The Great Migration of Light-vehicle Production

April 1, 2023

Michael Robinet

For years, analysts have pondered the impact of the migration of North American light vehicle production from its original hub in the U.S. Midwest to locations in the Southeast and Mexico. Electrification is adding to that impact. The epicenter shift of vehicle output has ramifications on supplier locations, relative logistics and labor availability, as well as economic development considerations.

Geography matters more than ever. With recent logistics issues such as port strikes, lack of trucking capacity and natural disasters tripping up supply lines, OEMs are trying to tighten the circle to reduce risk and cost.

Consider Jasper, Indiana. This city located 50 miles (80 km) from the bottom of Indiana was the proverbial middle of North America’s light vehicle production in 2000, according to S&P Global Mobility analysis. From a weighted-average perspective, if someone asked for the ‘center’ of production, Jasper was the place.

Twenty-three years ago, volume was a mix of OEMs and jurisdictions. At that time, the Detroit Three (then Chrysler, Ford and General Motors) accounted for more than 75% of volume — substantially based in the Great Lakes region. Suppliers naturally located their operations there to minimize logistics and be closer to the automotive-supply ecosystem.

But a significant shift was already underway in 2000. The stream of new plant investments by German, Japanese, and Korean OEMs in the Southeastern U.S. and in Mexico was causing the North American production epicenter to move.

By 2020, the town of Jenette, Arkansas had become the new epicenter of the auto industry on this continent. Devoid of any local light-vehicle production, Jenette is more than 370 miles (595 km) from Jasper, Indiana. During those two decades, the industry’s ‘ground zero’ had been shifting about 19 miles (31 km) per annum in a south/southwest direction.

OEMs and suppliers migrated to jurisdictions that offered new labor pools, locational incentives, infrastructure buildout and lower living/ energy costs. A host of new manufacturing and related facilities emerged. Critical to this shift were suppliers following their customers’ lead.

Several of these new/expanding OEMs brought their home market Tier 1s along, finding homes in these new locales. Midwest-based suppliers were disadvantaged to compete for this southward growth. They had originally located there since the 1960s to service a wide variety of OEM production locations, but by 2000 found more of their vehicle-manufacturer customers slowly drifting southward.

This migration is slated to slow for a host of reasons. According to the S&P Global Mobility Light Vehicle Production Forecast, by 2030 the new production epicenter will be located 100 miles (161 km) further south in Arkansas, near the city of DeWitt. But the pace is slated to moderate by almost 50%, to 10 miles (16 km) per year.

Why the slowing movement south? One reason is that production in Mexico will continue to rise, but not at the heady pace of the past two decades. Other factors include the impact of the 2018 free trade agreement; the U.S. IRA (Inflation Reduction Act) drawing investment to the U.S.; renewed energy by Great Lakes states and Canadian provinces to stabilize their production position through incentives for battery and EV manufacturing and supply. And there is the emergence of Tesla’s volume in California and Texas.

As the industry continues to shift towards increased electrification, supply lines will draw closer. Battery cell assembly, battery enclosure production as well as traditional just-in-time supplier facilities will all need to be located within a couple hours’ drive distance or less. With the emphasis on reducing procurement risk, suppliers need to evaluate their location strategies with a view to the future.