Automotive In-Sourcing: A Long-Term North American Trend?
Gregory Burkart, Managing Director and Practice Leader, Site Selection & Business Incentive Advisory Services, Duff & Phelps, LLC (Automotive Site Guide 2012)
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Figure 3: The auto industry, if not explicitly endorsing “in-sourcing,” has supported the movement with almost $14 billion in new capital investments. Of the 15 largest projects receiving a CICI Award for Corporate Investment in 2011, eight projects were related to the auto industry.
Making a Site Selection
All of this talk about in-sourcing can better inform future site selection activity. When deciding where to locate new facilities, companies should consider three things:
- 1. If companies are willing to repatriate projects where labor content is less than 25 percent of the total manufacturing costs, and if labor productivity is key to their competitiveness, then they should look at states and local communities with a highly skilled work force capable of handling their jobs. In addition, states that encourage flexibility in their work rules will foster companies' productivity.
- 2. To enhance the productivity of workers, companies are investing large sums in capital-intensive equipment. They should look for states and local communities that reward these investments by lowering property taxes associated with personal property. Remember the economic axiom: "If you tax something, you receive less of it."
- 3. Since the goods that will be manufactured in the United States have lower labor content but relatively higher logistics costs (i.e., steel, aluminum, and plastics), efficient and reliable infrastructure is critical. One of the reasons that Toyota, Honda, and Ford are investing in the United States is that their production in Thailand was shut down for an extended period of time because the floods disrupted both their supply chain and their actual production operations. Good freeway access, efficient rail yards (with dual access to multiple carriers), and a port with efficient and predictable labor relations are essential to efficient management of logistics costs.
It's an exciting time again in the automotive industry. For all of those who bled during the dark days of 2009 and 2010, it's especially nice to hear what one might describe as a louder sucking sound right here at home.