February 10, 2012
President Obama’s call to repatriate U.S. factories with manufacturing work put the domestic auto industry in the spotlight last month during his State of the Union address.
But the reality, auto executives say, is it will take more than patriotism and a lower tax rate to bring factory jobs back from abroad. Auto companies need a strong business case to justify the “Made in America” label.
Currency fluctuations and upheaval in global markets are driving many automakers to consider moving factory work to the United States, helping to reverse a decades-long migration of jobs to countries with cheaper labor.
Factor in the risk of natural disasters, which last year ruptured the supply chain for many Japanese carmakers, and the increasing competitiveness of U.S. labor costs, and automakers have more incentive to build where they sell, industry experts say.
“Labor costs are one reason to go offshore, but risk is a reason to come back onshore,” said Kristin Dziczek, director of labor and industry at the nonprofit Center for Automotive Research (CAR) in Ann Arbor, MI. “There has to be a business case for bringing work back. The biggest case right now is that companies are evaluating the cost of risk to their supply chain.”
The U.S. auto manufacturing sector has a long way to go to reverse decades of job losses. Last year, the sector employed 592,100 workers, a nearly 50% drop from the 1.1 million workers in 1999, according to CAR.
In his speech, Obama called for the return of U.S. manufacturing, stressing its importance to the nation’s economic future. He called on businesses to bring work back to U.S. factories and urged Congress to rewrite the tax code so companies would be more likely to keep manufacturing jobs here. “What’s happening in Detroit can happen in other industries,” Obama said.
Last year, Ford Motor Co., General Motors and Chrysler Group each agreed to add thousands of U.S. jobs as part of their four-year labor pacts with the UAW. Without the contracts, the companies said, some of those jobs would have gone to Mexico or other countries. But beyond the contracts, auto industry leaders say more U.S. factory jobs could be added—if sales justify them.
GM North American President Mark Reuss has said the company will carefully match production to demand. But he also pointed to GM’s plans to reopen its former Saturn plant in Spring Hill, TN, this year as a source of U.S. jobs.
GM also is urging more global suppliers to move near its U.S. plants to streamline parts flow, he said. “We’re going at it hard,” Reuss said last month on the sidelines of the Washington Auto Show. “There is a lot of margin there.”
Foreign automakers also are moving production to U.S. factories to better guard against seesawing exchange rates. Volkswagen AG opened a $1 billion plant in Chattanooga last May with an annual capacity of 150,000 cars in the first phase and another 75,000 to 100,000 vehicles in subsequent phases.
Toyota Motor Corp. opened a plant in Blue Springs, MS, in November, adding 2,000 jobs, and is exporting its popular Camry sedan overseas from its factory in Georgetown, KY. It also builds Sienna minivans for export in Princeton, IN. “Our philosophy is we want to build vehicles where we sell them,” Toyota spokesman Javier Moreno said. But ultimately, he added, “it’s really auto demand that’s going to guide those decisions.”
Jim Tetreault, Ford’s vice president of North American manufacturing, said automakers’ decisions on U.S. production depend on several factors, such as tax incentives, labor costs, exchange rates and workforce productivity. “It comes down to the individual business environment in one part of the world versus the United States,” Tetreault said.
And with U.S. sales rising slowly, many automakers remain hesitant. CAR predicts that even with a rebound in sales, employment in the auto manufacturing sector will grow only by about 166,800 jobs over the next four years, hitting 756,800 workers by 2015.
Still, even though carmakers may be adding workers, they’re holding off building new factories. “We’ve winnowed down to a very lean body,” Dziczek said. But she added: “Pretty much everyone in the auto industry is hesitant to add bricks.”
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