This is Michigan: Back from the crash

Auto show promotes products, but also a domestic industry that's poised to hire, increase profits

Jay Baron, Sean McAlinden and Brett Smith

By nearly every measure of success, Michigan's auto industry is now competitive.

Auto sales are on the upswing; corporate earnings are positive; productivity levels are on par with Japanese competitors; and quality is vastly improved, among other key benchmarks. Of course getting to this point hasn't been easy. Two of Detroit's automakers went bankrupt; thousands of jobs were lost; investors lost money; and many of the brands people loved have been eliminated.

What has emerged, however, is a new industry poised to hire, increase profits and continue developing advanced automotive technology.

U.S. light vehicle sales in 2010 increased 11 percent over an almost 30-year low in 2009. The Center for Automotive Research and most other industry forecasters are projecting another double-digit sales increase - in the neighborhood of 12 percent to 14 percent - in 2011, and the future looks bright for a continued strong sales recovery in 2012 through 2014.

The U.S. market for cars and trucks is reviving despite the economic uncertainties. Americans are starting to replace their old vehicles with new steel. Two factors driving sales are more available consumer credit, and the fact that the average vehicle on the road today is more than 10 years old.

Based on the industry's accomplishments over the past 18 months, and led and supported by perhaps the most successful industrial policy intervention in the history of the U.S. government, CAR believes Michigan is now very well-positioned for auto sector growth.

We have not seen such remarkable industrial achievements since Michigan led the world in pioneering modern mass production in the early part of the last century, or during the monumental conversion of the auto industry to support World War II production.

Key factors

Detroit's automakers have addressed and attacked key areas that previously were holding them back.

Profitability: All three major U.S. automakers report positive operating earnings and cash flow for the first time in five years, despite record low levels of U.S. aggregate demand for the sale of light vehicles. General Motors Co. will report four consecutive quarters of net earnings for 2010, led by its North American operations, and Ford Motor Co. will report the highest levels of net earnings of any automaker in the world in 2010. Many of Michigan's largest auto suppliers have also restructured, and are now breaking even and posting black ink at very low volume levels.

Productivity: According to the 2009 Harbour Report, all three major U.S. automakers now match or exceed the benchmark of Toyota North America's labor productivity levels for major manufacturing operations in North America.

Quality: According to the most recent JD Power Initial Quality Survey, Ford is now the highest quality mass production auto manufacturer - edging out Honda, and outranking the Toyota brand by 16 positions on the list. Recently, Ford virtually tied Toyota in Consumer Reports' 2011 Car Brand Perception Survey.

Research and development: Michigan ranks second among the 50 states in the level of private industrial research and development spending. This largely reflects the state's overwhelming dominance in automotive R&D. At more than $11 billion in annual expenditures, Michigan's growing automotive R&D sector is comprised of more than 350 technical and testing centers that employ more than 45,000 engineers.

Vehicle technology: Nothing is driving Michigan's auto technology growth faster than the development of new powertrain technologies, as well as new passenger cars in new segments. Detroit's lineup of high-fuel economy alternatives are the best in the industry's history and match those of any automaker - anywhere.

For example, GM has recently introduced its highly anticipated range-extended electric vehicle, the Chevrolet Volt, a first step in what may lead to a new powertrain paradigm. And, with its Ecoboost technology, Ford has become a market leader in commercializing fuel-efficient direct injection turbo-charged gasoline engines. In 2009, both GM and Ford exceeded 31 mpg for their passenger car corporate average fuel economy sales averages.

Automotive tooling: Although 40 percent smaller than its peak in the mid-'90s, Michigan's tooling industry remains the world's greatest concentration of automotive tool engineering and construction capabilities. Tooling costs for a new vehicle program have fallen almost 50 percent over the past decade.

Labor costs: According to CAR's calculations, the U.S. average hourly labor cost for production and skilled trades workers at Detroit's automakers is now virtually equal to labor costs at the largest of the international producers, Toyota Motor Manufacturing USA. In fact, because of progressive labor agreements with the UAW, it is now possible for unit labor costs at the Detroit manufacturers to fall significantly below the average for all international auto manufacturers in the United States. For the first time, the UAW has committed the organization and its members, in no uncertain terms, to the competitive success of its employers and the full satisfaction of their customers.

Market share: In 2010, the Detroit automakers gained U.S. market share for the first time in more than a decade. Detroit Three market share is now 45.4 percent, up from 44.9 percent in 2009. This is a real recovery - unaided by massive incentive campaigns.

A long time coming

The accomplishments include changes that Michigan's auto industry has waited and worked more than 30 years to achieve. The efforts and sacrifices of countless employees, suppliers, and many other stakeholders were finally realized under the harsh prodding of the crisis of the last two years. These sacrifices will be worth it if they have produced lasting change that translates to future jobs and income for many thousands of Michigan's citizens.

CAR projects that Michigan's automotive manufacturing employment will increase by 23,000 in 2011, based on the recovery of the market and production, and also on $5.6 billion in new auto investments in Michigan that were announced by the industry in just the last 24 months.

Automotive jobs will remain some of the best in the state in many occupations, and no industry produces a higher level of spinoff employment than auto manufacturing. CAR's research shows that for every job created at an automaker or auto supplier in Michigan, four other jobs will be created in the state. While Michigan's automotive employment will never again reach the levels seen even 10 years ago, the industry will undeniably continue to contribute in a major way to the state and U.S. economies for many years to come.

We never want to face a major economic crisis again without the ability to compete through the worst possible circumstances. This means our industry must continue to build on its accomplishments of the last few years without pause, and be ready for any eventuality. Michigan's auto industry is ready for the auto recovery as it never has been before.