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The Motor City’s foundations shook a bit earlier this month when news broke that Japanese automaker Toyota blew by General Motors to become the top-selling manufacturer in the United States last year.
It was the first time an auto company not named GM led annual U.S. car and truck sales in 90 years. That a non-U.S.-based company would break that record once seemed unimaginable.
But as automakers worldwide rapidly shift from internal combustion engines to battery-powered electric vehicles, the competition for Detroit automakers will only get tougher. That’s worrisome for Michigan’s auto-centric economy.
GM and Toyota attempted to downplay the significance of Toyota’s victory, which analysts say was largely a result of Toyota doing a better job of managing computer chip shortages that have hobbled the industry.
A Toyota executive said during a sales call with analysts and reporters that dethroning GM was “not our goal, nor do we see it as sustainable.” GM officials said they focused on profitability by installing their limited supply of chips in the automaker’s high-demand, high-priced pickups and SUVs.
Toyota’s U.S. milestone was an exclamation point on a long-term trend that many don’t like to think about: the steadily falling market share of Detroit automakers. That trend line has been on a downward slope since the mid-1950s when 95% of cars sold in the U.S. were built by GM, Ford and Chrysler.
The Detroit Three control about 40% of the U.S. market, but University of Michigan economists expect that figure to fall to 37.7% by the end of next year as chip shortages ease and the industry begins running at a more normal level. Declining market share often leads to plant closings and job losses.
Most of the North American investment by foreign and domestic automakers over the past decade or so has been outside of Michigan, according to a report by the Center for Automotive Research in Ann Arbor.
Since the end of the Great Recession in 2009, automakers have invested $190 billion in North America, including Canada and Mexico. Just 7% of that spending has occurred in Michigan.
Electric vehicles present an opportunity for Detroit automakers to reverse their fortunes. Ford and GM, in particular, have entered, or are about to enter, the electric vehicle market with an array of impressive trucks and luxury cars.
They are spending billions of dollars, a good chunk of it in Michigan, to develop and produce dozens of new electric vehicles.
But the competition will be fierce. Several new electric vehicle makers that weren’t even in business a decade or so ago, including California automakers Lucid Motors and Rivian, are producing vehicles that can compete with the best of Detroit’s offerings.
Then there’s mighty Tesla, which has become the most valuable automaker in the world. Tesla has a stock market value of $1 trillion, more than 10 times that of GM or Ford, even though it sells a fraction of those automakers’ deliveries.
And don’t count out the dozens of Chinese electric automakers lusting to enter the U.S. market. Think it won’t happen? That’s what many once said regarding Japanese automakers.
There are about 30 companies selling, or soon planning to sell, electric vehicles in the United States. There’s a view that some of the smaller U.S. companies, even possibly Tesla, will either fail or be acquired by the big Detroit automakers.
That’s what occurred in the early days of the auto industry. There were hundreds of automotive startups in the early 20th century. But by the 1920s, GM, Ford and Chrysler had become the dominant players in the industry.
The climate is radically different now. Most early 20th century automakers lacked the financial resources to compete with what was then called the Big Three.
Today, major corporations are backing some of these small companies. Amazon, for instance, has invested $1.3 billion in Rivian, which began electric pickup truck production at its plant in Illinois in September.
Rivian also announced in December it will invest $5 billion to build a second assembly plant employing 7,500 workers in Georgia.
Michigan’s major advantage over other states seeking new electric vehicle investment is that it’s the intellectual capital of the industry. But that’s also under threat.
Twenty-six of the world’s automakers have research and development centers in the state. And Michigan leads the nation with more than 100,000 mechanical engineers, according to industry advocate MichAuto.
But automakers are desperate for talent, especially the software engineers that are so critical in vehicle electrification.
Glenn Stevens, MICHauto’s executive director, and Brittany Affolter-Caine, executive director of Michigan’s University Research Corridor, wrote last month that offering automakers financial incentives to build factories here isn’t enough to ensure a bright future for the state’s auto industry.
The state must enact policies that boost educational attainment, particularly in increasingly the number of people with four-year degrees or above, they wrote in Crain’s Detroit.
“Michigan won’t be the prosperous state we envision together without these deeper and more long-term investments,” Stevens and Affolter-Caine said. “Short-term incentives, while important in the moment, are not going to be enough to get us to where we need to be.”
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