Global restructuring and the auto industry

It is a time of economic restructuring in the world's car industry and the implication for individual nations and regions is profound. In the rapidly expanding markets of Brazil, India and China, there is expansion of capacity with new plants being opened as local markets grow on the back of rising domestic incomes. The pattern in the traditional markets of the West is the reverse, with significant contraction and even plant closures by the traditional volume producers. Data provided by the International Organization of Motor Vehicle Manufacturers (OICA)1 shows that total world auto production increased by some 16% over the period 1997–2009 to 61.7 million vehicles. Vehicle production in the USA, Japan and Europe represented 77% of global production in 1997 but this had declined to around 50% by 2009 whilst production in China had risen from 3% of the total in 1997 to over 22% in 2009. Other evidence provided by OICA indicates that the global turnover of the world auto industry was close to 2 trillion euros in 2005 and that worldwide over 50 million people were in employment either directly or indirectly as a result of the auto industry (OICA, 2010). Climate change and the need to reduce carbon emissions is having an impact, leading to the demise of the ‘gas guzzlers’ which have been such an entrenched feature of the US domestic market, but also creating a whole new breed of cars based on alternative energy sources and leading-edge R&D. The worst economic impacts of the Credit Crunch may now be over but there is little doubt that the effects on the big car producers in the west have been transformative as reflected in the mergers and restructuring that has taken place. It is also significant that some of the most famous and established top-of-the-range brands in the industry like Jaguar are now owned by companies based in emerging markets. This editorial begins with a brief review of the changes that are now underway in the auto industry and the nature of their regional impacts. It then moves to outline what leading researchers writing in this Special Edition see as the likely shape of things to come and the possible impacts on people and places around the globe. Looking back over the 20th century, we may regard the auto industry as a metaphor for capitalist development. The 20th century was dominated by the development and roll-out globally of mass production and consumption (described as the ‘first revolution’ in auto production; Womack et al., 1990), with large factories and Taylorist regulation of assembly-line speeds and techniques. That whole era—covering the first 80 years of the century, at least—was often referred to as the era of ‘Fordism’, after Henry Ford's first production-line factory (Womack et al., 1990). Many of the major developments in the economy took place in the auto industry. Ford's factory used assembly-line technology to an unprecedented degree, and his $5 per day wage introduced/acknowledged the idea of a high wage, high-productivity economy making sense at the micro level as high productivity could deliver low unit costs despite (or rather via)—relatively—high wages. Relatively high wages—for large workforces within these factories and therefore communities—also played a macroeconomic role in sustaining the growing consumer demand which underpinned the mass consumption which formed a part of the Fordist ‘regulation’ of the economy, as discussed explicitly by Aglietta (1979) and others of the French regulation school. In the UK, the industrial sociologist Benyon captured the social aspects of this era in his Working for Ford. Again in the UK, the historic strike for equal pay for women was at Ford's Dagenham plant in the 1960s (at one time the largest factory in Europe, along with the nearby largest housing estate in Europe). However, the auto industry has undergone significant change since the introduction of assembly-line production and the so-called ‘Golden Age’ of capitalism. Over the past 40 or so years, shifts have affected the industry's value chain, from manufacturers and suppliers through to service providers and dealers. In the industrialized economies, there was much talk from the late 1980s onwards of capitalism having moved beyond ‘Fordism’ to an era of flexible specialization, niche production and services, often depicted as ‘post-Fordism’. Again, analogies from the production methods from the car industry were used to depict the organization of the whole economy and indeed society: post-Fordism was also presented as a move from mass consumption to niche markets and more individualistic lifestyle choices. Much of this ‘post-Fordist’ literature was rather superficial, not least in its parochial view that developments in the industrialized economies typified a global development, whereas if anything the opposite was the case—to the extent that the large factories in Western Europe and North America were giving way to smaller scale facilities and service provision, this was mirrored by the rise of mass production in the less developed countries (Costello et al., 1989). This was not just global outsourcing but also represented the industrialization of these countries. Thus, post-Fordism in Western Europe was sometimes depicted as signifying the end of the massed proletarian ranks that Marx had envisaged would overthrow capitalism—the ‘forward march of Labour halted’. However, there are more such factory-based proletarians today in South Korea alone than there were in the whole world when Marx was writing, so reports of the death of Marx's concept in this regard are somewhat exaggerated. In terms of production technologies, post-Fordism refers to the sort of lean production, just in time processes applied in Japanese industry—and in particular, Toyota: again, it was indeed an auto company that appeared to exemplify this socio-historical–geographic shift, or ‘second revolution’ (Womack et al., 1990). Since the mid-1990s, a so-called ‘third revolution’ has centred on improvements in flexibility, with implications for product creation, design, manufacturing and life cycle. Meanwhile, reductions in trade barriers have led to waves of investment in emerging markets. Thus, one key change since Ford's first plant has been the continued globalization of economic processes, as signified firstly by the appearance of Ford production plants across the world and more recently by the emergence of independent auto companies across the world, including now from the BRICs (Brazil, Russia, India and China). Hence the UK's Jaguar Land Rover is now owned by the Indian manufacturing firm Tata, while Sweden's Volvo at the time of writing [August 2010] is being sold to the Chinese company Geely. However, one needs to be cautious about some of the generalized claims made regarding ‘globalization’ (see Sutcliffe and Glyn, 2003). Firstly, globalization was well established prior to Henry Ford's original assembly-line-based factory—indeed, how else would such a factory have come to be established in North America, had it not been for the large-scale movement of people globally prior to that date? The pre-World War I era also witnessed high degrees of ‘globalization’ as measured by global movements of capital and trade, prior to a retreat from globalization during the great depression of the 1930s. The 10-fold expansion of production in China over the last decade and the rapid growth seen in Brazil and India has so far been associated with domestic consumption, from both domestic manufacturers and foreign firms operating there. Chinese industrial policy is meanwhile encouraging the rapid consolidation of China's auto producers. Chinese firms are developing capacity to undertake more complex assembly functions and research and development, including in electric cars. Whilst China is not as yet perceived by US and European producers as an import threat, it may well do so in the not-too-distant future. Similarly, small car exports from India by manufacturers such as Tata to Europe are just beginning. Recent experience in Brazil is highlighted by Cruz and Rolim (2010) in this issue. A combination of factors has provided an attractive opportunity to foreign investment by major auto manufacturers. Rollim and Cruz look at the impact of this on one region (Curitiba) that has seen rapid growth. The authors note that key factors that played an important role in attracting auto investments outside of old core regions (such as fiscal incentives, low labour costs) have been largely exhausted; further expansion in such regions will depend on developing competitive advantages based on agglomeration economies, labour skills and general expansion of the economy. Overall, what can be seen in the industry so far is not so much globalization, as really regionalization within a global pattern, whereby the original equipment manufacturers (OEMs) assemble and design vehicles locally, close to the customer (witness major OEMs setting up design studios in China and India for example). A key question then centres on whether the emergence of China and India as major producers and exporters will challenge this pattern, given the possibility of low labour costs and economies of scale overcoming transportation costs to major markets. Whilst the OEMs currently prefer to locate near the final market, they have shifted assembly operations towards low-cost locations within major trade blocs—towards central and Eastern Europe for example, within the EU. Similarly, in the USA, there has been a shift southwards and to Mexico, with auto production now located primarily in an ‘auto-valley’, as Klier and Rubenstein (2010) detail in their paper looking at the changing geography of US production. This was driven by the restructuring of the ‘Big Three’ producers and the setting up of transplant plants by foreign firms. The end result has been a division of auto-valley into two subareas—a northern area dominated by the Big Three and a southern area dominated by foreign-owned carmakers. As a result, the ‘old’ mature auto-manufacturing regions have been through a painful adjustment; recent plant closures in the UK (such as Jaguar and Peugeot-Citroen) will be followed by others across Western Europe, notably in connection with the downsizing of GM but also possibly at Fiat. In the US industry, as noted, the adjustment is even more marked, and the Big Three are undertaking dramatic downsizing, in part linked to US government support (in effect, nationalization) during and after Chapter 11 insolvency for GM and Chrysler. Other trends in the industry add to the challenges for suppliers as well as OEMs. The industry is seen by many as a producer-driven value chain where the big OEMs play a central role in coordinating the production network (Dicken, 2003). Under the ‘lean manufacturing’ model manufacturers demand quality, cost and delivery performance and prefer to deal with fewer suppliers so as to reduce costs in overseeing the value chain. The net effect is to pass some of these roles on to first-tier suppliers who act as ‘systems integrators’ and are forced to become ‘world class’, leading to a wave of consolidation in the value chain. Those first-tier suppliers that survive in turn wield greater power over lower tier suppliers. As a result of such trends, first-tier suppliers have taken on greater R&D roles and, increasingly responsibility through ‘modularization’ for the supply of complete modules (for example doors or ‘front ends’), whole subsystems (for example steering), or even specialist assembly work. A supposed ‘post-Japanization’ era characterized as ‘at supplier cost’ emerged in the 1990s, with innovative capability required throughout the value chain (Wells and Rawlinson, 1994). Modularization outsourcing by OEMs has led to major suppliers setting up in close geographic proximity to the OEMs’ plants. Yet more international component sourcing by these suppliers enables low-cost component imports to penetrate mature producing regions, as first-tier suppliers may have little incentive to source components locally for the modules they actually prepare for the OEMs. This in turn adds to the pressure on suppliers in mature markets. As Klier and Rubenstein stress in this issue, over 25% of all parts attached to new vehicles assembled in the USA are now imported. Whilst Mexico and Canada account for half of the total, followed by Japan, China is emerging: during the first decade of this century, China's share of imported new vehicle parts in the USA increased from 2 to 10%. The precise configuration of particular supply networks is influenced by the strategies of auto assemblers in different markets, as well as the socio-political, cultural and institutional environment in which they operate (Coe et al., 2004). These differences induce varying degrees of ‘embeddedness’ of the car assemblers in regions, with differing impacts on development and hence firms’ positions within global production networks (GPNs) and global value chains (GVCs). Such issues are explored in this issue by Pavlínek and Ženka (2010) in the case of auto suppliers in the Czech Republic (Czechia). 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