Cambridge Journal of Regions, Economy and Society 2014, 7, 359–378
doi:10.1093/cjres/rsu014
Advance Access publication 3 September 2014
Manufacturing resiliency: economic restructuring and
automotive manufacturing in the Great Lakes region
Tod D. Rutherforda and John Holmesb
Department of Geography, The Maxwell School of Citizenship and Public Affairs,
Syracuse University, Syracuse, NY 13244-1020, USA, [email protected]
b
Department of Geography, Queen’s University, Kingston, Ontario K7L 3N6, Canada,
[email protected]
a
Received on November 19, 2013; accepted on June 4, 2014
Through a case study of the Great Lakes region automotive industry spanning the USA–
Canada international border, this article critically reassesses the concept of regional resiliency and the sustainability of the recent resurgence of American manufacturing. We argue
that regional resiliency needs to be reframed around regional integration into global production networks and the restructuring of workplace governance especially with regard to
the significant ‘recalibration’ of labour relations reflected in declining rates of unionisation,
lowered labour costs and more ‘flexible’ employment relations. The region is no longer as
dominant in North American automotive manufacturing as it once was and must respond
to increasing competition from emergent auto-making regions in the southern USA and
Mexico.
Keywords: regions, resiliency, workplace governance, automobile industry
JEL Classifications: B15, J5, L62, O51
Introduction
Economic geographers have become increasingly interested in regional ‘resiliency’ and
why economic restructuring impacts regions
differently (see Christopherson et al., 2010;
Martin, 2012; Simmie and Martin, 2010). This
coincides with debates that have arisen in the
aftermath of the 2008 global financial crisis and
accompanying Great Recession. One debate
concerns whether manufacturing investment
and employment in older core manufacturing
regions can recover and how public policies
might facilitate reindustrialisation (see Helper
et al., 2012). Questions remain, however, concerning the theoretical and empirical saliency of regional resiliency (see Hassink, 2010)
and the significance and sustainability of the
recent recovery of American manufacturing
(Atkinson et al., 2012; Rattner, 2014).
We address these issues through a case study
of the automotive industry in the historically
important Great Lakes manufacturing region of
North America.1 We argue that resiliency needs
to emphasise how regions have become integrated into global production networks (GPNs)
(see Coe et al., 2004, 2008) and to recognise the
© The Author 2014. Published by Oxford University Press on behalf of the Cambridge Political Economy Society.
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Rutherford and Holmes
importance of workplace governance restructuring in shaping the question of resilience for
whom (MacKinnon and Driscoll-Derickson,
2012)?2 Following the decline in auto industry employment and production capacity in the
region that began in 2001, and dramatically culminated in the 2008–2009 Great Recession and
the bankruptcy forced restructuring of GM and
Chrysler, there has been a wave of announced
new auto industry investment and a very modest recovery in manufacturing employment. With
the recent rebound in automobile sales, surviving facilities are approaching their production
capacity, and new investment is being announced
(McAlinden and Chen, 2013). In part, this revival
reflects the legacy of policies and institutions
which previously favoured auto-making in this
region, such as R+D and training and skill development (Driving Change, 2011a, 2011b; Yates
and Vrankulji, 2006). Recent federal, state and
provincial government policy initiatives have
been shaped by environmental issues and concern over the long-term decline of manufacturing
capacity and employment in the region (Helper
et al., 2012; Simpson, 2013; Stanford, 2013).
However, we argue that discussions of this
apparent revival of manufacturing in the Great
Lakes region underestimate the significance of
workplace governance change. The accelerated
decline in private-sector unionisation over the
last decade allowed employers to significantly
‘recalibrate’ labour relations, lower labour
costs and make the employment relation more
‘fl­exible.’ The region is no longer as dominant
in North American automotive manufacturing
and must respond to competition from newly
emergent auto-making regions in the southern USA and central Mexico. While the Great
Lakes region remains an important location for
automotive investment and employment, the
longer-term future of auto-making in the region
is far from certain.3 This article concludes with a
critical reassessment of the concept of regional
resiliency and a consideration of different possible future scenarios for the automotive industry in the Great Lakes region.
360
Regional resiliency and resurgence
of North American manufacturing
In economic geography and regional studies,
recent interest has focused on the concept of
‘resiliency.’ Originating in the biological sciences, resiliency is now deployed to explain
why, in the wake of economic shocks, some
regions show greater economic and social sustainability than others (Christopherson et al.,
2010; Hassink, 2010; Martin, 2012; Simmie
and Martin, 2010). Simmie and Martin (2010,
33) emphasise that resilience is related to a
region’s ‘adaptive ability’ since “it is the differential ability of a region’s or locality’s firms
to adapt to change and shocks in competitive,
market and technological, policy and related
conditions that shape the evolutionary dynamics and trajectories of that region over time.”
Martin (2012, 11) further emphasises that resilience means that regions not only retain growth
paths via resistance and recovery but also move
to new paths through a process of hysteresis
involving reorientation and renewal. While recognising that regions have become increasingly
integrated, resilience stresses their endogenous
capabilities, most notably in how governance
relations and civic capital allow regions to
anticipate and adapt to change and plan new
paths of future development (Wolfe, 2010).
While increasingly influential, the concept
of regional resiliency has also been subject to a
growing critique. Even some of its more ardent
protagonists admit that resiliency’s emphasis
on regional interconnectedness may actually
intensify regional crises (Simmie and Martin,
2010, 33). The concept has been critiqued
for being more descriptive than explanatory
(Christopherson et al., 2010) and for its assumption of consensus, abstraction from the state,
and reliance on either neoclassical equilibrium
and multi-equilibrium models or path dependency (Christopherson et al., 2010, 6; Hassink,
2010, 54). Finally, the emphasis on regional
endogenous capacities in resilience discourses
can serve to reinforce neo-liberal ideologies of
Resiliency and the sustainability of American manufacturing
self-reliance and the need to accommodate to
‘market forces’ in order to succeed as a region
(MacKinnon and Driscoll-Derickson, 2012).
In addition, we would add that while recognising the integration of regions into the global
economy (see Christopherson et al., 2010; Wolfe,
2010), resilience perspectives underestimate the
relative power of transnational corporations
(TNCs) and GPNs (see Christopherson and
Clark, 2009; Coe et al., 2004, 2008; Rutherford and
Holmes, 2008). This integration shifts the scales of
what are understood as ‘regions’ since the performance and resiliency of particular regions are
increasingly connected to other regions through
GPNs which may well cross international borders (Rutherford and Holmes, 2013). We argue
that the resiliency approach takes the uneven
processes of capital accumulation as ‘external’
to the question of regional resiliency. Regional
institutions and actors can exercise some power
in shaping change, but this is also deeply inflected
by the accumulation process (Jessop, 2001).
Finally, while making passing reference to labourcapital employment relations (Christopherson
et al., 2010, 7; Martin, 2012, 13), the resilience literature underplays distributional questions, especially the significance of workplace governance
which shapes the terms and conditions under
which employees within regions work. Attracting
investment and enhancing endogenous institutional capacities may not automatically lead to
better employment outcomes which begs the
questions of resiliency for whom and under what
conditions? (Hudson, 2001, 281; MacKinnon and
Driscoll-Derickson, 2012).
We argue that regional resiliency should be
reframed to account for these factors. The GPN
approach (see Coe et al., 2004, 2008) re-conceptualises the localised territorial development of
capitalism as related to global networks shaped
by TNCs. The relative power of TNCs is derived
from their strategic position within GPNs and
as Coe and Hess (2006, 12) argue, “we must not
lose sight of the corporate actors in GPNs, their
varying strategies and organisational forms and
how this ‘empowers’ them within networks.”
In the GPN approach, both TNCs and regions
are driven by the need to create, enhance and
capture value, including various forms of economic rent realised through market as well as
non-market transactions, including technology
transfer, collective learning, and the achievement of economic growth and increased opportunities for employment (Coe et al., 2004,
473–474). The capacity of regions to capture
value is an outcome of a complex bargaining
process between regional institutions and key
firms in GPNs.
At a regional scale, both large and small firms
in GPNs rely on economies of scale (via highly
localised concentrations of specific knowledge
and expertise) and economies of scope (intangible assets of learning and co-operative behaviour) created, in part, by the state. Thus, regions
may attract GPNs by providing conditions
for the creation, enhancement and capture of
value that are not easily replicable elsewhere
(Coe et al., 2004). Training, co-operative learning, and stable and positive labour relations
may all play an important role in the value
creation strategies of GPNs, while technology
transfer, knowledge and upgrading firm capacities are critical to value enhancement. As TNCs
outsource more activities, including R+D and
design, state policies to upgrade the innovative capacity of suppliers may result in a lessening of power asymmetries (Humphrey and
Schmitz, 2002; Whitford and Zeitlin 2004). Coe
et al. (2004) maintain that even as GPNs cut
through and across nation-states and regions,
they remain dependent on regulatory institutions and local socio-cultural conditions.
There are important differences, however,
amongst scholars concerning the implications
of TNC strategies for regional governance systems. Kristensen and Zeitlin (2005) found that
not only did TNCs benefit from the resources
and knowledge of various Danish, British and
American localities, but, in turn, the localities
derived advantages from TNC global expertise
and networks. However, in their study of US
media and photonics clusters, Christopherson
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Rutherford and Holmes
and Clark (2009, 4) found that TNCs sought
low production costs, innovation capacity and
access to high skilled labour. Few regions can
sustain such a balance and may ultimately suffer disinvestment and job loss. Similarly, while
the GPN perspective emphasises the need
to develop co-operative relations between
stakeholders within regional agglomerations,
this may not be possible or sustainable due
to power asymmetries favouring TNCs (Coe
et al., 2004, 476).
While the GPN approach recognises the
role of labour (see Coe et al., 2008, 284–285), it
does not fully explore the ways in which workplace governance is critical to the production
and capture of value by both TNCs and regions
(see Cumbers et al., 2008). Christopherson
and Clark (2009) view labour skills as central
to firm productivity and innovation strategies,
yet returns on investments in innovative work
practices, training and education are often difficult to measure. This is because they are characterised by considerable overspill and ‘free-rider
effects,’ such that firms face disincentives to
engage in skill development and workplace
innovation (Carlino, 1995; Dundon et al., 2005).
As a consequence, firms often systematically
under-invest in skill development and training
of employees. Secondly, while the presence of
unions and other forms of collective voice can
provide firms with a positive wage and standards
‘push’ (Freeman and Medoff, 1984; Livingston
and Raykov, 2008; Michie and Sheehan, 2003),
the inherent tensions within the employment
relation can increase costs and risks and shift
the balance of power between employee and
employer (Grimshaw and Rubery, 2005).
The tensions inherent in managing the
employment relation mean that institutions
such as labour law and other employmentrelated regulations are critical aspects of
workplace governance. For example, effective
protections afforded by labour market institutions can allow individuals to pursue otherwise unstable employment and career paths
and protect the accumulation of knowledge in
362
particular sectors or regions (Arundel et al.,
2007, 26–27). Given that institutions that regulate the labour market and workplace are scaled
and spatially uneven (Peck, 1996), regional
labour markets are critical to firm strategies.
As Christopherson and Clark (2009, 34) argue,
“While firms, and particularly transnational
corporations, can choose amongst an international array of locations, what differentiates
those locations are their respective regional
labor markets.” Moreover, firms still need to
negotiate with employees and local governance systems are critical in such negotiations
(Jonas, 1996). Thus, any analysis of regional
restructuring and resiliency needs to address
the role workplace governance plays in mediating change.
The resurgence of manufacturing
in North America: the case of
automobile manufacturing in the
Great Lakes region
The role played by TNCs, GPNs and workplace
governance in shaping regional resilience,
are very relevant to current policy and media
debates. Some commentators have focused
on the apparent resurgence of manufacturing
in North America (see Atkinson et al., 2012;
Helper et al., 2012). As evidence, they have
invoked a number of high profile cases of large
manufacturers increasing North American
employment through either new investment or
repatriating previously off-shored production
(see for example, Davidson, 2013). They argue
that a combination of rising wages in countries such as China, the challenges of managing geographically extensive supply chains, and
improved US cost competitiveness, has led to
recent increases in manufacturing employment.
However, there are good reasons to be
cautious regarding the extent of any North
American manufacturing ‘resurgence.’ Postcrisis increases in manufacturing employment
have been marginal when compared to the
longer-term secular declines in manufacturing
Resiliency and the sustainability of American manufacturing
Table 1. Manufacturing employment, 1990–2012 (’000s).
USA
Great Lakes states1
Canada
Ontario
1990
1995
2000
2005
2007
2009
2012
17,695
3942.1
1911
934.6
17,244
4023.6
1697
815.8
17,266
4046.8
2006
922.1
14,226
3253.2
1838
852.9
13,877.7
3115.3
1758.3
797.1
11,846
2547.2
1486
652.2
11,921
2712.9
1489
657.0
Ohio, Michigan, Indiana, Illinois and Wisconsin.
Sources: US Data: Bureau of Labor Statistics, CES Series 3000000001 and State and Area Employment, Hours and
Earnings. Canada: CANSIM 281-0005 and 281-0024 (Survey of Employment, Pay and Hours).
1
employment in the USA and Canada (Table 1).
Total US manufacturing employment, which
peaked at nearly 20 million in 1979, remained
under 12 million in 2012 with over 5 million
jobs being lost in the post-2000 period alone
(Atkinson et al., 2012, 5). Similarly, since peaking in 2000 at just over 2 million employed,
Canada has lost over 500,000 jobs in manufacturing (Table 1). Although manufacturing
employment has been in secular decline, the
gross value of output has continued to increase
reflecting significant increases in labour productivity due to technological change (Figure 1).
What has been the experience of the automotive industry in the Great Lakes region?
By WW1 this had become the core region for
automotive manufacturing in North America.
Despite international tariffs and other trade
barriers, there were significant cross-border connections via investment by US automakers into
Canadian plants to serve markets in Canada
and the British Empire (see Holmes, 1983).
Intra-regional integration accelerated following
the 1965 signing of the USA–Canada Auto Pact,
a conditional free trade agreement in parts and
assembled vehicles which led to a high degree
of uniformity across the region in workplace
governance (Holmes, 2004). In the wake of rising energy prices, increasing competition from
Japanese producers and stagnating productivity,
the region experienced a severe crisis after 1979.
The US and Canadian government assistance
was needed to rescue Chrysler from bankruptcy
and, especially on the US side of the border,
over-capacity led to extensive plant closures
and layoffs. After 1980, the retrenchment of D-3
vehicle production and employment was partially offset by Japanese investment in vehicle
assembly plants in such states as Ohio (Honda),
Kentucky (Toyota), Tennessee (Nissan), Illinois
(Mitsubishi), Indiana (Subaru) and Michigan
(Mazda) and in southern Ontario (Toyota,
Honda and Suzuki). Many Japanese component
manufacturers were also drawn to the region to
supply these plants.
Further economic integration occurred
across the region under the USA–Canada
Free Trade Agreement (FTA) and the North
American Free Trade Agreement (NAFTA).
During the 1990s, automotive employment
in both the USA and Canada grew by 22.3
and 20%, respectively (see Table 2). Within
the Great Lakes region, automotive employment in the Great Lakes states grew by 9.6%
while Ontario grew by nearly 24%.4 Canadian
employment and output growth reflected a
favourable plant and product mix, higher productivity and quality, and also lower labour costs
due to a lower-valued Canadian dollar and the
Medicare system. At the peak of employment
in 2000, Michigan, Ohio, Indiana, and Ontario
combined had 730,800 workers employed in
vehicle assembly and component production.
Throughout the region, assembly and component plants are tied together in complex supply
chains and production networks. Between 2000
and 2006, as the D-3 lost market share to Asian
and European automakers, there was a steady
loss of employment within the Great Lakes
region; a region so heavily dependent on the
363
Rutherford and Holmes
Figure 1. Manufacturing gross output, employment and productivity, USA, 1997–2012 (1998 = 100).
Source: US Bureau of Economic Analysis Data GDP by Industry Data File.
Table 2. Employment in the automotive industry, 1990–2012 (’000s).
USA
Great Lakes states1
Canada
Ontario
1990
1995
2000
2005
2007
2009
2012
924.4
529.4
137.1
121.6
1,081.6
558.6
140.8
126.2
1,130.9
580.3
164.5
150.5
925.7
439.7
146.3
130.5
827.9
374.7
134.8
119.5
560.1
244.3
96.8
86.3
647.6
292.3
101.5
90.6
Ohio, Michigan and Indiana. State level data not available for Illinois and Wisconsin.
Sources: US Data: Bureau of Labor Statistics, CES Series 3000000001 and State and Area Employment, Hours and
Earnings. Canada: CANSIM 281-0005 and 281-0024 (Survey of Employment, Pay and Hours).
1
D-3 and their suppliers (Table 2 and Figure 2).
This downward trend culminated in the 2008–
2009 recession triggered by the global financial
crisis (Rutherford and Holmes, 2013; Stanford,
2010) which saw the bankruptcy-forced radical
restructuring of both GM and Chrysler. In the
USA, overall automotive employment fell from
925,700 in 2005 to 561,000 in 2009 (Table 2). In
Canada, over the same period, employment
fell from 146,300 to ~96,800. The decline in
US automotive employment was especially
severe in the Great Lakes states where overall
employment declined by over 44% to 244,300
with Michigan losing almost half of its automotive employment (from 226,300 to 116,300) (see
364
Figure 2). Automotive employment in Ontario
declined by 36% between 2005 and 2009 falling
from 130,500 to 86,300.
Despite the significant decline in employment since 2000, the Great Lakes region continues to depend heavily on manufacturing and
especially automobile production. In the US
portion of the region, ~16% of GDP is derived
from manufacturing compared with ~12% for
the USA as a whole (Hill et al., 2013, 6). The
region still employs over 500,000 automobile
workers and accounts for 60% of all North
American light vehicle production, 72% of
transmissions and 52% of all North American
engines.5 Moreover, more than 50% of all US
Resiliency and the sustainability of American manufacturing
Figure 2. Auto industry employment indices, 1990–2012 (1990 = 100).
Sources: US Data: Bureau of Labor Statistics, CES Series 3000000001 and State and Area Employment, Hours and Earnings.
Canada: CANSIM 281-0005 and 281-0024 (Survey of Employment, Pay and Hours).
automotive suppliers and 90% of all Canadian
suppliers are located within the Great Lakes
region (Hill et al., 2013, 7). In the recovery from
the 2008–2009 crisis, there has been a significant rebound in D-3 sales. Output has increased
and many assembly plants that survived the
restructuring are working at close to full capacity. Furthermore, between 2010 and 2012 $21
billion in new auto industry investment was
announced for the region. To date, however,
the recovery in auto industry employment has
been much more modest as labour productivity has moved sharply higher as a result of the
shedding of workers during the crisis restructuring (Table 2 and Figure 3).
The region, and especially Michigan which
alone is home to over 400 automotive R+D
centres, remains “the epicenter of automotive
R&D in the U.S. The state has maintained its
leading place even as production has dispersed
….. R&D that is both funded and performed
by auto companies in Michigan held fast at
between 70 and 80 percent of the nation’s total
from 1998 and 2011, amounting to $8.87 billion
in 2011” (Klier et al., 2014, 1). Regional R+D
initiatives are supported by a number of collaborative arrangements between the OEMs
including the US Council for Automotive
Research (USCAR), which was created with
US federal government backing in 1992 to
promote pre-competitive technical co-operation between the D-3. USCAR has evolved
to emphasise more environmentally sensitive
automotive technologies including the use of
hydrogen fuel cells and improvements in hybrid
power trains. Auto industry development in
Ontario is also driven by R+D. Both Canada
and Ontario aggressively underwrite R+D
investment via tax credits and the costs of performing R+D in Canada are over 10% lower
than in the USA (Hill et al., 2013, 17). Canadian
parts producers have long used such tax credits
365
Rutherford and Holmes
Figure 3. Automotive industry gross output, employment and productivity, USA, 1997–2012 (1998 = 100).
Source: US Bureau of Economic Analysis Data GDP by Industry Data File.
to fund mostly incremental process innovation (see Fitzgibbon et al., 2004). Government
initiatives, such as the federal Networks of
Centres of Excellence (NCE) Program, the
Ontario Centres of Excellence (OCE) Program
and the Ontario Research Fund, which are
designed to facilitate technology transfer from
universities have mostly been directed towards
assemblers and larger component manufacturers (Rutherford and Holmes, 2008). The most
recent R+D related initiative is the Canadian
federal government’s Automotive Innovation
Fund (AIF) which was established in 2008 and
renewed in January 2013. This fund allocates
$250 million to OEMs and suppliers to help
secure new automotive investment in Canada
especially around R+D (Industry Canada,
2013). As in the USA, the focus is on projects
promoting fuel efficiency and greenhouse gas
reduction. The fund is directed to assist projects
committing investments of $75 million or more
into Canada over 5 years. OEMs such as Ford
366
and Toyota and large suppliers such as Magna
have used AIF funds to underwrite R+D projects (Ignjatovic, 2013).
Another advantage for the region is its skill
base. With only 16% of the US population, the
Great Lakes states account for nearly 30% of
the nation’s industrial and mechanical engineers, including over 50% of automotive engineers, and enjoy high school graduation and
associates degree attainment rates significantly
above the national average (Hill et al., 2013,
19–22; Klier et al., 2014). As a consequence,
average incentive packages offered by states to
attract new automotive investment are generally significantly higher in the US South than in
the Great Lakes region, because companies in
the latter need to commit far less to employee
training (McAlinden, 2006). Ontario shares
similar educational advantages and indeed
the overall quality of public education and
vocational training in Ontario, especially in
the community college system, is considered
Resiliency and the sustainability of American manufacturing
superior to that in the USA. Ontario workers
have a higher level of educational attainment
than their US counterparts—with 43% having
completed post-secondary education versus
27% in the USA. Canadian federal immigration policy has focused on attracting highly
educated/skilled workers which benefits those
Ontario localities having a high percentage of
new immigrants employed in the automotive
parts industry (Yates and Vrankulji, 2006).
This also contributes to the greater availability of skilled workers in Canada. Canada
has more qualified engineers per capita than
any other G7 country and one of the most
highly formally educated workforces in the
world (Livingston and Raykov, 2008, 43).
Furthermore, because Ontario auto workers on average have longer job tenures (close
to 9 years, compared to 5 years in the USA
(http://www.sse.gov.on.ca/medt/investinontario/en/Pages/OS_automotive_why_ontario.
aspx (accessed 17 May 2011)), firms based in
Canada can better take advantage of accumulated workplace learning.
The overall higher quality of skills and education infrastructure provides the automotive
industry in the Great Lakes region with considerable advantages compared to the emergent
automotive producing region in the US South
(see Hill et al., 2013, 19). Overall skill requirements in the automotive industry have risen
considerably over the last two decades (Driving
Change, 2011a, 2011b). This includes not only
the minimum education levels required of entry
level workers but also the need for continual
worker re-training, to cope with technological
change and the need for increased communication skills:
production workers increasingly need the
thinking and communication skills formerly
associated with at least some post-secondary
education. For hourly workers, technologies,
processes and jobs will continually evolve;
workers will need to keep learning and adapt
their skills to meet these new challenges.
Educators at all levels must deliver lifelong
learners: problem solvers who are able to
communicate effectively (Driving Change,
2011b, 8–9).
In addition to such (formal) institutional
advantages, the last decade has seen the
introduction of a number of governance initiatives to attract and co-ordinate automotive
investment to the region. For example, the
Canadian Automotive Partnership Council
(CAPC), which includes representatives from
governments, OEMs, suppliers, the autoworkers’ union and academia, was created in
2002 and is acknowledged as having been
instrumental in attracting new automotive
investments in Ontario (The Globe and Mail,
12 May 2006). CAPC successfully lobbied for
Ontario and federal government locational
investment incentives which became critical in attracting a second Toyota plant and
upgrading existing Ford and GM assembly
plants in the province.
Formed in 2002, the Automotive Communities
Partnership (ACP) includes not only D-3 and
Japanese OEMs, but also provincial and state
governments and 32 communities drawn from
across the Great Lakes states and southern
Ontario (McAlinden, 2006).6 The ACP’s aim is
to bring together and inform stakeholders with
regard to government policy and how technological change in the industry is impacting skill
requirements (ACP, 2013). The ACP has been
especially critical in helping communities seeking to repurpose closed manufacturing facilities to take advantage of new automotive and
green technology developments. Following the
2008–2009 recession, the Obama administration established the Community Initiatives
Council on Auto Communities and Workers
and, in 2011, the Office of Recovery for Auto
Communities and Workers based in the US
Department of Labor. These agencies co-ordinate federal investment and work with stakeholders in communities negatively impacted by
restructuring.
367
Rutherford and Holmes
The case of the Great Lakes region automotive industry resonates with key aspects of
the resiliency approach in a number of critical ways. During the 20th century, jurisdictions
within the region developed strong interconnections through automotive investment and
trade. Notwithstanding the deep restructuring of the region over the last 30 years due to
global competition, technological and organisational change and integration into GPNs,
the Great Lakes region has shown remarkable
resiliency and adaptability. Although less dominant than in earlier decades, in terms of investment, production and employment, it continues
to be a core region for North American automotive manufacturing. Moreover, it remains
the dominant centre for automotive R+D and
design within North America. There is also evidence of employment shift into manufacturing
based on emerging green technologies including ‘greener’ automobiles. The latter, driven
by increasingly stringent regulations governing fuel economy and greenhouse gas emissions, includes the use of high strength lighter
weight materials, hybrid engine technologies
and the more general ‘electrification’ of motor
vehicles (Holmes and Hracs, 2013). The region
illustrates the critical role played by the state
at different scales. National policies around
trade and investment, for example, were critical in developing and restructuring the region,
while energy and environmental policies are
playing a critical role its current re-positioning.
Innovative governance arrangements between
state, firm, community and union actors in the
region have played a critical role in attracting
new investment.
Questions remain, however, with regard to
whether such adaptability is sufficient to secure
an equitable longer-term recovery of manufacturing in the region. The region faces challenges
stemming from the deep, secular restructuring of the industry and especially longer-term
shifts in GPN-supply chain practices and
power asymmetries between firms. There has
been a sharp decline in the North American
368
automotive supplier base from approximately
30,000 firms in 1990 to an estimated 5,000 in
2010 (US Department of Commerce, 2011, 13).
Competition has intensified with the arrival
of transplant suppliers linked to Japanese,
Korean and German automakers. Over the last
20 years, an estimated 800–1000 overseas suppliers have opened North America plants and
are aggressively seeking business from the D-3.
US parts producers adjusted to the 2008–2009
recession by rationalising capacity and lowering their break-even points by developing a
more focused product portfolio, broadening
their global customer base, lessening reliance
on the D-3 and aggressively outsourcing production to lower-cost regions (US Department
of Commerce, 2011, 28). Some suppliers took
on new responsibilities becoming system
integrators that design, engineer and build
complete modules, and assume down-stream
supply chain coordination functions previously
undertaken by automakers (US Department of
Commerce, 2011, 6).
A second issue is the geographic unevenness of the region’s recovery. The Great Lakes
region still retains a significant share of North
American automotive production, but its share
continues to fall as new assembly capacity
comes on stream in the US South and Mexico
(Andes and Muro, 2013). While R+D remains
overwhelmingly concentrated in the Great
Lakes region, and especially in Michigan, some
southern states such as Tennessee have begun
to attempt to attract such higher value activities. These challenges are especially evident
in Ontario which in terms of investment and
employment has rebounded much more slowly
than the neighbouring Great Lakes states.
Between 2009 and 2012 the latter regained
48,000 jobs, a rise of almost 20%, while Ontario
only recovered around 4,300 jobs or 5.0% (see
Table 2) and Ontario’s share of regional automotive employment fell from 26.1% in 2009 to
23.7% in 2012.
Canadian auto parts exports are still 20%
below the 2007 level. In contrast, US suppliers
Resiliency and the sustainability of American manufacturing
are 20% above the previous peak while Mexico
is up 44% and Mexican exports to Asia have
surged, whereas Canada’s automotive exports
outside of the NAFTA bloc have been cut in
half since 2007. Canada has lost its previous top
ten status in world automotive parts exporting (Gomes, 2013), and its share of new North
American automotive investment has fallen
from around 15% annually to single digits
(Flavelle, 2013). Thus, the present recovery in
North America is different because for the first
time in living memory Canada is underperforming relative to the USA and Mexico.
Ontario’s relative decline is linked to the way
in which the locational strategies of OEM-led
GPNs have shifted. Ontario has lost considerable assembly capacity with four assembly
plants closed since 2000 and only one new
plant opened.7 Retention of assembly plants
is critical, because for every direct assembly
job there are approximately 3.4 jobs created
upstream in the supply chain (CAW, 2012). Due
to the recovery in D-3 vehicle sales, surviving
assembly production in the region is running at
near or above capacity. Although Canada and
Ontario negotiated manufacturing footprint
agreements as a condition of the 2009 bailout
of GM and Chrysler, Canada, in general, has
been less willing than other jurisdictions in
North America to use incentives to attract new
assembly plants and consequently has lost out
relative to the USA and Mexico. Historically,
Canada enjoyed significant trade surpluses in
assembled vehicles but large trade deficits in
automotive parts. Today, every vehicle assembled in Canada contains nearly $15,000 of
imported car parts—double the global average of US$7400—and at least 25% more than
vehicles built in Mexico and the USA (Gomes,
2013).8
Despite new governance arrangements, it is
apparent that the Great Lakes automotive producing region remains a region in itself rather
than a region for itself. While Ontario is now a
party to a large number of binational institutional relationships with US Great Lakes states,
most policy interventions lack co-ordination
and illustrate what Brunet-Jailly (2008) terms
policy parallelism. This reflects the prevalence
of a business and political culture in both
Canada and the USA that emphasises zero
sum relationships between both competing
firms and jurisdictions (Gertler, 1997); competition that has intensified since the 2008–2009
crisis. Indeed there is little evidence of any
awareness of the need for intra-regional economic co-operation in the face of competition from other automotive producing regions
in North America; namely, the US South and
Mexico. Interviewed Ontario officials still view
the Great Lakes states as their principal competitors for automotive investment (Interview,
Ontario government official, 30 June 2011).
Arguably, an even more serious issue facing
the region is how the restructuring of workplace
governance in the automobile industry represents a delinking of employee and community
well-being from investment. Despite the rise in
many occupational skills, the adoption of disruptive technologies and global labour market
competition make a continuation of increasing
returns to skill more problematic (Krugman,
2013). Helper et al. (2012, 13) stress that while
US manufacturing continues to pay higher
wages than services, one reason for recent “reshoring” is that overall manufacturing wages
have declined both in the long-term and since
the 2008–2009 recession, and conclude that
“this sort of ‘race to the bottom’ is problematic,
if one takes the view that a key purpose of an
economy is to provide family-supporting jobs.”
These developments are the result of longerterm trends which have eroded the collective
bargaining strength of unions within the Great
Lakes region; a situation in sharp contrast to
the period from WWII until the early 1980s.
During that period, workers enjoyed sustained
increases in real wages, receiving not only an
annual cost-of-living adjustment (COLA)
but also an annual improvement factor, typically 3%. While items such as internal job ladders and work rules were negotiated in ‘local’
369
370
1990
1995
2000
2007
2013
30.2
29.1
34.9
29.5
29.5
26.5
31.5
36.9
31.2
31.6
30.2
31.8
23.7
28.7
21.6
22.4
22.8
25.9
30.6
23.8
24,4
24.3
32.2
21.1
25.6
20.1
21.0
20.9
23.5
27.4
21.6
22.9
21.9
18.5
23.7
16.5
20.2
17.7
32.1
20.5
25.1
17.9
21.2
19.1
17.5
21.0
15.7
18.7
17.9
28.3
19.0
22.0
17.3
20.1
19.0
14.1
19.5
12.0
14.5
14.3
28.2
15.4
20.6
12.9
15.2
15.4
12.7
16.2
9.3
15.7
12.3
28.0
14.1
16.8
10.2
16.3
13.1
1
Overall unionisation in both private and public sectors.
Sources: US Data: Online at www.unionstats.com and Barry T. Hirsch, David A. Macpherson, and Wayne G. Vroman, “Estimates of Union Density by State,”
Monthly Labor Review, Vol. 124, No. 7, July 2001. Canadian Data: CANSIM 279-0025; CANSIM 282-0078 (LFS estimates).
Ontario
Ohio
Michigan
Indiana
Illinois
Wisconsin
1985
Density Coverage Density Coverage Density Coverage Density Coverage Density Coverage Density Coverage Density Cover(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
age (%)
Jurisdiction 1980
Table 3. Estimates of union density and union coverage1; Great Lakes region: 1980–2013.
Rutherford and Holmes
Resiliency and the sustainability of American manufacturing
contracts, wages and benefits were negotiated
at a company level. A system of pattern and
connective bargaining produced uniformity in
wages and benefits across OEM companies and
plants (Holmes, 1991; Katz, 1985). By the early
1970s, the UAW had successfully bargained
nominal wage parity between the two countries (Holmes, 1983). However, during the early
1980s economic crisis, differences in workplace
governance between Canada and the USA
began to emerge.
Faced with plant closings and a declining
membership in the USA,9 the UAW agreed
to significant concessions with regard to wage
setting and work rules and developed a more
cooperative relationship with management
reflected in the so-called Modern Operating
Agreements (MOAs). Union membership and
bargaining strength were growing in Canada
as the industry expanded due to the significant labour cost advantage over US plants.
Canadian autoworkers successfully opposed
management’s demands for concessions and,
on ideological grounds, rejected developing a
more cooperative relationship. Growing strains
between the Canadian wing of the UAW and
the union’s National Office culminated in the
1985 split in the union and the formation of
the autonomous CAW (Holmes and Rusonik,
1991). In contrast to the USA, where unionisation in the automotive industry, and especially
in the independent parts sector, fell dramatically during the 1980s and 1990s, unionisation in Canada remained much higher. Higher
union density in Ontario rested, in part, on what
Card and Freeman (1993) dubbed “small differences that matter.” Although industrial relations in the two countries are based on similar
adversarial systems, unions have received more
favourable treatment under Ontario labour
law than in the USA. Overall Canadian union
density is over three times that of the USA
and even in the more highly unionised Great
Lakes states, union density is less than half that
in Ontario (Table 3) and labour standards less
robust (Block and Roberts, 2000). Canadian
unemployment and welfare policies also provided greater income security for workers.
Since the early 1990s, however, there have
been significant changes in the workplace
regime in Ontario. During the 1990s, changes
to the federal Employment Insurance Program
increased the working time necessary for
employees to qualify for benefits and significantly reduced the amount claimants could
receive. Ontario adopted workfare policies
and eligibility for social assistance was tightened (see Peck, 2001). Moreover, in Ontario,
the Progressive Conservative neo-liberal
‘Common Sense’ revolution (1995–2004) made
union organising more difficult through the
introduction of mandatory secret certification
ballots, leading to a narrowing of Canada–US
private-sector unionisation rates (Johnson,
2004, 356). While unionisation levels remain
higher in Ontario than in the Great Lakes
states (see Table 3), they have fallen especially
in private-sector manufacturing. Union density
in the auto assembly sector in Canada declined
from 100% in 1987 to 71% in 2007 and in the
independent parts sector from about 45% to
~25% (CAW, 2007).10 Moreover, after 2000
as the Canadian dollar rose and the D-3 in
the US off-loaded their health care costs onto
the UAW, the Canadian labour cost advantage
was steadily eroded and the CAW was forced
to accept local concessions to secure new
investment.
The 2008–2009 financial crisis permitted employers, aided in a very significant and
unprecedented way by the state, to extract deep
concessions from both the UAW and CAW. The
result has been a further narrowing of differences in bargaining outcomes between the
USA and Canada and an effective delinking of
worker remuneration and productivity gains.
While we would not go as far as Siemiatycki
(2012, 455) who argues that “union and nonunion work in the [US and Canadian] auto
industry have been rendered indistinguishable,” it is certainly true that the differences are
now much narrower than a decade ago.
371
Rutherford and Holmes
This convergence between is a direct product
of what Chaison (2012) terms ultra-concessionary bargaining. In the auto sector, this began in
2003–2005 when the auto parts maker Delphi
slashed existing wages and introduced two-tier
wages such that newly hired workers would
receive lower wages and benefits and never
catch-up to existing workers. This was followed
in 2007 by the UAW, in an effort to narrow D-3
labour costs compared to the Japanese transplants and Canada, agreeing to two-tier wages
and benefits for ‘non-core’ workers and the
shifting of retiree health costs onto the union.
While the CAW in 2008 did not agree to a permanent two-tier wage and benefit system, it did
agree to extend the time that it took for a new
hire to reach the full job-rate and benefits. In
addition, the CAW agreed to a wage freeze, the
suspension of COLA, cuts to paid time-off, and,
like the UAW, agreed to takeover retiree health
costs (Holmes, 2014).
Ultra-concessionary bargaining intensified
during Great Recession triggered by the 2008–
2009 global financial crisis. GM and Chrysler
were both forced to radically restructure under
bankruptcy protection which required loans
(which eventually totalled $80 billion) from
the USA, Canadian and Ontario governments.
A crucial condition placed on the granting of
these loans by the governments was the negotiation of new concessionary collective agreements to bring ‘all-in’ labour costs at GM and
Chrysler in line with the North American transplant operations of Toyota.11 Indeed, both the
Obama administration and the Canadian federal government actually rejected initial deals
between the unions and GM and forced further
concessions from the unions.
In the USA, besides 12 major plants closures
the concessions included the suspension until
2015 of the right to strike by UAW workers
at GM and Chrysler, the reduction of hourly
employment by 50% compared to 2005 levels,
and the implementation of two-tier labour contracts such that all newly hired workers receive
50% of the wage level for existing employees.
372
In Canada, three major plants were scheduled
to close, employment was slashed by 50% compared to 2005, and limits were placed on supplementary unemployment benefits (SUBs),
but the right to strike was retained.
UAW and CAW bargaining rounds in 2011
and 2012, respectively, witnessed some modest wage/benefit improvements as D-3 sales
recovered. Heading into bargaining in Canada,
the D-3 claimed that Canadian labour costs
were now 20% above the USA and demanded
this gap be closed in part by moving to a US
style two-tier employment structure. The CAW
negotiated a 4-year agreement and agreed to a
freeze of base wages and suspension of COLA.
Although the union again rejected a permanent
two-tier wage structure, it did agree to a modified structure in which new hires begin at 60%
and only reach the full hourly rate after 10 years.
New hires will also have a less generous pension plan. The result of these concessions is that
the labour cost gap between D-3 and transplant
operations is closing (for example, GM’s all-in
labour costs in the USA are estimated to be
only $2.00/h more than Toyota’s). There is still a
differential between Canada and the USA, but
this also has narrowed significantly. While average automotive wages and salaries in Michigan
remain the highest in the USA, they fell by
over $10,000 between 2003 and 2012 to an
average of $77,000 per employee (Andes and
Muro, 2013).12 Moreover, states such as Ohio
and Indiana, where auto parts wages were 30%
higher than in non-Great Lakes states (Collins
et al., 2007), have converged downwards
towards states such as Tennessee, Kentucky and
South Carolina where average annual wages
range between $55,000 and $64,000 per year.
Discussion and conclusions
We have argued that regional resiliency perspectives rightly recognise that regions differ
in both their historical development trajectories and their capacities to adapt to change; a
process in which institutional governance plays
Resiliency and the sustainability of American manufacturing
a critical role. We have shown that state policies and regional governance initiatives around
trade, innovation and labour force development have been central to the development of
automobile manufacturing in the Great Lakes
region and in facilitating the region’s adaptation to successive waves of restructuring. This
has not only maintained the region’s continued prominence in automotive manufacturing
within North America but has also aided its
transition to a more design and R+D intensive
regime both in autos and potentially in emerging green technologies.
We also stress, however, that resiliency
approaches remain more descriptive than
explanatory and can overstate the capacity
of regional institutions. As such, they do not
fully account for some important features of
regional adaptability and change. We stressed
that capital accumulation and regional integration into GPNs are often profoundly disruptive
of regional institutions and development paths.
We suggest that the concept of regional resiliency must be refined to take into account the
role of workplace governance and related class
relations. Two key questions are resiliency for
whom and under what conditions?
Our empirical analysis reveals that the narrowing and lowering of the terms and conditions of workplace governance in the Great
Lakes region has significant implications for
regional resilience. This has been especially the
case since the 2008–2009 crisis. Conservative
governments in Indiana, Wisconsin and
Michigan seized the opportunity afforded by
the crisis to attack unions and undermine collective bargaining rights in both the public and
private sectors. Indiana and Michigan both
enacted legislation to become, respectively, the
23rd and 24th right to work states in the USA.
While, to date, such right-wing policies have not
been introduced in Ontario, their adoption in
neighbouring Great Lakes states has nevertheless had a chilling effect on union bargaining
power.13 Although the North American operations of firms such as GM are now among their
most profitable operations (Vlasic, 2014), the
ability of workers and the Great Lakes region
to capture and retain a share of such value has
weakened significantly.
These developments illustrate the centrality
of the state to the question of regional resiliency. State policies were critical to the initial
development of automotive manufacturing in
the Great Lakes region and are central to its
current repositioning—both positively around
the shift to new ‘green technologies’ and negatively with regard to the weakening of unions
and labour standards. However, the state is
not a unified actor and its policies are subject
to often intense class and regional conflict.
The 2008–2009 GM and Chrysler bailouts, for
example, were favoured by the Obama administration and Democrats in the Great Lakes
states but strongly opposed by Republicans
from southern US states who viewed the bailouts as unfair subsidies to unionised D-3 firms
in the Great Lakes states given that their
own states are home to non-union Asian and
European automakers. In Canada, the reluctance to provide greater direct subsidies to
secure automobile assembly investment in part
reflects the current federal government’s western Canadian political base which views southern Ontario as a historically favoured region
within Canadian confederation.
The break-down of the Great Lakes region’s
unionised path dependency opens up real questions regarding the region’s future economic
trajectory and, indeed, points to deeper problems in North American workplace governance.
This includes a lack of both lifelong training
of workers at all levels and a “persistent lack
of sufficient participation in decision-making
and job design, the so-called ‘influence gap’”
(Livingston and Raykov, 2008, 47), especially
for production employees. As Helper et al.
(2012, 25) argue this gap exists “because firms
may be reluctant to give production workers more say about production decisions out
of fear that workers, rather than firm owners
will capture most of the productivity gains.”
373
Rutherford and Holmes
The post-war strong presence of unions in the
Great Lakes region partly offset these tendencies, but the current weakening of unionisation and collective bargaining are resulting in
the erosion of important workplace forms of
knowledge development, such as training and
adult continuing education (see Livingston and
Raykov, 2008, 47–48). Formerly, skills acquired
through union-negotiated programmes were
transferable outside of the specific workplace
and benefited the broader regional economy.
Today, training is increasingly being tailored to
individual firm requirements and the skills are
less transferable (Lewchuck and Wells, 2007;
Rutherford and Holmes, 2011). In Ontario,
these changes contribute to what Yates and
Vrankulji (2006) argue is the increasing disorganisation of local labour market governance,
especially in automotive components, as unions
and state regulation are weakened and wage setting is increasingly set by private intermediaries
such as employment agencies. As worker wages
are delinked from productivity gains and real
wages and supplemental unemployment benefits decline, the important multiplier and stabilising effects of traditionally highly paid auto
worker jobs in the region are eroded. Moreover,
the decline of unionisation levels means that the
region is losing an important advocate for high
road manufacturing strategies based on a strong
workplace and community voice in negotiating
change (Helper et al., 2012).
Such shifts, at least partially, could be offset
by the transfer of automotive resources into
emerging environmental technologies and into
higher value-added automotive design and
R+D activities. While green-related employment in the region pays higher than average
wages, it has not been immune to job loss and
the higher than average wages reflect the fact
that, thus far at least, such jobs have higher than
average levels of unionisation (Driving Change,
2001a, 37). In the short run, employment gains
associated with these developments are not
likely to offset the large loss of manufacturing
jobs suffered by the Great Lakes region since
374
2000 and it is likely that continued restructuring will further weaken the link in the region
between the fortunes of firms and those for
whom they work.
Endnotes
For the purposes of this article, the Great Lakes
region encompasses the US states of Ohio, Michigan,
Indiana, Illinois and Wisconsin and the Canadian
province of Ontario.
1
Workplace governance encompasses work organisation, firm-level human resource/industrial relations practices, local labour market regulation, and
state labour and employment law.
2
3
This is especially true with regard to the Ontario
portion of the region (Ignjatovic, 2013; McAlinden,
2012).
4
The striking difference between automotive
employment growth in the Great Lakes states compared to the USA as a whole during the 1990s is a
reflection of the arrival of a second wave of Asian, and
also European, automakers who opened new assembly plants in the southern USA (South Carolina,
Georgia, Alabama, Mississippi and Louisiana).
5
The Hill et al. report Includes Missouri and Kansas
in the region.
Ontario also has the Ontario Automotive
Communities Alliance which works with the provincial and federal governments to attract and co-ordinate investment.
6
7
Closed plants were Ford Ontario Truck (Oakville);
GM Truck (Oshawa); Ford St. Thomas and
Chrysler Pillette Road Van Plant (Windsor). GM’s
Consolidated Car Plant in Oshawa is slated to close
in 2016. Toyota opened a second plant in Woodstock.
It must be remembered, however, that this number
is heavily influenced by the high level of production
integration between the USA and Canada which
means that a significant portion of Canadian parts
imports originate from just across the border in the
Great Lakes states.
8
9
Between 1979 and 1982 auto industry employment
in the USA declined by almost 30%—a loss of over
300,000 jobs.
In the assembly sector, the decline was due to the
arrival of non-union Honda and Toyota assembly
10
Resiliency and the sustainability of American manufacturing
plants, while in the parts sector it was due to a combination of the arrival of non-union Japanese suppliers, the closure of some large and formerly unionised
plants and the significant growth of several nonunion Canadian parts makers.
Before the 2008–2009 and the adoption of two-tier
wages by the D-3, because of the creditable threat
of being unionised by the UAW and CAW, Toyota
and Honda facilities in the Great Lakes region paid
hourly wages roughly comparable to the D-3 (for
example, $27–30/h). By contrast, in the US South
the entry wages at more recently opened Asian and
European assemblers are approximately $15 hour
(Collins et al., 2007). Whereas Toyota used to set a
uniform national wage rate, as the threat of unionisation has diminished it now establishes wages on the
regional scale (Shaiken, 2007, 4).
11
12
In 2012, and for the first time since Henry Ford
launched the Five Dollar day, average starting
automotive manufacturing wages fell below the
US manufacturing average (Green and Naughton,
2012).
Perhaps the most notorious example was the shutdown of the London, Ontario Caterpillar plant and
the transfer of production to the newly declared
right to work state of Indiana (see Holmes and
Rutherford, 2013).
13
Acknowledgments
The authors wish to thank the reviewers and issue
editors for helpful comments on an earlier draft of
this article. The usual disclaimer applies. We gratefully
acknowledge the support of the Social Sciences and
Humanities Research Council of Canada (SSHRC)
grant 410-2009-0466 which provided financial support for the research on which this article is based.
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