February 15, 2002
Indiana's Love-Hate Relationship With Cars
Twenty years ago, in the midst of the second of two painful recessions, the call went out in Indiana and a number of other industrial states. The key to stable prosperity, it was said at the time, was economic diversification. To state it less politely, it was time for Indiana to stop depending so much on the motor vehicle industry for its economic livelihood.
In the dark economic days of 1982, with the import invasion in once proud industries like steel and autos well underway, those sentiments were easy to understand. Tens of thousands of production-related jobs were vanishing, never to return, as companies were forced to close non-competitive facilities, disrupting the lifestyle and traditions enjoyed by several generations of workers. The domestic automobile industry appeared to many to be a tired horse, whose capacity for holding up the Indiana economy was waning.
In the twenty years that have elapsed since those days, much has changed in the automobile industry. Last year there were 21 different companies that sold at least 10,000 cars in this country, 12 of which have significant production capacity here. Whereas the market share of mighty General Motors by itself once topped 60 percent, last month the Big 3 automakers combined barely topped that share. And in a very important sense, the fate of the Indiana economy and the motor vehicle industry are tied more tightly together than ever before.
By some accounting, the importance of motor vehicle manufacturing as an employer has shrunk steadily over the last two decades. Thanks to productivity improvements, outsourcing, and other changes, the number of people employed in the industry today is almost unchanged from the number employed in 1978, whereas production and employment in the overall economy have grown by 50 percent.
But a new study of the economic contribution of the auto industry conducted by the University of Michigan more accurately portrays the linkages between the making of cars and trucks and the rest of the economy. The reach of the auto industry across the entire spectrum of the economy is truly astonishing. The windshields, steel, instrumentation, fabricated parts, and tires that go into our vehicles represent substantial business for those industries, which is perhaps not a surprise. But the Michigan study goes on to quantify the direct relationships to advertising, retailing, transportation and trucking, legal and professional services, and a whole host of economic activities one might not immediately connect to carmaking.
The bottom line is that the 621,000 jobs classified as motor vehicles nationwide are directly linked to an additional 1.8 million jobs across the rest of the economy. Not surprisingly, a large number of those jobs are located in the Midwest, including Indiana. Taken together, nearly nine cents of every dollar earned in the state of Indiana is traceable to the manufacturing of cars and trucks.
When it comes to motor vehicles, the Indiana economy has diversified since 1982, although not in the way that proponents of that view envisioned. The auto industry of 2002 remains just as large, and just as important in the state today as it ever was. But with the coming on line of the new assembly plants of Honda, Nissan, and Toyota, we're no longer as dependent as we once were on the Big 3. This may ultimately prove to be the kind of diversification that fits what we do in the state best.
About the Author
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