The Great Lakes Region is well-positioned to remain a North American production hub for years, perhaps well into the next decade.
Michigan and the rest of the area often referred to as the Rust Belt, which I’ll call the Great Lakes Region here, needn’t worry about automotive manufacturing vanishing for some time.
Despite the headlines and the angst in some quarters about North American light-vehicle production moving into the southern U.S. and Mexico, away from the historic epicenter of the automotive industry, the core manufacturing footprint of Michigan, Ohio, Indiana, Illinois and the Canadian province of Ontario will remain intact for some time.
Historically, the Great Lakes Region nearly always has accounted for the majority of production in North America. Just 30 years ago the region was building close to 60% of North America’s output. Based on a WardsAuto forecast, 2014 will make only the third time less than half of North American assemblies come from the zone. The region bounced back after dropping below half in 2009 and 2010. However, this time penetration will stay below 50% and decline further over the remainder of the decade.
Capacity cuts caused by declining market share for the Detroit 3, formerly labeled the Big Three, over the past several decades largely caused the gradual slide., and Fiat- have roots to the beginning of the automotive industry in Michigan.
Compounding the production losses is that the majority of new assembly plants since the 1980s have gone elsewhere, and the trend toward new brick and mortar springing up in the southern U.S. and Mexico has been more acute since the mid-1990s. Furthermore, nearly all the additional capacity in the form of new plants planned in the next few years is in Mexico.
Still, Michigan, Ontario and other states surrounding the Great Lakes will continue as the dominant area of light-vehicle assembly.
Michigan, despite an 8-year stretch through 2011 when Ontario topped it, virtually has had a lock as the No.1 producing state or province in North America for decades and will fortify its lead over the next several years.
Ontario, though forecast for lower production in the coming years, will maintain its No.2 standing in North America, with Ohio staying at No.3.
Besides the Detroit 3,and have strong manufacturing bases in the area. Of the 8.1 million units the region will build this year, Honda will contribute 1.3 million and Toyota, 830,000. Also, Subaru, a rising star in the U.S. market, has a plant in Indiana on track to build a factory-high 281,000 units this year, and will chip in 64,000 units from its operation in Illinois.
Based on what we know about the timing and production sourcing for upcoming new programs, the area is well-positioned to remain a manufacturing hub for years, perhaps even beyond our forecast horizon of 2020.
New programs, meaning entirely new vehicles or the re-engineering of existing car and truck models, are planned years in advance. Though neither impossible nor unprecedented, changing decisions on timing and where to produce vehicles off new programs is an onerous task when done up to two to three years before an originally scheduled production start. With that in mind, my back-of-the-envelope figuring says the region will be good through at least 2021. What happens after that is problematic.
Keeping in mind there are positives and negatives to everything, what also bodes well for the region for the next five to six years is that the industry will need pretty much all the capacity it has to meet demand. As long as demand continues an overall upward trend, as we expect it to do through 2020 with maybe one or two flat or down years along the way, manufacturers with a presence in the Great Lakes area will need most of that capacity.
On the other hand, demand is not expected to be so strong that North American manufacturers necessarily will need to build new plants beyond what already has been planned in Mexico. Thus, new plants in the Great Lakes region seem unlikely at this point. That could be a negative for the longer term, but for now, the area’s facilities will hum along at full speed as the Great Lakes Region remains the leader in North American production.