Michigan might lose its distinction as the car capital of the United States within the next few years, purportedly a result of new labor contracts at the Detroit Three automakers.
But that’s not necessarily a bad thing.
Analysts expect much of the passenger car production, particularly at Ford and Fiat Chrysler, to be moved out of Michigan and the rest of the country during the life of the four-year contracts recently ratified at those companies and General Motors.
“Obviously, a lot of it is going to Mexico,” said Alan Baum, president of Baum and Associates in West Bloomfield.
But the automakers are expected to refill their passenger car plants with higher-profit crossovers, such as the Ford Escape, and sport-utility vehicles, such as the Chevrolet Suburban, that U.S. consumers are demanding.
Sales of those vehicles are booming as gasoline prices have plunged from more than $4 a gallon in 2008 to as low as $1.58 in southwest Michigan just last week.
Moving car production, especially small cars, out of the U.S. is partially being driven by the lucrative labor contracts.
Workers at Fiat Chrysler will receive up to $4,000 in signing bonuses while GM workers will get $8,000. Ford workers will receive $8,500.
Cash payments in the contract, not including base raises and retiree bonuses, will pump $2.9 billion into Michigan’s economy over the next four years, according to the Center for Automotive Research in Ann Arbor.
But that’s not the entire story. The contracts will boost automakers’ labor costs, but only modestly on a per-vehicle basis. Those per-vehicle costs are forecast to drop by 2019 at GM, according to the Center for Automotive Research.
“The contracts are not the (unfavorable) game-changer they appear to be,” Baum said.
Detroit Three automakers are focusing on producing high-content, high-profit vehicles here while shifting small-car production to other countries where there are more growth opportunities, he said.
Crossovers, SUVs and pickups are pretty much exclusive to the U.S. vehicle market, have accounted for more than half of all vehicle sales here this year.
Detroit Three sales plunged when the SUV boom collapsed in 2000 in the face of rising gas prices.
That’s less likely to happen if gas prices spike again because automakers have more fuel-efficient crossovers and fewer gas-guzzling SUVs in their product offerings.
While full-size pickup sales are robust, GM is finding surprising success with its new Chevrolet Colorado and GMC Canyon midsize trucks.
And because crossovers are built on car platforms, automakers can convert them to passenger cars if demand for cars increases.
Automakers can’t make those switches overnight, making them somewhat vulnerable to sudden jumps in gas prices.
But the American love affair with the automobile is burning the hottest with crossovers and trucks.
Being at the center of that should pay off for Michigan.