The de-territorialization of the American Auto Industry and COVID-19/I 4.0 impacts: The breaking down of the old value chains and its replacement for new Value Propositions

Publication Type:

Conference Paper

Source:

Gerpisa colloquium, Virtual (2021)

Abstract:

At the turn of the century, the 15 major global-auto corporations had relocated capacity and created new capacity in other countries, to the extent that 39% of their total production was manufactured outside of their home countries. In the case of the Detroit Three, the movement was both a precursor to other moves and brutal. By 2000, almost two-thirds of their production was done in other countries. Currently, the relocation of capacities undertaken by all leading OEMs has reached such a massive level, that the “abandonment” of their home countries resembles an emptying of industrial capacity in some jurisdictions. And, again, American corporations take the lead in this respect.

It is a major trend & tendency that we term the deterritorialization of the industry.

The U.S. government has taken action to reverse this phenomenon. President Obama deployed the “going home” policy, and D.Trump made of the rhetoric of stopping the blooding of jobs and investment a key piece of its government strategy. J. Biden is pushing for a “Buy American” & "Build Back Better" strategy, further pressed by the COVID-19 impacts on the economy. The USMCA, the new NAFTA, seeks to fulfill these goals through rising the entry barriers to the regional market, protective trade rules and labor standards that prevent native OEMs to go abroad, particularly to the cheaper Mexican market. Also UAW and the Big Three has been negotiating agreements for keeping jobs at home in exchange for restraining union demands and wages. This paper postulates that these efforts will fall short and that the deterritorialization of the American industry not only will continue but further go ahead to the point that the emptiness of the U.S. market will be completed. This will hold true in particular for the American ICEs industry, which will find in emergent countries as Mexico its last frontier. This will be prompted by the extension of the COVID-19 pandemic as border control and travel restrictions will continue disrupting global chains and force corporations to adapt in and near-shoring strategies. In this sense, American automakers will bet for near-shoring, further moving operations into Mexico. Simultaneously they will adopt aggressive new value propositions where the digitalization of cars, the promotion of electrical vehicles and highly connected vehicles will take precedence. The paper is based on extensive review of OEMs strategies and statics. A stochastic model is runed to predict the regional displacement of facilities, investments, jobs and auto output.

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