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Foreign “Transplants” and the U.S. Auto Industry
19 Jun 06
The trend of foreign auto plants (called “transplants”) locating in the United States started in the 1980s and continues today. The trend is typified by transplants locating their auto parts manufacturing and assembly plants in the South and Mid-South, as opposed to the traditional locations in the Northeast. The emergence of transplants has brought about regional employment, tax revenue, and labor union impacts.
Over the last two decades, the U.S. automotive industry has seen a shift in its structure. Historically, the Mid-Atlantic and East North Central Regions had large concentrations of domestic automotive parts and assembly plants. However, in the 1980s, as the Big Three domestic automakers (Ford, General Motors, and Chrysler) saw their collective market share challenged by foreign competition, a new trend was started. The trend, which continues today, is foreign automakers, or “transplants,” locating production and assembly plants here in the United States. Consequently, while domestic plants are closing in some traditional locations (Michigan and Ohio, for example), foreign plants are opening in other locations, like Kentucky, Tennessee, and Alabama (although it must be noted that Ohio and Indiana are the final choices for the proposed Toyota plant). The logic behind foreign auto manufacturers locating here is simple. By locating plants and parts suppliers closer to the intended customer, foreign auto firms have realized great savings on transportation costs. Employment in Motor Vehicle and Motor Vehicle Parts Manufacturing | | 1990 | 2005 | Difference | Percent Difference | Michigan | 288,183 | 224,133 | (64,050) | -22.2% | Indiana | 95,133 | 88,533 | (6,600) | -6.9% | Kentucky | 10,725 | 50,700 | 39,975 | 372.7% | Tennessee | 26,092 | 37,792 | 11,700 | 44.8% | Alabama | 383 | 8,642 | 8,258 | 2154.3% |
The impact of plant closings can wreak havoc on a regional economy. As plants close, the associated job losses are not limited to workers at the affected plants. Suppliers to the plants will surely feel the sting of reduced demand for their goods. Reduced demand could lead to some job attrition in an effort to reduce operating costs. In addition, secondary employment impacts will occur due to the affected workers not spending as they used to in the local economy. Consequently, job losses in other sectors, such as retail and leisure and hospitality, can transpire. Tax impacts are also possible since reduced income will translate into reduced income tax and reduced spending (which will cause a reduction in sales tax revenue). If displaced workers cannot find employment either in manufacturing or other employment sectors with identical wage levels, the tax effects and secondary employment effects can be lasting. The creation of auto manufacturing jobs by transplants can be expected to have the opposite effect of the aforementioned job losses. However, the impact of domestic plants closing and foreign plants emerging must be examined in more ways than just the jobs lost and gained. Population impacts are possible due to plant closings in one region and plant openings in another. There is the possibility that heavy job losses in an employment sector can spawn the migration of displaced workers to the area where the sector is thriving. Finally, there is the effect on union labor. Historically, the Big Three manufacturing plants were unionized. However, there are few unions in transplant operations. As the Big Three continues to see its market share dwindle, so too will unionism in the automotive industry. In fact, membership in the United Auto Workers (UAW) union has fallen from 1.5 million members in the late 1970s to under 700,000 members today. by Rondel Thompson
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