What role did regional policy play in addressing the U.S. auto industry crisis?

Publication Type:

Conference Paper


Gerpisa colloquium, Berlin (2010)


2008–2009 economic crisis, auto corridor, politiques publiques


Today’s U.S. auto industry is geographically concentrated in a region referred to as the auto corridor. It extends south from Detroit to Alabama, with fingers extending north into Ontario and south into Mexico. The dramatic decline in sales and production during 2008 and 2009 suggested the need for economic policy to address regionally concentrated economic effects. Such policies were put in place, first by the Bush and subsequently by the Obama administration. GM and Chrysler, their supply base as well as theit two captive financing arms Chrysler, Financial and GMAC, received funds totaling up to about $100 bn under the auspices of the so-called “TARP” program (Rattner, 2009, Congressional Oversight Panel, 2009). In addition, the Department of Energy has made available grants totalling $25 bn to stimulate energy improving activities, such as the development and production of electric vehicles.

This paper first demonstrates the degree of spatial concentration of the U.S. auto industry (Klier and McMillen, 2006; Klier and McMillen, 2008; Klier and Rubenstein, forthcoming). Today this industry is concentrated in the center of the country a marked north-south pattern, with both coasts being empty of light vehicle assembly plants by the middle of 2010. This is noticeably different from 1979/1980, when the industry faced a similar drop-off in sales in response to the 1979 oil crisis (National Academy, 1982). In addition, today’s U.S. auto industry is comprised of two halves that only partially overlap: the Detroit-based carmakers and their operations are concentrated in the northern end of the auto corridor. Foreign-headquartered producers as well as their supply base tend to be concentrated in the southern end of the auto corridor.
The paper then summarizes the country’s economic policy response to the auto industry crisis. It turns out that most of the policy decisions taken so far in support of the auto industry were taken at the national level, despite the fact that motor vehicle and parts manufacturing is one of the most spatially concentrated manufacturing industries. The paper offers an explanation for the dominance of national policy. It suggests that the policies enacted need to be seen in light of the economic policy actions taken to respond to a severe national economic downturn. In fact, rescue efforts with regard to some of the auto makers received far greater attention once their dealer networks were to be trimmed. Vehicle dealers being, of course, the least spatially concentrated element of the automotive value chain.
The paper concludes by illustrating several regional policy initiatives regarding automobile manufacturing currently getting underway.

Despite the high degree of spatial concentration of the auto industry in North America, especially in the U.S. and Canada, economic rescue efforts taken in 2008 and 2009 were organized at the national level. Due to the very high level of economic integration of this industry across the Michigan Ontario border, the U.S. and Canadian governments coordinated their rescue efforts.
Regional policy initiatives, designed to reform labor markets as well as attract new jobs could not address the industry’s needs in crisis mode and are just getting underway.
Congressional Oversight Panel. 2009. The Use of TARP Funds in Support and Reorganization of the Domestic Automotive Industry
Klier, Thomas, and James Rubenstein. Forthcoming. The Evolving geography of the U.S. MotorVehicle Industry. In: Handbook of Economic Geography and Industry Studies Frank Giarratani, Geoff Hewings, and Philip McCann, eds. (Edward Elgar)
Klier, Thomas, and Dan McMillen. 2008. “Evolving Agglomeration of the U.S. Auto Supplier Industry.” Journal of Regional Science 48(1): 245-267
Klier, Thomas, and Dan McMillen. 2006. “The geographic evolution of the U.S. auto industry.” Economic Perspectives, Federal Reserve Bank of Chicago, 30(2):2-13
National Academy of Engineering and National Research Council. 1982. The Competitive Status of the U.S. Auto Industry: A Study of the Influences of Technology in Determining International Industrial Competitive Advantage. National Academy Press
Rattner, Steven. 2009. Speech given at the National Press Club October 21

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