Michigan's auto industry will put more on display than cool cars and new technology when President Barack Obama tours the North American International Auto Show in Detroit on Wednesday.
The visit closes the narrative arc of the automotive industry during President Obama's time in office, which began with the U.S. bailout of General Motors and Chrysler and will end with what forecasters agree will be a second consecutive record-setting sales year.
At the same time, it positions Michigan to wonder what is next for its signature industry as globalization and technological advances pressure automakers.
"He's really seen the complete span of the auto industry cycle, (going) from near-collapse to what's expected to be great sales in 2016," said Robert Dye, chief economist at Comerica Bank.
The economy wobbled during the 2008 presidential election campaign, before heading into a freefall that September.
President Obama took office as General Motors — a symbol of Michigan's automotive heritage and one of the state's biggest employers — warned that it was running out of money. Its losses spiraled along with the economy, leaving the state fearful of the future and the U.S. wondering whether its auto industry could survive.
But between 2009 and 2015, the nation pursued the auto industry's salvation through financial bolstering, wholesale restructuring and meeting demand for innovation.
Michigan stood on the front lines of every battle, emerging at the end of 2015 proving that, as a state, its fortunes — and most notably, those of the Detroit metro area — rise and fall alongside vehicle sales.
"The industry as a whole has obviously had a phenomenal comeback in the last five years," said Michael Finney, former head of the Michigan Economic Development Corporation and now president and CEO of Community Ventures Resources Inc.
In 2009, Detroit's unemployment rate was north of 16 percent as U.S. auto sales plummeted to a 27-year low of 10.4 million units.
It dropped to about 10 percent by April 2013, as sales climbed to 15 million units.
And in August 2015, as the industry headed toward a record 17.47 million vehicles sold last year, Detroit unemployment was down to 5.6 percent — just ahead of the nation's average 5.1 percent.
Data for Michigan auto production shows the transition: In just three years, from 2009 to 2012, the state produced nearly 1 million more units per year, or 2.1 million vehicles.
The Center For Automotive Research in Ann Arbor defines the impact of the auto industry on Michigan employment:
• 943,619 of the nation's 7.25 million auto jobs are in Michigan
• 13 percent of all U.S. auto jobs are in Michigan
• 19.9 percent of Michigan workers are tied to the industry
• 13 percent of all U.S. auto jobs are in Michigan
• 19.9 percent of Michigan workers are tied to the industry
Nationally, auto-related payroll tops $500 billion, according to CAR. And the industry generated $205 billion in tax revenue, with $3.4 billion coming to Michigan. The state's auto employers include 1,128 suppliers; 3,920 dealerships; and 14,151 aftermarket repair and service facilities.
Yet even amid the success of recent years, the U.S. auto industry remains in a period of transition. Hiring is not expected to grow. Sales are expected to peak this year. And Michigan still has to confront a talent gap that could affect its dominance as an automotive innovation leader.
"We're hopeful that 2016 will be another strong year, but that won't pass 2015 (by much)," Dye said. If the auto sector peaks in 2016, "we may see softening after that.
"The auto sector is a very strong sector, but its capacity and potential and ability to expand at this point is much less than it was a few years ago."
Sales have doubled since 2009, but that isn't a rate that can be replicated.
"We won't have doubling of sales again," Dye said.
Just a year ago
In the days before his 2015 State of the Union address, President Obama visited the Michigan Assembly Plant in Wayne, in western Wayne County, about 25 miles west of Detroit.
The message at the time, delivered to a crowd that included Ford Chairman Bill Ford Jr.: "After a decade of decline, American manufacturing is in its best stretch of job growth since the 1990s."
President Obama contrasted the activity at the factory with the dark days when the nation wondered about the future of the automotive industry. He took office less than a month after then-President George W. Bush agreed to a $17.4 billion emergency automotive bailout. Within weeks, financial data clarified that the scale of losses at General Motors Corp. and Chrysler would push both into bankruptcy later in 2009.
"There was a lot of skepticism that the domestic auto industry would even survive," said Sandy Baruah, president and CEO of the Detroit Regional Chamberand former head of Small Business Administration under former President George W. Bush.
"It's important to really acknowledge the important role the federal government under both presidents Bush and Obama in protecting Michigan's auto presence," Baruah said, noting the successful turnaround. "It didn't have to turn out this way."
That's what President Obama highlighted in his 2015 speech, after joking that he was at the Ford plant to see the new Mustang. He noted that the U.S. auto industry was "flat-lining" as he took office. That the choice to bail out the industry wasn't popular, even in Michigan.
"And, look," he told the crowd, " ... it wasn't on my to-do list when I ran for President. I wasn't expecting to have to do this.
"...Saving the American auto industry was the right thing to do."
He continued: "These six years have been tough, demanded hard work, demanded sacrifice on everybody's part," the President said at Michigan Assembly in 2015. "You guys know that more than most."
The Ford workers in that crowd learned it since that 2015 visit, too, after a wave of news affecting the plant's future and that of its staff broke later that year.
The plant produces Focus and C-Max lines for Ford. In April, 700 people received layoff notices as the automaker cut a production shift due to declining sales for small vehicles amid low gas prices. In July, word came that Ford could move production of those vehicles in 2018 as it invests $2.5 billion in building two plants in Mexico.
By late summer, industry experts were speculating that truck production could move into the plant, which Ford said will get a new product line in 2018. And then after UAW contract ratification in November, it appeared that the factory would keep its small cars through their "product life cycle," according to reports, along with a $700 million retooling investment.
The auto industry still faces intense competition, but today has the ability to pivot quickly to meet market demands.
"Ford has the money ... to move to Mexico and replace (the car production) with a smaller volume of trucks," said Sean McAlinden, economist at CAR.
However, the key to that transition for Michigan, McAlinden said, is that the truck production volume would be comparatively lower. Building fewer cars in Michigan will mean fewer manufacturing jobs for the state even as automotive remains its signature industry and retains its R&D strength.
Manufacturing jobs
"We already know that both GM and Ford will not be making small cars in Michigan," Dye noted. "The auto industry is a dynamic industry. It's going to keep changing, and one change going forward is going to be pushing the production of smaller, less profitable cars outside the U.S. and primarily toward Mexico."
The most recent automotive rebound is responsible for adding about 60,000 manufacturing jobs in Michigan since 2009, McAlinden said, bringing the total to about 174,000.
It's a dramatic increase, but that compares to about 320,000 manufacturing jobs in Michigan in 2000.
The difference between those numbers — and how it shapes the state's hold on the industry — is what Michigan needs to recognize in the rebound, he said.
"We're not going to get back to 1999 or 2000 (levels)," McAlinden said. "... We might get to 190,000, but that's a long way short."
Payroll for manufacturing jobs is changing, too. According to the Bureau of Labor Statistics, average pay for motor production employees was $28.14 in October 2009, and $27.53 in October 2015.
More dramatic is a look at pay for the Detroit Three automakers: Ford, General Motors and Chrysler, which employ a collective 130,000 people in Michigan.
Among their UAW members, the typical wage was $40 per hour in 2008. By 2015, after contract restructuring to a tiered system for skilled and unskilled plant jobs, the new lower wage was approved at $17 per hour. Reports indicate about 30 percent of the Detroit Three manufacturing workers are the lower-paid Tier 2.
McAlinden said he and his colleagues at CAR are actively watching dynamics at three Metro Detroit plants that could face changes in product lines that affect the number of employees. Beyond the 5,143 jobs at Michigan Assembly, he's concerned about the Connor Avenue Assembly Plant in Detroit, where 103 people work for Fiat Chrysler, and General Motors' Warren Truck Assembly, which employs 4,285.
Another issue facing Michigan's auto industry is the aging of the labor force. Many production workers are close to retirement age, and many of them have specific skills.
"We expect a lot of retirements and a lot of openings for apprentices," McAlinden said. "For the first time, they're going to have to seriously launch apprentice programs."
Staff at GM plants in Michigan, for example, are about 18 percent skilled trades, and they'll need to be replaced to keep the factories operating.
While openings for unskilled labor may be rare in automotive plants, some skilled jobs are in demand. Finney mentioned machinists, and people with training in robotics, CNC, precision grinding and welding.
White collar automotive changes
Among Michigan's auto industry transitions, McAlinden said, is its shift to auto development: "Last year, there were more salaried workers in Michigan than hourly."
The result is that hiring by auto companies in Michigan will target highly skilled and highly education applicants.
"Michigan is becoming less and less of a manufacturing state and more and more a design and engineering state," McAlinden said. "It's going to be really tough to get an hourly job. But we are looking for engineers."
That puts the pressure on Michigan's educational system.
There are 91 auto-specific programs at colleges and post-secondary training facilities. And The University Research Corridor — comprising the University of Michigan, Michigan State University and Wayne State University — sends 3,600 graduates per year into auto industry careers, according to the Detroit Regional Chamber.
Driving the industry today are technological advances that are changing everything from fuel economy to safety to luxury options. The industry also is investing heavily in driverless technology, with the tech giants of Silicon Valley wedging themselves into traditional R&D.
The result, said Baruah, is that Michigan must be ready to defend its place in automotive innovation against other tech-centered regions.
"The challenge we face in Michigan right now is that we are the leaders of the transformation to autonomous and connected vehicles," he said.
More testing takes place in Michigan — like at the Mcity complex at the University of Michigan in Ann Arbor — than any other place in the county.
"There is no way that a move to a connected vehicle or an autonomous vehicle can happen without the testing that we're able to do in Michigan," Baruah said.
But, he added, "we need to be the place with the technical skills (and) the engineering skills to be able to capitalize on this transformation."
Baruah said of Silicon Valley: "It is going to be a part of the puzzle, but we don't want them to own the puzzle."
To accomplish that, the Detroit Regional Chamber is focusing its efforts on encouraging two aspects of education: increasing university funding by the state and urging more Michigan residents to pursue STEM-related degrees or certificates.
"Those things are hugely important," he said.
Talent development was a focus of the MEDC under Finney, and he continues to address what he calls the "talent gap" from his role as head of Community Ventures, which helps structurally unemployed individuals in four Michigan cities find work.
Michigan's Advanced Technical Training Program addresses it, Finney said. He also said that getting private employers involved is important.
"Government programs alone won't get us there," Finney said.
"Having a commitment to robust training makes a lot of sense," he added.
Meanwhile, the wave of engineering jobs is prompting a corresponding change in southeast Michigan's commercial real estate.
"Auto engineering is back with a vengeance and expanded beyond the pre-Recession levels," said Neal Warling, senior vice president at Jones Lang LaSalle.
Michigan is home to 370 automotive R&D centers, according to the state. Those centers attract more than 70 percent of all U.S. auto R&D spending, which is estimated at $18 billion by the American Automotive Policy Council.
Recent office deals in Plymouth, Northville and Troy typically can be tied to the auto industry, including many of the larger deals. Warling mentioned Kirchoff Van-Rob as an example; the chassis supplier opened a plant near Lansing and an engineering center in Troy.
Perspective
As the nation watches President Obama at Detroit's auto show, Michigan can take pride in the recognition coming its way for how its most influential industry survived the Great Recession, experts said. Obama has a role in that.
"The president is justifiably proud of his role and his administration's role in supporting the U.S. auto industry," Baruah said.
Politics may also enter the message. Baruah notes, "He vastly underplays the role President Bush played in setting the stage. The U.S. auto industry would not have been saveable in 2009 if George W. Bush had not taken the action that he did."
Amid the auto recovery came Detroit's bankruptcy, which also challenged and shook the state.
The era was tumultuous. Today, as Detroit Three employees await profit sharing checks and manufacturers proudly announce their product innovations, 2009 may seem light years away.
The degree of the automotive industry's crisis could not have been predicted, Finney said. That the recovery reached record-setting sales amid profitable years for manufacturers is important for Michigan, he added.
"Back then," he said, "all indications are this recovery would not have happened as swiftly as it did. ... Michigan has been a tremendous beneficiary in that."
No comments:
Post a Comment