At SEMCOG’s General Assembly meeting last week in Dearborn, it was my privilege to facilitate a panel discussion on the status of our state in the competition for large corporate investments in the rapidly evolving auto industry.
The window to evolve our region’s infrastructure, talent, and industrial ecosystem is closing fast. The automotive industry is in the midst of historic disruption and innovation. Electric vehicles (EVs), connected- and autonomous vehicle (CAV) technologies, and the ongoing acceleration of an online-based economy are changing the ways people, goods, and services move.
The significance of this industry can be expressed using something called our location quotient (LQ), as shown above. LQ measures the concentration and importance of an industry to a region’s economy. At the national level, all LQs are one. Our LQ for automotive is 6.7. It means that the share of automotive jobs in our region is more than six times higher than the US average, meaning that our economy is highly specialized in automotive. It shows the importance of the automotive industry to our region’s economy. Other regions have strengths in different industries. Those are also the areas that we can improve upon.
As a local elected official, I cannot overstate how important we are to attracting and growing investment in our economy. In Orion Township, General Motors recently committed to a major investment to support EV manufacturing in our community. Our township is thrilled about this development and doing everything we can to be the best community partner GM has ever had, but the story of just this one investment is much bigger than one manufacturer and one community. It would never have happened without bipartisan support in Lansing, and the impact of this win will be felt well beyond the borders of our small community.
Michigan has a limited opportunity to sustain and reinvent its leadership role in the mobility sector. Our discussion last week featured three of the region’s pre-eminent experts on the topic:
- Maureen Donohue Krauss, President and CEO, Detroit Regional Partnership
- Ambassador John Rakolta, Jr. (ret), Chairman, Walbridge
- Glenn Stevens, Executive Director, MICHauto
Each of them brought an essential perspective on what it will take to leverage our significant legacy in the internal combustion engine (or ICE)-based automotive industry as springboard into competitive success in the EV landscape. One thing was clear before, during, and after our discussion: the need for all levels of government to work with business and education leaders to evolve.
Change is happening NOW
In less than 10 years, it is forecast that ICE vehicles will decrease from 91% to 22% of US vehicle sales and electric vehicles will increase from 2% to 31%. We have heard that this may be an underestimation.
Just how important is the auto industry to our region? In terms of jobs, the automotive industry is still the backbone of Michigan’s economy, creating one fifth of Michigan’s jobs. According to federal data – in 2019, there were a total of 950,000 jobs, (300,000 direct and 650,000 indirect).
As the industry shifts from ICE to EV, the jobs will change, and we need to upskill and reskill our workforce – or lose a huge percentage of jobs. These are the jobs of assembly line workers, engineers, product design, administration, finance as well as the auto parts suppliers, dealers and wholesalers. The economic impact is multiplied by indirect jobs in hospitals, schools, and restaurants where direct employees spend their earnings.
SEMCOG’s partner organization, the Metropolitan Affairs Coalition recently convened a Mobility Work Group made up of leaders from business, labor, government, and utilities to understand the challenges facing our state and our ability to compete for the battery plants, investment, and jobs.
We heard from the Michigan Economic Development Corporation, site selectors and well as some of our panelists on current, efforts, challenges and business considerations when deciding to invest in a state.
The slide below shows the top five priority challenges noted during these discussions, which also played a major part in last week’s panel presentation.
Building on our Strengths
While these challenges are very real, we also have real assets for attracting major corporate investment – 400 of them according to the Detroit Regional Partnership. Assets in this context, the types of factors that resulted in recent investment decisions by Ford and General Motors, amount to:
- Highly-ranked Research Universities
- Skilled workforce
- Competitive tax rates
- Strong automotive ecosystem
I kicked things off by asking each of our panelists the same question – On a scale from 1-10, how is the State of Michigan doing in the fight to secure the future of our mobility industry?
Maureen Donohue Krauss, President and CEO of the Detroit Regional Partnership rates Michigan’s current status in the competition for mobility investment at 5/10
Part of what makes our region fortunate to have Maureen Krauss leading the Detroit Regional Partnership’s efforts to help site selectors and companies locate in the Detroit Region, is her recognition of our strengths. As she says:
- Our talent is a strength. It’s experienced. It just needs to have the right skillset to transition from ICE to EV.
- As mentioned above, there are 400 assets supporting mobility in our region.
- The national and international reputation of Detroit has evolved. Crime and poverty are no longer leading the narrative.
As the conversation continued, Ms. Krauss also shared her perspective – built on personal interactions with site selectors – on how we can improve as an attractive and welcoming environment for site selectors. Growth areas include:
- Site readiness – particularly site size (Michigan lacks the “mega-sites” many companies are seeking), connected infrastructure, and proximity to a skilled workforce – is a major area for improvement.
- Our state can improve through more collaborative conversations among elected officials; while the reputation of Detroit’s crime and poverty were once cited as the main concern, political dissension and lack of progress is now the main problem.
- The business customer wants consistency and certainty. Rule changes, program changes by communities and state create uncertainty.
- Patience is a virtue, and so is perseverance. While we need urgency in the moment, we need to recognize that it can take 5-15 years to put together the kind of mega-site that makes a regional impact.
Ambassador John Rakolta, Jr. (ret), Chairman, Walbridge, rates Michigan’s current status in the competition for mobility investment at 2.5/10
In addition to his experience as the recent ambassador to the United Arab Emirates, John Rakolta has the perspective that comes from his company currently building eight EV plants in Mexico, US, and the Detroit area. Walbridge also provides site selection services to other businesses. Ambassador Rakolta’s outlook was a bit less rosy. As he put it, we are in a “hair-on-fire” moment, one that requires a radically cohesive response from Michigan’s leadership.
Mr. Rakolta emphasized the following challenges:
- Talent, a long-time strength of Michigan fortified by our legacy of engineering, research, and other high-skill careers. Mr. Rakolta explained how the workplace changes accelerated by the pandemic threaten our talent base. According to Mr. Rakolta, less than 10% of workforce are still working on-site at tech centers. People can move out of state and do jobs elsewhere as a result.
- With Tesla as an example, there is a trend of moving research and development closer to production. This is particularly complex with assembly facilities being much more decentralized than in the past.
- Similar to Ms. Krauss, Mr. Rakolta stressed the importance of political alignment, stating that it should be the first priority and that economic development should be a bipartisan effort all the time.
- Mr. Rakolta stressed the need to clearly define and promote a vision for economic development for the state, and that it needs to be something simple to explain and understand.
- Due to the preference of manufacturers to co-locate assembly plants with battery plants, each missed opportunity has a compounding effect.
While Mr. Rakolta spoke passionately about the challenges we face and the urgency to meet them, he also called attention to some of our strengths and success:
- Michigan remains a hardworking state, though perhaps that reputation has slipped somewhat.
- We have been able to leverage, thus far, the existing automotive industry. Ford and GM are investing in existing plants as part of the shift to EV.
- The bi-partisan SOAR bill provided $1.5 billion, which helped to retain and encourage major investments in Hamtramck and Orion Township by GM.
Glenn Stevens, Jr., Executive Director, MICHauto rates Michigan’s current status in the competition for mobility investment at 5/10
MICHauto was established in 2007 to compete with southern states that had automotive associations when Michigan did not, and Glenn Stevens sees his job with MICHauto as providing a statewide voice that ties everyone in the industry together. Like Ms. Krauss, Mr. Stevens thinks Michigan is currently performing at 5/10 and that we are doing a lot of things right:
- There is a lot of collaboration and communication in Michigan right now.
- We are the epicenter of North America’s automotive industry because you will not find anything like what we have in our cluster. Mr. Stevens cites our 26 OEMs (original equipment manufacturers) with R&D or technical centers but reminds us that it is not our birthright.
- Coordinated support from the business community, legislature, and other leaders have helped to ensure funding for incentives we did not have, supporting new and renewed investment in our state.
Based on many of the same challenges described by Mr. Rakolta and Ms. Krauss, Mr. Stevens agreed that we are struggling to be competitive. He cited the following challenges and offered some suggestions for addressing them:
- Utility costs, site availability, and incentives are all essential areas for improvement.
- Perceptions of community are a huge area for improvement, and this is a place that local governments can make a difference.
- We have to grow our knowledge-based, digital economy jobs regardless of industry and increase labor force participation because this is how our talent will be measured in the future.
- While diversification has traditionally been a challenge for our auto-centric region, the auto industry is a great platform for diversification thanks to core competencies developed to support digital evolution of automotive manufacturing.
My Takeaways
As Mr. Stevens said, “Companies will deploy R&D where the talent resides and where communities are strong; It’s a fact.” For those of us trying to help steer this region toward success, these are words to live by. If we can help to build on our regional strengths to maintain amazing communities for people to live and work, we can create the conditions that help to attract the workforce that will sustain the growth and success of our economy for generations to come.
Ms. Krauss reminded us that, “Communities close the deals,” and gave us some great questions to consider as we move forward in our interactions with site selectors:
- Is my community “easy” to work with or a “headache?” Don’t be a headache. Deliver on what you tell businesses you can do.
- Is there more we could do to help prepare attractive sites? Perhaps two neighboring communities have a pair of small sites that could be unified into something larger and more attractive. In other words: collaboration!
- As communities currently have the opportunity to invest ARPA funds, could some be used to help improve site development and readiness?
As we look to our leaders in Lansing to help us solve this issue, let me remind you that we are influencers. As local officials, we have a role to play here. It may be as simple as calling up your state representative to schedule a lunch about what they are doing to help secure our mobility future.
Watch the complete conversation here:
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