009. If you want to hear the latest thinking on where the industry is headed the Center for Automotive Research is holding a summit on how communities, industry and other stakeholders can respond to the changing automotive environment. This inaugural event, called the Road to Renewal, will be held April 14-15, 2009 at the Renaissance Chicago Hotel in Chicago,

Dr. Sean McAlinden, CAR’s chief economist, and Dr. David Cole, CAR’s chairman, and other speakers will offer their views on the future of the industry, provide further insights into changes communities can expect and suggest ways in which communities might plan and partner to better position themselves for future prosperity.The United States Department of Commerce Economic Development Administration has provided seed funding for this event, and the University of Michigan is an active participant in developing the agenda that will focus on ways communities can plan and partner in order to prosper—either through transition or transformation.

Following is an interview with CAR Chairman David Cole:

What is the impact of the auto industry crisis on the Great Lakes Region?

This is a terrifying time in the Great Lakes Region. Manufacturing, specifically the auto industry, is undergoing a massive transformation and no one is sure how things will pan out. Many communities in the Great Lakes Region have either lost manufacturing plants or face losing them in the future.

Unfortunately, many people have forgotten that manufacturing in the Great Lakes Region is a critical part of the regional and overall U.S. economy. We must change that and put manufacturing back on the front burner. Communities in the Great Lakes Region can play a key role but they must know the facts about manufacturing.

What is the outlook for the auto industry in the Great Lakes Region?

The outlook for the auto industry over the next few months is dismal because auto sales are at a depression level. However, the prospects for the industry are considerably brighter in the mid- and long-term for several key reasons.

First, we are scrapping about 13 million vehicles a year so there is pent-up demand and that will lead to significant increases in sales.

Second, the current restructuring in the industry will lead to significantly lower costs as the break-even volume is dramatically lowered.

Third, the industry, particularly General Motors, Ford and Chrysler, is reducing capacity by more than 3 million units, In addition there is evidence that there is much more discipline to limit production, which should drive the market to a sellers’ rather than the buyers’ market we have been in for over 10 years.

Fourth, labor costs for the domestic three automakers will reach parity with the international manufacturers.

What impact will that have on communities?

Any community with manufacturing operations is in trouble right now. Automotive suppliers with minimal debt that have a good blend of customers, high quality manufacturing and engineering capabilities and produce engineered components and systems will be survivors. On the other hand, commodity suppliers will be in trouble. This includes products such as simple stampings, nuts and bolts and plastic moldings … any products where tools can be easily moved to another facility.

Is there a future for the auto industry in the Great Lakes Region?

Absolutely, but communities must be strategic in working to retain or attract new businesses. Community leaders must build strong personal relationships with the leaders of the manufacturing operations in their community. They need to gain the confidence of those who make decisions. It is particularly important to have a strong educational system which recognizes that future auto production workers will require a minimum of a two year community college education to qualify for employment.

A prime example of a community effort (in this case at the state level) is GM’s recent decision to locate a battery production facility in Michigan. The only reason that factory did not go elsewhere was because the Michigan Economic Development Corporation put together a comprehensive proposal to bring the work to Michigan. It was able to do so because it has a strong relationship with the automaker and an understanding of its needs.

Community leaders need to make sure they are in intimate touch with every stakeholder in the community including schools, banks and utilities … all stakeholders with an interest in a prosperous and growing community.

How big is manufacturing’s impact on the U.S. economy?

We have forgotten what is important and what is not important. This was evident last year when the automakers went to Washington to ask for loans. It was clear Washington did not understand manufacturing and its critical role in the U.S. economy.

For example, U.S. automotive suppliers represent a $240 billion industry. They employ almost 700,000 people at about 8,600 plant locations across the country. Supplier products account for more than two-thirds of the content on each new vehicle. There over 300,000 direct jobs in the auto manufacturers. For every auto supplier job there are nearly 5 additional jobs. Auto manufacturers have an economic multiplier of over 7 meaning for every job in their organizations there are over 6 elsewhere. For an auto assembly plant, the multiplier is about 9 or 10. Any way you look at it this industry is a very important part of our economy.

What are the skill needs of the new workforce? Will we have enough people with the right skills?

Manufacturing is a knowledge-based industry and an educated workforce is essential. After we get past the current economic turmoil we will not have enough skilled workers to meet the growing demand for advanced manufacturing jobs as the exit of the “baby boomers” gains momentum.

Going forward that workforce must be readily adaptable to change, prepared for lifelong learning experience and have an education well beyond high school. The Great Lakes Region has the talent and resources to provide the workforce of the future but we must establish a more collaborative relationship between business and the education and training communities to ensure that the appropriate human resources are available.

In the past we were concerned with the idea of “offshoring” for cheap labor. We must guard against a new movement that could be “offshoring” for skilled workers.

What changes will occur in our communities as a result of technological innovation?

Technology is changing at an incredible pace. Companies that can effectively operate at the leading edge of knowledge and are creative and innovative have a distinct competitive advantage. The foundation for this innovative culture is a highly educated and motivated workforce. This requires comprehensive and strategic policies ranging from education to tax and investment. We are increasingly in an “innovate or die” environment and this includes communities as well as businesses.

What can communities do?

Communities need to hold meetings and, in general, raise awareness of the challenge. It is a lot easier to retain a job than to acquire a new one. Communities should be deeply involved in all aspects of economic development beginning with nurturing personal relationships between community leaders and manufacturing employees and leaders. A continuous dialog is required.

Communities must also develop a comprehensive strategy to ensure that they are aligned with both the jobs of today and jobs of the future. The educational institutions must operate at a high level of excellence to deliver an appropriately skilled workforce.