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ECONOMIC ANALYSIS: Motor-vehicle jobs: a path to the future?

June 12, 2006

Would landing a new Honda plant be a plus for the Indiana economy? You bet it would. In fact, it's hard to think of any similar-size investment that holds the same immediate potential for supporting additional jobs beyond those inside the plant walls.

The project scores well on just about every objective measure you can come up with to assess its attractiveness. It draws on skills and occupations Indiana already has. Its activities hold great promise for new business for existing parts manufacturers and other service businesses in the state. And unlike the domestic Big Three automakers at the moment, Honda's products are selling well, giving hope that a new facility could expand in the coming years.

It's also a tailor-made newspaper story, not to mention a huge adrenaline rush for dealmakers in the several states and communities all vying to turn their cornfields into assembly lines. But is it economic development?

In light of the words written above, that question might sound strange. Attracting investments whose benefits propagate through the rest of the economy is the essence of what we expect those entrusted with economic development to do. But economic development is also, by its nature, a future-oriented business. So the question becomes, are vehicle-assembly plants the path to the future for the Indiana economy?

It's a surprisingly complex issue. From a textbook perspective, you could easily say motor-vehicle manufacturing is the kind of business Indiana should be diversifying away from, not toward. After all, with more vehicles registered nationwide than drivers, it can only be described as a mature marketplace. Rapid advances in technology and relentless pressure to outsource higher-volume, less-specialized activities abroad have continuously reduced labor-force needs. And with more than 10 companies vying for a place in the U.S. market, most analysts think the business is glutted with capacity, and a shakeout looms in the near future.

But maybe that textbook doesn't have all the answers. A recent study by the Chicago Federal Reserve Bank reminds us that even if the size of the vehicle marketplace isn't growing by leaps and bounds, its geography is changing significantly. And those changes present challenges, but possibly opportunities, for states like Indiana.

Can Indiana swim against the tide and gain motor-vehicle parts and assembly jobs in the coming years? That depends on how two trends, currently moving in opposite directions, sort themselves out.

First, the bad news. The shocking decline in the Big Three's share of U.S. light-vehicle sales is wreaking havoc on suppliers, communities and the companies themselves. With huge companies like Delphi and Dana Corp. in bankruptcy, the situation is well beyond belt-tightening. And the negative reverberations coming out of Detroit-still the center of gravity of the automotive universe-have plenty of Indiana communities standing in harm's way.

But the activities of Toyota in Lafayette and Princeton, and the courting of Honda by Greensburg, remind us there are still prizes to be won as well. Every assembly line that moves southward puts Indiana companies in a better position to compete for business that once belonged to suppliers farther north. And when you look at the expansion plans of Toyota, said to be planning on as many as five new production facilities in the coming years, it's a trend we ought to be paying attention to.

If those ambitious plans succeed at the expense of those in business today, it will undoubtedly affect some Indiana companies and their workers for the worse. But it's better to go after the new business than to lose it entirely.



Barkey is an economist and director of economic and policy study at the College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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