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)

{{RELATEDLINKS}}Remember H. Ross Perot's famous quote during the second presidential debate in October 1992? Almost 20 years ago, Perot predicted that lower labor costs and less regulation of pollution because of fewer environmental controls in overseas markets would lead to a "giant sucking sound" pulling jobs out of the United States.

When you examine levels of manufacturing employment in 1992, 2002, and 2012, Ross Perot looks like a prophet. All told, the United States lost approximately 1.5 million manufacturing jobs during the 1990s. To add to the catastrophe, the United States lost another 3.5 million jobs during first decade of the 21st century (Figure 1).

Some of the manufacturing loss may have been attributed to one-sided trade agreements, as Perot suggested during his campaign. However, other factors contributed to this unsettling outcome; for one, the strong dollar during the 1990s made imports cheap. Management also gave lucrative contracts to labor unions and agreed to specialized work rules that later handcuffed the manufacturing industry. And until Toyota introduced its lean manufacturing techniques, companies were comfortable holding larger amounts of inventory to cushion disruptions in the supply chain.

Recently the employment picture in the United States has started to change. During the past two years, the United States has added approximately 370,000 new jobs; by 2015, some experts predict that the United States could add a total of 1.1 million new manufacturing jobs (Figure 2).

Repatriating Manufacturing

Some attribute stabilization and growth forecasts in the manufacturing sector to a new phenomenon that is more and more frequently referred to as "in-sourcing." In a January 2012 report on Investing in America - Building an Economy that Lasts, The White House describes in-sourcing as "bringing activities and jobs back to the U.S. or choosing to invest in the U.S. instead of overseas."

According to recent surveys, U.S. companies are looking to repatriate their manufacturing. In a study by David Simshi-Levi, an engineering professor at MIT who runs a program for supply chain executives, 14 percent of companies surveyed indicate certain plans to move at least a portion of their manufacturing back home. In an earlier survey, the executives at the Boston Consulting Group found that 37 percent of 106 companies surveyed planned to re-shore or were actively considering the option.iv

Anecdotally, we are seeing the same results in recent news accounts. At this year's North American Auto Show in Detroit, Honda, Nissan, Toyota, and BMW announced plans to use the United States as an export base. Honda announced that it would export as many as 400,000 vehicles from the United States, while Toyota said that the 100,000 vehicles exported in 2011 are just the tip of the iceberg.

New Capital Investments
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. Notable projects are as follows:

What's Driving In-Sourcing?
There are five primary factors driving "in-sourcing" in the U.S. auto industry:

Next: What three things companies should consider when making an automotive site selection decision

{{RELATEDLINKS}}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:

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.