Dec 20, 2019

Detroit is pouring its money into American manufacturing operations

Illustration: Sarah Grillo/Axios

Detroit automakers are facing technological disruption, whipsawing government policies and economic uncertainty.

Driving the news: Just-completed labor contracts between Detroit automakers and the United Auto Workers union yielded $22.7 billion in planned investment in U.S. factories over the next four years, adding or securing 25,400 jobs.

  • Instead of pulling on the reins, they are pouring money into their American manufacturing operations.

Why it matters: The spending commitments provide a measure of stability for American auto workers in a rapidly transforming industry, while also giving President Trump something to boast about in industrial swing states.

  • "Every time a car plant opens in Michigan, think of Trump!" the president told supporters at a rally in Grand Rapids on Wednesday.

There's only one new car plant going up in Michigan, but the state and its workers are undoubtedly the big winners from the latest round of labor bargaining.

  • About $15 billion, or two-thirds of the overall commitment from GM, Ford and FCA, is earmarked for Michigan, says the Center for Automotive Research.
  • The rest is sprinkled across the Midwest to revamp factories in Illinois, Indiana, Kentucky, Missouri and Ohio.

Two big factors — technology and trade — are driving the increased investments.

  • Electric vehicles require new equipment and processes, which means some plants must be gutted.
  • Carmakers also need to bolster their U.S. manufacturing footprint to ensure compliance with the new U.S.-Mexico-Canada trade agreement, passed by the House on Thursday and likely to be taken up by the Senate in January.
"You've got to put a lot of money on the table right now."
— Kristin Dziczek, CAR's vice president of research

Between the lines: The USMCA, which replaces the 25-year-old North American Free Trade Agreement, allows current trade flow to continue but sets stricter rules — and in turn higher costs — for parts and labor rates. For automakers to avoid tariffs:

  • 75% of light vehicles and core components like engines and transmissions must be sourced in North America, up from 62.5% under NAFTA.
  • 40% of passenger vehicle components (and 45% of pickup trucks) must be made by workers earning at least $16 per hour — almost four times what the typical Mexican autoworker earns.

How it's playing out: With ratification complete, companies are beginning to disclose details about where the money's going.

  • Ford will invest more than $1.45 billion in two Michigan plants and add 3,000 new jobs.
  • GM will spend $3 billion and create 2,225 new jobs to produce electric pickups and vans at a plant in Detroit.
  • Fiat Chrysler Automobiles will spend $4.5 billion, on top of $4.5 billion previously announced, to expand factories, adding up to 6,750 new jobs.

The bottom line: In an unsettled environment, the business risks are high, but automakers have no choice but to keep investing if they want to stay in the game.

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