Michigan is Still MoTown For Asian Carmakers As Well As GM-Ford-Chrysler

Posted by: David Kiley on April 29, 2009

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The Motor City, even after this great downsizing and flogging of General Motors and Chrysler, is far from dead in the car business as some would have you believe.

I was struck by this quote today in The Wall Street Journal: “It’s a pretty safe bet that Detroit is not going to be Motown in the very near future,” said John Heitmann, a professor at the University of Dayton who studies the auto industry.

The story goes on to talk about the growth of the auto sector in China and India relative to the U.S.

Couple of things to remember:

Automakers may not be building any new assembly plants in Michigan, but there is a reason why Toyota, Honda, Hyundai-Kia and Nissan all have major tech centers in the Ann Arbor-Farmington Hills area. There is more automotive intellectual capital here than most places on earth. Michigan, I would predict, will remain a major intellectual hub, and vehicle testing hub, for the auto industry.

You know where the technical development for the Toyota Tundra, Avalon, Camry, Lexus RX, Nissan Altima and Titan, Hyundai Sonata, Santa Fe and Veracruz were largely carried out? Michigan.

You know where the Chinese and Indian carmakers testing the waters for the U.S. market do most of their vehicle certifications? Michigan. You know where the nation’s police car standards are set and re-set? Michigan.

There had been some wacky estimates of the U.S. auto industry going to 20 million units a few years ago. But let’s not get carried away. Without the recession, the real demand is probably at about 13 million right now, up from the 10 million we will likely see this year. But consider that you have two generations of consumers/drivers coming up, Gen Y and the Gen Z(born after 1996) that are bigger than the baby boom. And with baby boomers having a lot of living and car buying to do yet, that sounds like a lot of vehicles to buy. A lot more than we are selling today, and well North of 13 million by 2015-2020 when the financial and demographic cycles should again favor car buying.

True, no-one is looking to reclaim an old assembly plant in Michigan. Brownfield auto plants are not popular with automakers. And none of them want to take over a plant that has a UAW Local nearby. That’s just the truth.

It’s tough to think of a city with an average house price of $18,000 as the hub of anything. But Detroit isn’t just about the city of Detroit. You have to consider all of Southeast Michigan as the hub.

Ford is still in Dearborn, and doing quite well. Thirty miles to the West is the Ann Arbor hub. The tri-angle stretching from Auburn Hills, down to Detroit, West to Ann Arbor with Farmington Hills in the middle, is really MoTown.

Say what you want about China and India as growth markets. But the volume of vehicles that earn auto companies their biggest profits get sold in far greater numbers in the U.S. than elsewhere. If the U.S. wasn’t so important, than why are Fiat, Renault, Mahindra and Mahindra, Geely, Chery, BYD and Great Wall all trying to hatch an entry, or re-entry, into the U.S. market at the same time Saturn, Saab, Pontiac and Hummer are exiting?

Just questions to ponder for those ready to toe-tag Detroit.

Reader Comments

Ballbuster

April 29, 2009 9:34 PM

Detroit died years before the demise of the Big3; its capital and talent abandoned the city to either Detroit's distant suburbs or out of Michigan entirely. According to demographic reports, Michigan and Detroit have consistently loss population since the late '70s. As residents made the massive exodus from Detroit, even sacrificing their home equity, real estate value plunge into the abyss. $18,000 for a single family home is testimony to the calamity plaguing Motown. If Chrysler and GM go through bankruptcy, which is the most likely scenario given the increasing resentment of taxpayers who have become the biggest single creditor to the auto makers, Detroit will follow the history of New England textile plants. The US auto industry will not disappear but will decentralize. Many post-bankrupt auto factories will relocate to the patriotic South, Mississippi, Alabama, Texas, etc, where strong American work ethnic has persevered and pride in workmanship runs deep. It is not a surprise that foreign auto makers from Japan to BWM have built factories in the South. The South will rise again but this time it will save the North from its perverse socialism and theft of CEOs. Today, Michigan and especially Detroit are symbols not of auto manufacturing ingenuity and might but of failed governance at both the political and business level. At the state government level, self-serving politicians could not see beyond their reelection while at the corporate level selfish incompetent CEOs paid seven digit salaries would not relinquish their post for the good of the company. Detroit is under a siege of its own making. Detroit, under its current leadership, would be in flames like Rome under Nero but for the existence of a competent fire department.

ps

April 30, 2009 12:56 AM

Isn't this totally ironic? Asia takes the engineernig and design talent in Michigan and actually listens to them! What do the management structures in Toyota, Hyundai and Nissan lack that the US has in droves? Finance MBA's!! I'm sure India and China will capitalize their future success here by leveraging and appreciating the prowess of designers and engineers in Michigan. The same ones that the cretin beancounters ignored for oh so many years. At least Ford has a CEO with an engineering pedigree instead of a GE/ Home Depo reject or an inbred manager like 3rd of the withering 3.

A True Patriot

April 30, 2009 5:42 AM

The reason why Nissan and Toyota opened engineeing offices was to steal engineers and their plans from GM, Ford, and Chrysler. The few hundred jobs they provide are nothing compared to the several hundred thousands of jobs tha were lost in the Detroit area. In fact, the "products" coming out of these engineering offices have been abysmal failures- such as the Toyota Tundra and Venza. As far as I'm concerned, these engineering offices can pack up and move. Manufacturing is where the real money and job creation is.

You are right that Toyota and Honda will not build a plant in Detroit. The union does not have as much to do with it as race. How many Japanese plants are in the inner city compared to Big Three plants?

Paul (Vw)

April 30, 2009 7:22 AM

I'm just as eager to be sentimental about the Big3--er--Detroit3(or2).

I had to do a search on WSJ to find the article (you only gave a link to the WSJ main site), and I think you reading one sentence without recognizing proper context...what it said was the following (not that Detroit would no longer be be a center of automotive industry):

>>> Whatever happens, the restructurings of Chrysler and rival General Motors Corp. mark an extraordinary turning point for the U.S. auto industry. For the last 100 years, Detroit has reigned as the center of the automotive universe, and the U.S. as the biggest and most important market. That long run is now coming to an end.

>>> "It's a pretty safe bet that Detroit is not going to be Motown in the very near future," said John Heitmann, a professor at the University of Dayton who studies the auto industry.

>>> To be sure, Detroit and the U.S. will remain important and influential to the world's auto industry. But its days atop the global industry are fast winding down.

....
In short, the article was saying that Detroit would no longer be the "center of the automotive universe" as it had. By the time Mr. Obama, congress, unions, bondholders, management, and everyone else gets through with it that will indeed be a certainty. That won't preclude automotive activity around Detroit like you say. France is a shadow of the world power it was centuries(?) ago...but they still make cars today.

kent beuchert

April 30, 2009 9:32 AM

Nothing like a poorly constructed argument, I suppose. Those practically unknown automakers that are mentioned as "proof" that the US still dominates
as the largest auto market are also going into Korea, Denmark, etc. Automakers sell cars EVERYWHERE.

anoldbikeguy

April 30, 2009 11:59 AM

Thank you, David - I have been telling people this for some time now, but it seems that those who do not understand the whole vehicle design, development, engineering, test and validation process refuse to understand or believe that this is the truth. As a resident of southeast Michigan and an engineer (and a proud member of the SAE), I have worked for my entire career in transportation related suppliers - mostly test system and development tools related.

I can see GM HQ in downtown Detroit from my office, but as you may know, there is nowhere near as much engineering done in the RenCen compared to the GM Tech Center (Warren) or their Milford Proving Grounds. We work with every OEM - foreign and domestic - in the auto industry and all of their suppliers in the electronics realm and as you mention, the engineering talent in this region is phenomenal. Yes, there has been significant downsizing, but there is a continuing stream of new R&D facilities popping up in this region with the need for engineers.

Bill

April 30, 2009 1:47 PM

Ford is hemmoraging cash. To say they are 'doing quite well' is 'quite wrong'. Relative to Chrysler, yes, but outright, sales volumes need to pickup sharply and quickly, or they're in the same boat in 1-2years.

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