Auto Industry's Road to Recovery
After emergency government intervention, auto manufacturers are shifting strategies to push the sector forward.
Jim Romeo (November 2010)
(page 2 of 3)
Location decision is especially critical for supply chain vendors, according to Ed Burghard, executive director of the Ohio Business Development Coalition. "This is an industry that tends to operate on thin margins," he says. "An optimal location allows for just-in-time production where a supplier can carry little inventory and minimize logistics costs."
Transportation vendors such as railroads also play a key role in the auto supply chain. Much of their availability depends on infrastructure and accessibility.
"The automobile manufacturers we have recently worked with have all been interested in multiple factors, but their specific needs basically fall into the categories of transportation, the availability and cost of utilities, ongoing local educational and training opportunities, taxes and incentives offered by the various governmental entities, and the demographics of the local labor force," says Richard Kiley, group vice president of automotive for the Norfolk Southern railroad. "A perceived shortfall in any of these areas can remove a site from consideration by a potential client. With the increasing cost of energy and the associated impact to our environment, it will become increasingly important for almost all major industrial and warehousing sites to have access to rail transportation."
Inside the Location Decision
In a competitive environment, several location decision facets should be evaluated.
"Location becomes a strategic advantage based upon what is in the location," says Sandra Pupatello, Minister of Economic Development and Trade for Toronto, Ontario, home to an auto cluster that can produce more than 2.5 million vehicles annually. "Having an assembly plant within your jurisdiction increases the chances of obtaining related investment. Having a major engine or transmission plant may increase your chances of obtaining related investments. The issue becomes not just location per se, but being close to major auto investments is a strategic advantage. With all else being equal, the lower transportation cost can be a contract maker."
Accessibility to resources, such as research and development, can also sway the decision. "One impact of the current economic climate is that manufacturers are looking for suppliers to do a lot more in the area of research and development," says Clemson's Geolas. "But many suppliers can't afford the up-front capital investment, which puts them at a significant competitive disadvantage. Location can overcome this hurdle by tapping into resources shared by a broader automotive community." Clemson has facilities, equipment, and employees with technical expertise to collaborate with suppliers on research and testing initiatives, which can be expensive. Collaboration also encourages a faster turnaround on innovation.
Vehicle fuel demonstrates location's influence on research and development. "In the past, there was a universal approach to where automotive companies located their operations because gasoline was far and away the predominant fueling option," says Daniel O'Connell, director of Fuel Cell Commercialization for General Motors. "Now and in the future, with more fueling options available, location may be based on the availability of a specific fuel in a particular region. For example, in Brazil, ethanol is the fuel of choice, so E85 vehicles represent nearly 95 percent of the cars that are produced there. Electric cars may be made in California because the state has a high number of electrical charging stations."
In New York, General Motors currently has nine hydrogen filling stations, and Niagara Falls provides abundant hydroelectric power. These characteristics could spur the manufacture of fuel cell cars in the region. Access to research and development at the Rochester Institute of Technology, Cornell University, and Delphi attracted General Motors to open an R&D campus in Honeoye Falls as the base for its fuel cell operations. The company expects to sell fuel cell cars beginning in 2015.