Sustaining our Automotive Base and Building Economic Diversification

As recently highlighted at several SEMCOG and Metropolitan Affairs Coalition (MAC) events, the importance of the automotive industry to our region cannot be overstated. Our region must adapt to the rapidly-emerging industry of manufacturing electric vehicles (EVs) or be left behind. With EVs requiring fewer parts than internal combustion engine (ICE) vehicles, our supplier base will take a hit even with successful efforts to win EV manufacturing investments.

Southeast Michigan has more than six times the national average of automotive jobs than the U.S. average (Figure 1), with a location quotient (LQ) of 6.4. We have more than 100,000 jobs directly tied to the automotive cluster. Keeping these jobs here is critical to our region’s economic prosperity. However, we will be challenged to preserve all of these jobs, as other regions look to attract EV manufacturing (in Figure 1, note the foothold that Birmingham, Louisville, and Nashville already have).

Figure 1

Automotive Cluster

The Importance of Diversification

With significant change in progress, our region needs to lock in on supporting the automotive cluster. However, we must also focus on opportunities to diversify into other clusters. Why? Increased economic diversification makes our region more resilient to economic shocks, allowing our population growth to continue, keeping unemployment and poverty down, and per-capita incomes up. Diversification also provides opportunities for economic growth (for example, the Seattle region is strong in both aerospace and information technology, with Boeing, Microsoft, and Amazon having a large presence there).

So what can we do to diversify Southeast Michigan’s economy now? What other clusters are candidates? SEMCOG’s latest QuickFacts explores the U.S. Cluster Mapping Project’s list of traded clusters to see which ones make sense for our region to target. Traded clusters promote a region’s economic growth by selling goods and services to other regions or countries. Certain clusters make sense because they align with our region’s engineering and manufacturing knowledge, or because they have realized increased growth in recent years.

The diversification of our region has started, as we have grown our footprint in the Financial Services cluster (Figure 2). The growth in our region’s mortgage industry helped us to have a greater concentration of financial services than the nation as a whole. While rising interest rates will reduce our footprint in the near term, we need to nurture and grow the experience and talent resources that are currently here.

Figure 2

Financial Services

While this is good news, there are further opportunities. Our region’s manufacturing prowess could open the door to manufacturers in the Aerospace and Defense cluster. The technology expertise needed for today’s vehicles and mobility could be leveraged to make gains in the Information Technology and Analytical Instruments cluster and/or the closely related Medical Devices cluster.

Southeast Michigan has the talent and expertise to continue leading the automotive cluster in the future, as long as there is sufficient reinvestment and a coordinated effort to nurture it as the cluster transitions to EVs and other forms of mobility. We also need to enhance the robustness and diversity of our region’s economy by actively nurturing and pursuing additional clusters.