The traditional automotive landscape around Detroit and the Great Lakes has been a clear winner in capturing industry investment this year. Fiat Chrysler Automobiles pledged to spend $4.5 billion in and around Detroit. General Motors has embarked on projects to improve and expand plants in Michigan and around the Midwest. Ford Motor Co.'s old Chicago Assembly Plant got a $1 billion infusion.
What's behind Great Lakes investment surge?
Bernard Swiecki, 44, who monitors North American industry investment as director of the Center for Automotive Research's Automotive Communities Partnership, believes some of the activity reflects the political mood in Washington, where made-in-America manufacturing is a pointed topic. But it also reflects a changing U.S. marketplace in 2019, Swiecki told News Editor Lindsay Chappell. The outlook is down, but consumers want more light trucks, and automakers are scrambling to build them. This interview has been edited for clarity and brevity.
Q: This year is delivering a bonanza of investment in the Great Lakes region, especially from FCA. What's happening?
A: At least some of it is that we're in a UAW contract negotiation year, and Detroit 3 investments often rise in negotiation years. But in this case, it's unusually early because we're not yet at the stage when we learn about product guarantees that the companies have given in exchange for concessions.
So we can assume that you're seeing some different public posturing, for political reasons, because of the current administration in Washington. The auto industry's optics must be played out differently than before. Auto companies are restructuring and they are letting people go. I think some of the investment is to help negate some of that negative public appearance.
Lots of investment in old plants, and not much in the way of greenfield auto plants. Are greenfields out of fashion for the moment?
We're in an interesting moment. Consider that auto plants remain capital-intensive for their entire lifetime. You might spend a billion dollars to build it originally, but then you have to spend another billion to renew it every time you have a major change. So most of the industry's money goes into reinvesting rather than new investment.
But also factor in that we're in a slightly downward-trending market, with a forecast for the next few years of declining sales.
Greenfields add capacity in a growing market, on the upward side of the cycle. We're not in that part of the cycle. We don't need new capacity at the moment.
What if my brand is increasing market share, even in this market?
That's true — you'd be in a different posture. And that's why we see Mazda and Toyota right now building a greenfield plant in Huntsville, Ala. Mazda needs U.S. capacity. The other exception would be new competitors coming in the United States for the first time.
I was struck by how modest the public incentives have been to support the big plant investments announced this year by FCA and GM in and around Detroit, compared with the hundreds of millions of dollars in incentives that have gone to projects in Georgia, Tennessee and Alabama, for example. Have we entered a new era of lower state competition for auto projects?
We can't say, but what we can observe is that many of these recent plant investments simply needed to be made in the Great Lakes region, and those states don't have the same big economic development budgets that some other states have to work with.
It's also a factor that the plant projects we're talking about in the Midwest are for high-margin vehicles, like full-sized trucks. And arguably, for that kind of product, manufacturing incentives aren't as critical.
Amazon was stung by negative public reaction to the enormous incentives package it was offered by New York to put one of its new headquarters there, with 25,000 new jobs. Amazon canceled the plan. Will that anti- incentives public mood spread to the auto industry?
That's an interesting question for us as we watch new projects materialize. Here locally, in Detroit, there were members of the Detroit City Council who doubted the value of having FCA's proposed new auto plant in the city. There was public discussion that constructing a new plant here might not be good for the city of Detroit. It boggled the mind. FCA is planning a brand-new plant ... where citizens of Detroit will get preference in hiring, for which there's no other city competing, and — oh, by the way — the state is providing incentives to help make it possible.
Supporting the project was a no-brainer when you consider the economic multiplier behind an auto assembly plant. There's literally nothing you could ever put on that land that would give you the same economic return.
Hypothetically, suppose the reaction had affected FCA the same way that it did Amazon. Might FCA have walked away and built a greenfield plant somewhere instead?
Not very likely, I believe. FCA has other underutilized plants elsewhere they probably would have turned to first. Their plant in Brampton, Ontario, for example, would have been a good alternative, and I'm sure the Ontario government would have been happy to work with them. And they also have their plant in Belvidere, Ill., if they wanted to go there.
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