Chapter 9: Auto Industry Agglomeration
Diffusion of the Auto Agglomeration
In the early decades of the twentieth century, the gazelle of all gazelles, reconstructed economic bases of Detroit, Michigan, Ohio and the Great Lakes states. That gazelle uprooted America’s existing transportation system, revolutionized logistics, eventually creating the “Asphalt Nation” (Kay, 1998). While this section does not attempt anything like an auto industry history, nor a penetrating assessment of its internal dynamics, it simply describes the auto industry’s geographic diffusion in the Twenties thru the Depression. I limit the auto industry to two sectors: assembly and auto parts-making.
Growing out of the late nineteenth century horse and carriage industry (Markusen, 1985, pp. 163-75), with firms in nearly every major Northeast and Midwest home-bred innovators “motorized” the buggy. By 1893, autos, using various power sources were in production across the Great Lake states. About 1899 the sector entered stage 2–a period of “tremendous innovation… as the number of parts and assembly plants reached more than 2,800, the number of manufacturers of complete cars reached 181, and employment grew to 400,000”. The stage 2 auto industry exhibited a great deal of regional specialization in auto technologies (steam in Massachusetts, electric in Connecticut, and gasoline in Detroit) (Markusen, 1985, p. 168). By 1903, however, the gasoline engine proved superior, and Detroit became home to the gasoline-powered auto.
Detroit’s gasoline engine evolved from gasoline-powered combustion-marine engines for lake-going freighters. The area also housed carriage and bicycle sector firms that converted into auto parts suppliers. Detroit’s wonderful multi-modal location, was also a low-wage, non-union town with ample workforce. So “By 1903 73 percent of all autos were made in Michigan”. Ford’s revolutionary innovation was not the gasoline engine, but the assembly line which he first introduced in 1903. An updated, state of the art “moving” assembly line was inaugurated at Highland Park, Michigan in 1914. “Using interchangeable parts, highly differentiated work tasks, and standardized design with no retooling for eleven years, Ford was able to cut the price of his car from $950 in 1909 to $295 in 1922. By 1922 Ford as a company was producing 2 million cars and controlled 55 percent of the market”. (Markusen, 1985, p. 164) Concentration (oligopoly) developed within twenty years.
Ford’s business model depended upon flexible, adaptive parts and machine tool manufacturers. They produced the standardized components that were assembled into a complete car; they also fabricated the machine tools needed for assembly. Close proximity to these firms was required. Within a decade labor productivity increased ten times, and crushing price competition meant the sector had clearly moved thru Stage 2 and passed into Stage 3. Stage 3 meant firms outside Detroit either had to embrace the innovation or close up shop. “Smaller firms failed in droves. Two-thirds of the firms competing at the 1919 peak disappeared by 1933…. Job growth became less dramatic as mechanization continually increased productivity” (Markusen, 1985, p. 164).
Ford distrusted what he could not personally oversee, so the Ford Corporation became vertically integrated, buying up parts companies, even raw material firms, and relocating them in the Detroit area (Klier & Ruberstein, 2010, p. 72). Increasing in size/scale, relying on mass marketing and coordinated planning necessary if parts and materials arrived as needed, meant that logistics, headquarters, and administrative-advertising functions were also located in Detroit and Great Lakes area. In that “Auto stimulated the output of steel, glass, pain, upholstery fabrics, and rubber … and oil (gasoline refineries) encouraged secondary agglomerations—and industry concentration. By 1930 three corporations controlled 90% of the finished auto production; by 1941 only twelve companies produced cars at all (Markusen, 1985, pp. 163-66).
Hundreds of firms, scattered from Boston to Chicago, had been acquired, many relocated, or closed down. There were holes in jurisdictional economic bases throughout the North; Detroit had shot their home-brewed gazelle. Innovation and disruption were two-way streets; oligopoly however, operated on a one-ay street. The renaissance of Detroit recalibrated the Big City and North-Midwest urban hierarchy. Chambers in affected communities were left to deal with these “adjustments”. At the same time, these are the jobs that fueled the Southern Diaspora/Great Migration. These are the jobs that absorbed excess southern subsistence-level labor force, and broke Redeemer southern agricultural/political system. The effects of oligopoly make visible the vulnerability of the jurisdictional economic base—a phenomenon later called uneven economic development. The effects of oligopoly on regional economic development were profound—the South would literally not be the same again. But the auto oligopoly is not finished with jurisdictional and regional impacts.
Things changed in the 1930’s. Henry Ford hated unions. He battled, often violently, with Walter Reuther and his UAW; in 1941 Ford finally signed a collective agreement with the UAW—the last car company to do so. Detroit and the auto industry unionized during the 1930; that brutal struggle prompted auto industry management to leave town. Assembly plants were the first to go; it was cheaper to ship parts and components than an assembled vehicle. If a market area supported sales of 100,000 cars, it justified construction of a regional assembly plant. “They also sought cheaper, more tractable labor in far-flung locations”. Parts manufacturers followed assembly plants. By 1947, assembly plants had been built in Los Angeles (GM, Ford, Chrysler), Atlanta (GM, Ford), Louisville, San Jose, and New Jersey (Ford), Wilmington, and Framingham (MA) by General Motors. Accordingly, Michigan’s share of auto employment dropped to 57% in 1947. “The impetus to disperse came from three factors: the push of government policy (dispersion of production facilities for military safety during World War II), the push of an organized labor force, and the pull of new markets (Markusen, 1985, pp. 169-70). What oligopoly taketh, it also giveth away.
Ron W. Coan 