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Auto Production Footprints: Comparing Europe and North America; Auto production footprints: Comparing Europe and North America Thomas H. Klier and James M. Rubenstein Introduction and summary we highlight the features of auto production in Europe Today’s footprints of motor vehicle production1 in and North America that are not consistent with Europe and North America appear at first glance to be agglomeration theory. remarkably similar: In both regions, plants producing The current geography of auto production motor vehicles are highly agglomerated, which is in North America and Europe typical of manufacturing activities. The auto industry is a global industry: A dozen or so mass producers Motor vehicle production involves two types of compete with one another around the world. Because firms: vehicle assemblers and producers of parts (or parts these automakers employ similar production models suppliers). Today about a dozen carmakers put together in their plants, one might expect similar forces to shape light vehicles (see note 1) at approximately 80 assembly their production location decisions. This article evalu- plants in Europe and approximately 70 assembly plants ates whether the same general factors explain the broad patterns seen in the auto industry’s footprints in Europe Thomas H. Klier is a senior economist in the Economic Research and North America. This question is of particular in- Department at the Federal Reserve Bank of Chicago. James M. Rubenstein is a professor emeritus in the Department of Geography terest because to date, little comparative analysis of at Miami University, Ohio. The authors would like to thank Corey this kind has been performed, especially involving Brincks and Sam Goldberg for excellent research assistance and Europe as a whole. In general, most auto industry our editor and reviewers, as well as seminar participants, for helpful comments. analysis of Europe has focused on its individual countries © 2016 Federal Reserve Bank of Chicago instead of the entirety of the region. Economic Perspectives is published by the Economic Research We begin the article with a description of the Department of the Federal Reserve Bank of Chicago. The views current distribution of motor vehicle production in expressed are the authors’ and do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve both North America and Europe. Then we review the System. principles of agglomeration and industrial location Charles L. Evans, President; Daniel G. Sullivan, Executive Vice theories and discuss their applicability to auto produc- President and Director of Research; David Marshall, Senior Vice President and Associate Director of Research; Spencer Krane, tion siting decisions. Next, we examine whether these Senior Vice President and Senior Research Advisor; Daniel Aaronson, principles adequately explain changes in the geographical Vice President, microeconomic policy research; Jonas D. M. distribution of auto production in North America. We Fisher, Vice President, macroeconomic policy research; Robert Cox, Vice President, markets team; Anna L. Paulson, Vice President, outline key events in Europe around 1990 that affected finance team; William A. Testa, Vice President, regional programs; the spatial distribution of auto production there. And Lisa Barrow, Senior Economist and Economics Editor; Helen Koshy and Han Y. Choi, Editors; Julia Baker, Production Editor; we evaluate to what extent the principles of agglom- Sheila A. Mangler, Editorial Assistant. eration and industrial location theories are sufficient Economic Perspectives articles may be reproduced in whole or in to explain the changing geography of auto production part, provided the articles are not reproduced or distributed for commercial gain and provided the source is appropriately credited. in Europe. In doing so, we also illustrate the growing Prior written permission must be obtained for any other reproduc- importance of a northwest–southeast corridor in Europe, tion, distribution, republication, or creation of derivative works where the auto industry has become concentrated. of Economic Perspectives articles. To request permission, please contact Helen Koshy, senior editor, at 312-322-5830 or email Furthermore, we discuss trends in auto assembly plant [email protected]. openings and closings—both inside and outside this ISSN 0164-0682 European corridor of production—since 1990. Finally, Federal Reserve Bank of Chicago 101 FIGURE 1 Auto assembly and parts supplier plants in North America, 2013 Parts supplier plants Assembly plants scaled by units of production 1,000,000 500,000 1,000 0 250 500 750 Kilometers Sources: Authors’ adaptation of data from Ward’s AutoInfoBank, Elm Analytics, auto company websites, and Maptitude. in North America. The roughly 15,000 parts that go Motor vehicle production in North America is into each vehicle are produced at several thousand clustered in a north–south corridor, mostly in the United parts supplier plants in both regions.2 States, called “auto alley” (see figure 1). This corridor For the purposes of this article, Europe is defined is roughly 800 miles long and 250 miles wide,5 extending as the 16 member countries of the European Union between Michigan and Alabama. The spine of auto (EU)3 that have produced at least 100,000 motor vehicles alley is formed by the north–south interstate highways in any year between 1990 and 2013. The 16 countries I-65 and I-75. Auto alley extends into Canada along are Austria, Belgium, Czechia,4 France, Germany, Route 401 (Klier and Rubenstein, 2008; Klier and Hungary, Italy, the Netherlands, Poland, Portugal, McMillen, 2006, 2008; and Rubenstein, 1992). Within Romania, Slovakia, Slovenia, Spain, Sweden, and the the United States, auto alley accounted for nearly United Kingdom (UK). In 2013, auto production reached 90 percent of light vehicle production in 2013. at least 100,000 units in 15 of these 16 countries; In Europe, motor vehicle production is clustered the exception was the Netherlands, where auto pro- in a corridor along a northwest–southeast axis between duction last hit 100,000 units in 2005. In this article, the Danube River and the North Sea, with an extension Central Europe refers to Czechia, Hungary, Poland, across the English Channel into the United Kingdom Romania, Slovakia, and Slovenia, while Western (see figure 2).6 This corridor is roughly 800 miles Europe refers to the other ten auto-producing countries. long and 250 miles wide; it encompasses nearly the Here, North America refers to Canada, Mexico, and same amount of area and has almost the same shape the United States. as North America’s auto alley. In Europe, the corridor 102 4Q/2015, Economic Perspectives FIGURE 2 Auto assembly and parts supplier plants in Europe, 2013 Parts supplier plants Assembly plants scaled by units of production 1,000,000 500,000 1,000 0 200 400 600 Kilometers Sources: Authors’ adaptation of data from ACEA, IHS Global Insight, auto company websites, and Maptitude. of motor vehicle production encompasses the assembly vehicle assembly plants and 74 percent of its parts plants of the United Kingdom, northeastern France, supplier plants are located in the auto production Belgium, the Netherlands, Germany, Austria, southern corridor, including the UK extension.8 Poland, Czechia, Slovakia, and Hungary. The corridor Most of North America’s motor vehicle produc- lies roughly along the major east–west highways E30 tion outside auto alley takes place in Mexico, which and E50. Its eastern and western ends are approximately is home to 19 percent of the region’s assembly plants equivalent to the maximum distance that truck drivers and 20 percent of its parts supplier plants. In Europe, can reach in one day from southwestern Germany— Spain is the leading area of auto assembly outside the Europe’s economic and population center.7 corridor, and Romania and Italy are the leading areas It is remarkable that the motor vehicle production of auto parts production outside the corridor (Frigant corridors in North America and Europe do not just and Miollan, 2014). appear rather similar but also represent comparable shares of their respective regions’ total auto plants. Agglomeration and industrial location theories Approximately 73 percent of North America’s auto Agglomeration is the association of productive assembly plants and 62 percent of its parts supplier activities in proximity to one another (Gregory et al., plants are located in auto alley, including the Canadian 2009, p. 14). As shown in figure 3, three competitors extension. And approximately 73 percent of Europe’s may independently compute each of their optimal plant Federal Reserve Bank of Chicago 103 FIGURE 3 FIGURE 4 Agglomeration theory Weber’s theory for least-cost industrial location Market Market Optimal A B Optimal X Input 1 Input 2 Input 1 Input 2 Bulk-reducing industry, Bulk-gaining industry, such as steel such as auto assembly C Note: See the text for further details. Source: Weber (1929). from the work of Alfred Weber (1929). Weber argued that the optimal location for a factory is the point that minimizes the aggregate costs of bringing in inputs from Note: See the text for further details. suppliers and shipping out final products to consumers. So, according to Weber, the least-cost location can sites as locations A, B, and C. But if all three locate at be computed from a geometric model. As shown in location X, they benefit from agglomeration economies. figure 4, the optimal location for a factory with one mar- According to Marshall (1920), agglomeration can re- ket and two sources of inputs is a point that minimizes duce the cost of obtaining inputs and shipping final the aggregate cost of shipping the two inputs to the goods, the cost of moving workers across employers,9 factory and shipping the finished product to the market. and the cost of disseminating new ideas (thereby en- In his theory of industrial location, Weber (1929) couraging “knowledge spillovers” and faster rates of distinguishes between two types of industries—namely, innovation). According to Ellison, Glaeser, and Kerr bulk-reducing industries and bulk-gaining industries.
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