Posted by: David Kiley on April 29, 2009
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.