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Motor Industry: Moving to the South of the US Coursework

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Updated: May 30th, 2022

In recent times, the American car industry has been experiencing an unprecedented shift from the traditional locations which are home to numerous assembly lines towards the southern states. This has become a concern for authorities as the trend is proving to be a real threat to the economies of the Midwestern as well as eastern states while the southern states like Mississippi towards South Carolina (Barclay, 2007, par6). According to experts, the car industry is moving in an attempt to do away with a myriad of hiccups in conducting business in the northern part of the country (Corbett, 2002, p6).

In the north the industry is weighed down by logistical nightmares, powerful unions, higher tax regimes, high land values and low government backed incentives. Northern states have been struggling to retain the car industry. The East Coast of North America is the worst hit as several assembly lines have been closed since late 1980s.

As mentioned above, there are many explanations for the auto industry shifting to the southern states. According to experts, labor is the most important factor. Despite the fact that the car industry is highly capital intensive, it is true that labor remains a critical component of inputs accounting for a significant portion of the costs in the industry. The high standard of living in the north necessitates higher wages as compared to the southern region which has a relatively lower cost of living. The implication of higher costs is the reduction of returns generated by the business. Consequently, movement southwards amounts to cost cutting leading to better returns (Leposky, 2008, par5).

On the same note, over 30% of the workforces in the Northeastern and Midwestern states are unionized. This is in comparison to just about 4% for the southern states. Powerful unions have the muscle to bargain for better pay, improved health and other benefits as well as job satisfaction. This implies that the manufacturers are faced with the threat of increased costs at a much faster rate than in the southern states where unionizable workers are very few and unions are much weaker. This is a huge attraction especially for foreign companies (Hyland, 2002, p5).

Demography is another critical determinant of location of firms. It is clear that the southern states have a significantly higher proportion of young people than the northern states. This implies that the larger pool of workforce is not only available today but also in the foreseeable future. Consequently, firms have higher confidence investing in such areas where supply of labor is expected to remain high for a long period.

Utility costs especially the cost of electricity is also an important factor influencing the movement southwards. In the south, the cost of energy averages at 5 cents per kilowatt hour while in states like Ohio, the average is about 7.5 cents per kilowatt. This difference results in significant differences in the cost of doing business. States like Tennessee have power rates 20% to 50% lower than other states (Leposky, 2008, par6).

Location is also an important factor influencing the movement southwards. States like Tennessee fall within one day drive to over 75% of the entire American Market. This is an important consideration especially bearing in mind the traditional theory of proximity to the market. This location advantage is enhanced by the fact that the road systems in some Southern states have the most modern and developed road and rail network in the country. There are highways to the Midwest states where manufacturers of parts are concentrated. This lessens the costs of transporting the inputs southwards. Louisville stands at the intersection of three major highways. It is ranked 36 in a pool of 328 in a measure called logistics quotient. This measure ranks cities in consideration of the number of highways interconnecting them with other cities as well as the intensity of other auxiliary routes. The expansive waterways add to the advantage in transportation of bulky goods (Corbett, 2002, p5).

Perhaps the most notable advantage is the presence of a very good intermodal system developed with the aid of some of the world largest logistics companies like the United Parcel Service (UPS). In actual fact the presence of UPS is considered a huge magnet in States like Louisville. This is in consideration of the fact that many companies are constantly moving towards outsourcing services especially those related to freight logistics in order to concentrate more on the core business (Barclay, 2007, par6).

It is clear that there are many factors pulling the auto industries southwards by providing competitive advantages. What is best understood is that investors are in search of the right business area to set up car assemblies from the start due to the fact that it is very expensive to set up business in one area and later shift. The southern states seem to offer a host of advantages in comparison to the north. Labor issues top the list followed by infrastructural related advantages, proximity to markets, costs of properties such as land, presence of complementary businesses among others. Indeed the South seems to offer all these advantages.

References

Barclay, S. (2007). Web.

Corbett, B. (2002). Southern hospitality. Ward’s Auto World; 38, 8; ABI/INFORM Global

Hyland, T. (2002). Louisville leads the way in logistics. Transportation & Distribution; 43, 5; ABI/INFORM Global

Leposky, G. (2008). Choosing a Business Location. Ampersand Communications

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IvyPanda. "Motor Industry: Moving to the South of the US." May 30, 2022. https://ivypanda.com/essays/motor-industry-moving-to-the-south-of-the-us/.

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IvyPanda. 2022. "Motor Industry: Moving to the South of the US." May 30, 2022. https://ivypanda.com/essays/motor-industry-moving-to-the-south-of-the-us/.

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IvyPanda. (2022) 'Motor Industry: Moving to the South of the US'. 30 May.

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