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Regional Report: Bioscience and Energy-Efficiency Repair Automotive's Crash in Midwest

The automotive sector's crash brought hard times for some Midwestern states, but the region sees new life in the biosciences and energy-efficient vehicles.

Mali R. Schantz-Feld (June/July 10)
The automotive sector's crash brought hard times for some Midwestern states, but the region sees new life in the biosciences and energy-efficient vehicles.

The Midwest states of Illinois, Indiana, Michigan, Ohio, and Wisconsin have weathered the recession and are ready for a sunnier forecast. While the future is still cloudy in some areas, key industries are glimpsing the first rays of cautious optimism.

In April the Chicago Fed Midwest Manufacturing Index rose in all four surveyed sectors, a continuation of previous gains in recent months. The region's steel sector output grew 2.9 percent after an increase of 2.2 percent in March. Machinery sector production rose 1.8 percent after March's 1.3 percent rise. All five subsectors of the resources sector output - food, wood, paper, chemical, and nonmetallic production - grew 1 percent in April after a 1.1 percent increase in March, and regional auto sector production inched up another 0.1 percent after rising 2.4 percent in March. The region's automotive output was up 15.8 percent in April, relative to last year's level.

Service Sector Revives Michigan
The recession took a toll on the Midwest, particularly in Michigan, Wisconsin, Illinois, and Ohio, says Michael J. Hicks, director of the Center for Business and Economic Research at Ball State University, but is beginning to rebound. "Manufacturing is showing signs of recovery," Hicks says. "Data shows job creation in manufacturing sectors, however statistics will reflect these gains before they are felt by the general population in these areas." Areas making headway towards recovery "are involved in service-intensive industries such as tourism, conventions, banking, and healthcare in such cities as Indianapolis, Milwaukee, Chicago, and Columbus that did not fare as badly during the recession." While some areas of Detroit still suffer greatly, the high-tech, health care, and financial services sectors are bolstering the city's economy.

Dana Johnson, senior vice president and chief economist at Comerica Bank in Dallas, follows Michigan's economic progress. In past business cycles the state's economy seems to fall harder and return faster than other states, he says. Reports of manufacturing's growth are particularly good news for Michigan, which houses a "larger than normal manufacturing sector," Johnson says. "Michigan has made a systematic effort to try to develop some new strengths in various parts of manufacturing sector, such as clean energy, batteries, and defense," he says. The state continues to cultivate and become less dependent on automotive parts and manufacturing.

Michigan Economic Development Corporation (MEDC) programs and incentives target high-tech industries including alternative energy, defense and homeland security, life sciences and medical instrumentation, and advanced automotive and materials. Newer programs offer funds to former auto suppliers and small manufacturers to diversify into other markets or expand product lines.

Renewed Outlook for Automotive
In December 2009 Illinois Governor Pat Quinn implemented the Economic Development for a Growing Economy (EDGE) tax credit for auto manufacturers. This allows the auto industry, among the state's largest employers, to retain employee income tax withholdings instead of EDGE corporate tax credits and reinvest the funds in employment-generating operations. Ford, the first automaker to use the credit, announced in January a preliminary investment of $400 million and a projected addition of 1,200 jobs at its Chicago manufacturing facilities that produce the next-generation Explorer SUV.

Indiana is ideal for automaker THINK North America's manufacturing plant in Elkhart, Indiana because of available facilities, a skilled work force, an established automotive supply base, and a central location, says Brendan Prebo, THINK spokesperson. More than 400 jobs are expected by 2013, and production will start next year. "State and local officials in Indiana were extremely supportive of our manufacturing plans and went out of their way to help bring THINK to Indiana," Prebo says. "The leadership in the state has a strong vision of creating Indiana as the Silicon Valley of electric vehicles." The state and local incentive plan for the project totaled $17 million. Indiana is also home to EnerDel, THINK's lithium-ion battery supplier, which will locate a new manufacturing operation in Hancock County and create 500 additional jobs, bringing the company's work force to 1,400 employees across three Central Indiana locations. "By locating in Indiana," Prebo says, "we'll be able to reduce the shipping cost of a major component of the vehicle," a zero-emission, highway-capable electric vehicle dubbed the THINK City.
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