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Building Autos: How North AmericaWorks and Why Canadian StudiesShould be InterestedStephen Blank aa Portal for North America

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American Review of Canadian StudiesVol. 41, No. 4, December 2011, 330–344

Building Autos: How North America Works and Why CanadianStudies Should be Interested

Stephen Blank

Portal for North America

The recent HBO series “Boardwalk Empire” kicked off with the onset of Prohibition in theUS. To fill the hole, Canadian booze flowed southward. A young Al Capone is on scenebuilding turf in the bootleg liquor game. He did not disappoint Canada watchers: “I don’teven know what street Canada is on,” the young thug snarled.

We were not disappointed either in the 2010 mid-term elections when several candi-dates reminded us that the 9/11 terrorists had come from Canada.

So much for improving public awareness about relations with Canada.We have talked recently about bridges. The theme of the 2010 Midwest Association of

Canadian Studies’ Conference was “Building Bridges between Countries and Disciplines”and a new and excellent book edited by Monica Gattinger and Geoffrey Hale is titledBorders and Bridges: Canada’s Policy Relations in North America. (Disclaimer: I spokeat the conference and am co-author of two of the chapters in the book.) The 2010 Enderssymposium looked, if not at bridges, then certainly at bridging. ACSUS has built manybridges since its founding in 1971 and has created important links among American andCanadian academics sharing a wide range of interests.

But many bridges have not been built. In the most fundamental sense, the academiccommunity has failed to focus research on what has happened in North America in thepast three decades, and we have failed in our teaching to help our students and colleaguesunderstand these developments.

The academic community isn’t alone of course. Interest in North America has beenminimal in the media and intermittent at best in government. The most consistent voiceson North America have come from those who fear that NAFTA, a North AmericanSuperhighway or some similar device, was designed by the black helicopter folks todestroy US sovereignty, or, on the Canadian side of the border, to undermine Canada’sindependence.

More than 20 years have passed since the FTA, and NAFTA’s 20th anniversary willbe coming up soon. The North American region constitutes a huge area in populationand GDP, with enormous movements of goods, people, and services across our borders.It uniquely links two of the world’s richest nations and a developing nation, is densely inter-connected and shares many interests and problems, including economies, demographics,environment, water, and security.

One would think that we would know a lot about this remarkable experiment. But thereare many holes in what we know. Most important, we really do not know much about howNorth America actually works. Autos are an obvious and important example. The auto

ISSN 0272-2011 print/ISSN 1943-9954 online© 2011 ACSUShttp://dx.doi.org/10.1080/02722011.2011.623398http://www.tandfonline.com

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industry has been the continent’s largest industry and the prototype for North America’sintegrated production–distribution systems. The automotive industry has accounted formore inter-regional trade than any other sector. It is not surprising, given the declineof Detroit auto manufacturing, that most current work on the industry deals with thestrategy—most often, failed strategy—of the American Big Three.1 But much less hasbeen written on the changing structure of the auto industry in the US, North America, andglobally—that is, how autos are built, with a changing system of suppliers and assemblersin the industry.

Lots of mistakes are made about the auto industry, even where least expected. Manyinformed people think that there are two or three national auto industries in North America.A 2009 New York Times article (which one assumes would know better), “For BaffledBuyers, a Guide to Cars Made in North America,” states: “Of course the window stickerof a new vehicle lists its domestic content, including the origin of its engine and trans-mission, but the intricacies of the North American Free Trade Act and the AmericanAutomobile Labeling Act can muddle details on parts from Canada and Mexico.” But“domestic content,” the article continues, isn’t really “domestic” at all. “For the purposesof the window sticker, the government has decided that domestic content will include partsmade in Canada. Under the North American Free Trade Act, domestic is even less clearbecause it also includes Mexico” (Jensen 2009). Well, yes, that is, as we shall see, the verynature of the North American auto industry today.2

The basic point I will underline is that we do not sell autos to each other. We buildthem together. With automobiles—as with other key sectors of our economies such aselectronics, pharmaceuticals, and large segments of our agricultural industries—we mustthink in terms of deeply integrated North American production, distribution, and marketingsystems. These systems are structured by networks of supply chains that link productioncenters and distribution hubs across the continent. This has enabled firms to link the mostfavorable sites for research and development (R&D), production, and distribution, with theaim of enhancing productivity on a continental and global scale.

North Americans today also share the world’s most deeply integrated energy markets:we use the same roads and railroads to transport jointly made products to market; we flyon the same integrated airline networks; and increasingly, we meet the same or similarstandards of professional practice.

No one “planned” these developments. There was never a vision of a “North AmericanUnion.”3 The most powerful drivers of change have been corporate strategies andstructures.4 The direction of change was largely “bottom-up” rather than “top-down.”Indeed, what is striking about NAFTA is how “institution-light” it is. Yet the resultingdegree of collaboration between countries is unprecedented.

Auto parts suppliers, factories and assembly centers are closely linked across theentire continent. A quarter of the more than one billion dollars of goods that cross theUS–Canada–Mexico borders each day is automotive—not finished vehicles, but parts,components and modules. This is what economists call “deep” or structural integration.This is not just trade integration—it is the integration of production systems. This kind ofintegration creates much higher levels of interdependence than trade interdependence.5

Viewing North America as a “trade bloc” is not a productive way of imaging the sub-stance of the North American economic system. Canada, Mexico and the United States aresovereign nations but we share an “economic space” in many sectors.

A recent image of an automobile module—a rear suspension assembly—published byMartinrea International helps us get a better grasp on the North American auto industry6

(see Figure 1).

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Figure 1. Martinrea’s rear suspension assembly (permission from Martinrea).

Martinrea is a Canadian-based Tier I automotive supplier. A Tier I supplier is a com-pany that delivers modules or services directly to the final assembly plant. Tier II suppliesTier I and so on down the line. This module was assembled at a Martinrea plant in London,Ontario, for “just in time” delivery (JIT) to General Motor’s Cami plant in Ingersoll whereit was used in the Chevy Equinox and Pontiac Torrent models. (The image is not quite upto date as there is no longer a Pontiac Torrent, for example—or any Pontiac for that matter.But it still helps us examine key trends and patterns in the North American automotiveindustry.)

The decentralized supply chain network

To build this single module for the final automobile, parts were assembled from 13 differentsuppliers—three in Canada and 10 in the US—located in Ontario, Ohio, Indiana, Michigan,Illinois, Alabama, Kentucky, and North Carolina. This is a good example of the extendedand complex nature of the North American auto production system and underlines clearlythat we do build cars together.7

The image also illustrates the enormous changes that have taken place in the structureof auto production—changes that have taken place more widely throughout manufactur-ing. In the traditional vertically integrated “Ford model” of auto production, as muchof the entire value chain as possible was internalized under one management, with oneowner and in one location.8 Henry Ford’s River Rouge Plant was the most developed “ore-to-assembly” complex, built around a continuous, nonstop process from raw material tofinished product. It was designed to achieve Ford’s goal of complete self-sufficiency—withits own coal mines, iron mines, limestone quarries, acres of forest, a rubber plantation, anentire regional railroad company, and even a power plant that supplied the Rouge withelectricity.9 “All the necessary raw materials now came in one gate, while finished cars

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went out the other gate. Ford had succeeded in completely eliminating the need for outsideassistance” (Womack, Jones, and Roos 1990, 39).

Auto production remained centralized geographically. Up to the 1970s, most auto partswere fabricated in Michigan or the surrounding region. Most autos were assembled here aswell, although some were also assembled in California and the East Coast to be closer tokey regional markets (Klier and Rubenstein 2008a, 2; Rubenstein and Klier 2009, 5).

Today, Ford’s vertically integrated model has been replaced by a highly decentralized,and de-integrated system.10 Production does not take place in a single center owned bya single company—like River Rouge. Instead, parts and components are manufacturedand assembled in many places by many different companies and brought to final assem-bly points by a highly developed logistics system. The final step now involves mainly theassembly of complex modules that were fabricated elsewhere by Tier I suppliers. The finalassembly process creates just 22 percent of all jobs in the industry and about 30 percent ofall value added in auto (Klier and Rubenstein 2008a, 2).

The American and Canadian auto industries are no longer centered in Michigan andsurrounding states and southern Ontario. Only about a quarter of all auto parts are nowproduced in this region. This change is very visible in terms of jobs. In 1990, Michiganhad 289,000 jobs in the motor vehicle industry while in 2008 the number of industry jobsin Michigan had fallen to 181,000 (Klier and Rubenstein 2008a, 2).

Geographic dispersal is still limited, however. Auto production is highly clustered ina small, albeit different, portion of the country—the so-called “Auto Alley.” More thanthree-fourths of auto industry jobs and facilities are now located in this “narrow corridorbetween the Great Lakes and the Gulf of Mexico formed by two north-south interstatehighways, I-65 and I-75” (Klier and Rubenstein 2008a, 3). These locations, in the interiorof the continent, make delivery of the assembled autos more economical by allowing asmaller number of larger plants to reach a larger number of sales sites in less time.11

The shift from the vertically integrated model of auto production has been complex anddynamic. The more de-integrated model has been typically associated with the initiation of“lean” production techniques in the American industry and driven by economic, financialand competitive forces. We will explore this in a bit more detail below.

When did this begin? Today’s North American auto industry began in 1965 with theUS–Canada Auto Pact that encouraged the creation of integrated production and market-ing systems.12 Before that, auto companies produced “made in Canada” models for thenational market. But by the early 1960s, it was clear that this strategy was impossible tosustain. The Canadian market was too small and, lacking economies of scale, costs weretoo high.

The Auto Pact led to a much more integrated production system. This new system wasformalized in the Canada–US Free Trade Agreement. The result was the creation of larger,more efficient production units and increasing national specialization. During this period,Mexican parts manufacturers began to play a much larger role in the continental indus-try. In 1994, NAFTA further extended the integrated auto production system—particularlyenhancing Mexican participation.

Connections: logistics and infrastructure

The Martinrea image shows Tier II production sites. It does not show how these sites areconnected, how parts they produce all arrive at their destination on time. It does not showthe critical role logistics play in these highly extended production systems.

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At the Rouge plant, external logistics—that is, the movement of goods outside the plantcomplex itself—was limited to bringing in raw materials and moving out the final product:the automobiles. But in the new, decentralized model, logistics is a key function necessaryto ensure that parts and components get where they are supposed to be on a strict deliveryschedule.

The Ford system relied on large inventories to compensate for relatively high error ratesin parts production and to ensure that production lines would keep moving. Now, everystep in the production and transport process has to reach much higher quality standards toensure that the system works efficiently with very small inventories.

Efficient logistics and freight transport systems are central to the new productionmodel. The Martinrea assembly, for example, depends on trucks streaming out from eachof the supplier plants and reaching the loading dock in London on time. For US-basedsuppliers, this means crossing the Canada–US international border on rigorous JIT sched-ules. This is the same for every part, component, and module that eventually make up thefinished automobile.

The deeply integrated US–Canada auto production system is a bridge and tunnel oper-ation. Most parts and finished cars are moved by trucks, and funnel through just a fewborder crossings: the Ambassador Bridge and the Windsor Tunnel (both Detroit–Windsor),the Blue Water Bridge (Port Huron–Sarnia), and the Peace Bridge (Buffalo–Fort Erie). TheAmbassador and Peace Bridges account for almost half of the total traffic. The AmbassadorBridge itself—an 80-year-old, privately owned structure—is one of the world’s busiest bor-der crossings. By far the largest share of commercial traffic that crosses the bridge is relatedto the auto industry.

Volumes of auto related goods moving across the border declined after 9/11, roseagain, and fell sharply in 2008. In March 2010, however, Chrysler Group CEO SergioMarchionne underlined the continued enormous scale and importance of this cross-bordersystem: “Every day, the combined US and Canadian auto industry sends thousands ofcross-border truck shipments and well over $100 million of goods across the Detroit–Windsor border. These trucks carry vehicles and production parts that are destined forautomotive assembly plants in Michigan, Ontario, as well as other US states. The integra-tion of our industry makes the movement of trade between the US and Canada importantand dependent on each other. The North American automotive industry and the hundredsof thousands of employees in vehicle assembly and parts production depend on the smoothflow of just-in-time deliveries across this critical border gateway” (Marchionne 2010).

We have come to think of this as normal everyday stuff. But it is really a smallmiracle—maybe a large one—to get all of these bits and pieces that make up all of mod-ules that will make up an automobile across international borders on strict JIT timetables.North America’s freight transportation capacity is now as vital as its production capacity,and maintaining efficient, secure, and sustainable border crossings has become a much dis-cussed and difficult issue that involves federal, provincial, state, and local governments,many business and industry associations, as well as a wide array of organizations of civilsociety.

But here, the news is not good.In the 1980s and 1990s, the efficiency of our freight transport systems improved dra-

matically, and growing volumes of goods crossed the borders with little difficulty. Therewere many reasons for this: excess capacity in the freight transport industry, technologicalimprovements such as double stacking containers, and government policies of privatizationand deregulation.13

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But by the turn of the century, the transport system was heading toward crisis. Again,there are many reasons: the end of excess capacity, deferred maintenance, rising levelsof congestion, the failure of the NAFTA governments to harmonize many key transportregulations, and, of course, the impact of post-9/11 security measures and the “thicken-ing” of the border. By the early 2000s, the consensus view of many experts on freighttransportation was that the JIT-lean inventory system that enabled North America to com-pete successfully with Asian and European manufacturers was now reaching its capacity.Transportation infrastructure was now inadequate to handle the projected volume growthof North American supply chains freight flows.14 The danger was that this highly inte-grated system would be degraded. Corporate strategy would be forced to shift from “justin time” to “just in case”—that is, to rebuild expensive inventories—and perhaps even tocut back on cross-border integration. The result of these developments, observes ProfessorMary Brooks, one of Canada’s best-known specialists on freight transportation, “hasbeen to boost buffer stocks, and force just-in-time supply chain managers to re-examinetheir sourcing options; it is of concern to Canada that many US companies will sourcedomestically rather than within NAFTA due to border uncertainty” (Brooks 2004, 5).

That this hasn’t happened—yet—is a tribute to the people in the auto and transportindustries and to their ability to make do. But it is no precedent for the future.

There is no shortage of ideas on how to rebuild our freight transportation infrastructureand improve the flow of goods—even across secure borders. Security and border man-agement overlap with corporate strategy, logistics, and supply-chain management at thispoint.

Why haven’t we moved forward, given the severity of the problem? Why haven’t wetaken more aggressive, serious steps to meet this challenge?

One reason is that the recession both diminished traffic flows—for the moment—andalso limited funding that might be used for improvements. More profoundly, I think,is that there was never much cooperation among the three countries on transportationinfrastructure—and even that has eroded over the past two years.

No small part of the Obama government’s “stimulus” funds were spent oninfrastructure—including $5.4 billion on 4,200 mass transit projects and $24.1 billion on11,978 highway and bridge projects (AASHTO 2010). But most of this consisted of “shovelready” projects (in some cases, filling pot holes and fixing sidewalks) rather than morestrategic and longer-term projects that would begin the building of a modern continentalfreight transport system.

Underlying this is the fact that we have never really thought about how to build an inte-grated, sustainable, and secure North American freight transportation system, and, frankly,no one is thinking about this today. Note that there is not a single center in the threeNAFTA nations focusing on the study of North American (that is, continental as opposedto national) freight transportation systems.15 In a moment when fundamental infrastructureis thickening, crumbling and falling, it is vital that someone think about building an effi-cient, secure, and sustainable North American freight transportation infrastructure for thetwenty-first century. But this is on no one’s agenda.

The suppliers and globalization

Ford and the other automakers produced most of the parts that went into the final auto-mobile. They purchased a smaller number of parts from individual manufacturers. Thevalue chain in the de-integrated production system is now much more complex and elab-orate with Tier I suppliers building modules from parts and components (some of which

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are themselves complex sub-assemblies) supplied by Tier II companies; Tier II companiesbuilding components with parts supplied by Tier III companies and so on. Two-thirds tothree-quarters of the value of the finished auto is now created by the suppliers, and suppliersaccount for almost 80 percent of the total automotive industry workforce.16

This new production system is scarcely stable. Shifts in balance of power are tak-ing place up and down the value chain. A report by the Congressional Research Servicedescribes some of the changing relations between assemblers and parts suppliers:

Automakers are developing longer-term relationships with suppliers, rather than just awardingannual contracts to the lowest bidder, and they expect the suppliers to participate more fullyin product research and development. Nearly half of all auto industry R&D is conducted bysuppliers. The JIT inventory management system has pushed responsibility for inventory man-agement down the supply chain to the suppliers, as automakers demand that parts be deliveredonly when they are needed for final assembly. (Canis and Yacobucci 2010, 8)17

Rubenstein finds that the final assemblers have pressed suppliers to provide largerand larger units: “fewer, larger companies supplied carmakers with fewer, larger parts”(Rubenstein 2001, 96).

This has increased pressure for consolidation at the Tier I and II supplier level.Survivors are much larger, and, while they are more capable of delivering what the finalassemblers want, they also have more weight in the game. Suppliers want to choose wheretheir plants will be located, a decision that historically was made by the final assemblers.Many of these companies also now supply parts to several final assemblers who may wellbe competitors with one another. This underlines the shifting balance of power on the sup-ply chain as suppliers seek to broaden their base and limit dependence on a single client,while the firms on the rank above are concerned about confidentiality and reliability.

The North American auto industry provides a vivid image of the interface of global andlocal networks.18 It includes highly specialized local production sites linked in a complexcontinental structure set in an increasingly globalized system. Digging a little more deeplyinto the suppliers also gives us some sense of the dynamism that exists under the surface—under the nameplates—in the industry.

Klier and Rubenstein, in a paper written in 2009, find that less than half of the partsdelivered to US final assembly plants are made in the US by US-based companies. A quar-ter are imported and more than a quarter are made in the US by foreign-owned companies.They observe that:

. . . historically Canada was the leading international source of new vehicle parts, accountingfor one-third of all imported parts as recently as the late 1990s. A decade later, Canada’sshare of imported parts has fallen to less than 20 percent. With Canada’s decline, Mexico hasbecome the leading international supplier of new vehicle parts, at 25–30 percent. Japan andGermany together account for around one-fourth of parts. China’s share of new vehicle partshas increased sharply in the past few years, doubling from 5 to 10 percent of all parts between2006 and 2008. (Rubenstein and Klier 2009, 11)

Canada’s decline in the parts industry, they say, reflects the decline of the Big Threeautomakers and the increasing role of German and Japanese automakers that have theirown network of suppliers.

Klier and Rubenstein have also investigated the identity of the 150 largest suppliersof new parts to the North American auto assemblers. They found that between 1994 and2007, the share of these suppliers based in the United States declined from more than 70to less than 40 percent (see Table 1):

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Table 1. Location of owner of parts supplier.

Location of owner 1994 2007

United States 108 59Europe 20 39Asia 14 41Other 8 11

Source: James M. Rubenstein and Thomas H. Klier, “Restructuring of the Auto Industry: Geographic Implicationsof Outsourcing” (2009, 12).

. . . US-owned companies have declined from two-thirds to one-third of the largest suppli-ers. The increase in foreign-owned suppliers based in the United States has resulted fromboth acquisitions of US companies and entry of new firms into the North American market.(Rubenstein and Klier 2009)

The Tier II firms that supply Martinrea illustrate well these findings.The Canadian suppliers are all wholly owned subsidiaries of Martinrea, which itself

provides a fascinating picture of the dynamism that has characterized the auto parts indus-try. Martinrea is a private company formed in 2002 when Royal Laser purchased ReaInternational. As of June 2010, Martinrea employed some 6100 people at 31 divisionsin Canada, the US, Mexico, and Europe. (Martinrea International 2010a, 1).

Martinrea acquired the Canadian suppliers in the past few years and has made itself intoan important player in the North American and international industry. Alfield Industries is aTier II manufacturer of steel automotive parts and supplies several steel parts for the assem-bly (Martinrea International 2010b, 9). Kitchener Frame was another Martinrea subsidiarythat produced chassis for various SUVs and light trucks, and other parts for manufactur-ers including Chrysler, GM, and Ford. Martinrea bought the plant from ThyssenKrupp inDecember 2006. The acquisition also included ThyssenKrupp Budd’s systems assemblyfacilities, which allowed Martinrea to become an integrator of customer modules, includ-ing front and rear suspension modules for cars and sport utility vehicles, with locations inthe United States, Canada, and Mexico. Martinrea’s operation in Hopkinsville, Kentucky,was also part of this acquisition.19 Kitchener Frame’s Waterloo, Ontario, plant was sched-uled to be shut down in 2008 and, after much tumult involving the Canadian AutoworkersUnion and the community of Waterloo, was finally closed in 2010. Hydroform Solutions isanother wholly owned Martinrea subsidiary. This company represents one of Martinrea’score production assets—a technology that uses liquid under pressure to form metal intodies, often in complex shapes that are beyond the reach of standard die stamping.20

Nine of the 10 suppliers on the US side of the border are independent companies (oneis owned by Martinrea) and together brilliantly illustrate the global foundation of the NorthAmerican auto industry. The plants are in the US but in eight of the nine cases, the parentfirm is located in another country:

China Spring is a subsidiary of the Shanghai Auto Industrial Group (SAIC). SAIC movedits office to Michigan from California in February 1998 as part of a joint venture productionagreement with GM which required SAIC to purchase some high-end parts from the US mar-ket. A few years later, SAIC’s subsidiary suppliers such as China Spring obtained their firstpurchasing orders from US vehicle assemblers.

Cooper-Standard Automotive Inc., headquartered in Novi, Michigan, is an independentautomotive supplier specializing in the manufacture and marketing of systems and compo-nents for the automotive industry including body sealing systems, fluid handling systems, and

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NVH (noise, vibration, and harshness) control systems. Cooper-Standard Automotive employsapproximately 16,000 people with more than 70 facilities throughout the world in its NorthAmerica and international operating divisions.21

Flexitech, Inc. is located in Bloomington, Illinois. It designs, manufactures, and marketsautomotive hydraulic brake hoses to automotive assemblers. Flexitech is a joint venture ofthe Mitsubishi Corporation and Meiji Rubber & Chemical Company, LTD, and Freudenberg-NOK General Partnership. As of January 31, 2008, Mitsubishi Corp. and Meiji Flow Systemsown 100 percent of Flexitech Europe SAS, 100 percent of Flexitech RO SRL Romania and51 percent of Flexitech, Inc.22

Getrag is headquartered in Untergruppenbach, Germany, with manufacturing plants inGermany, Italy, Sweden, the UK, the United States, India, and China. Founded in 1935 asa manufacturer of high quality transmissions, the company designs and produces transmissionand drive-train systems. Delivering an annual volume of more than 2.6 million transmissionsand 740,000 axles, the company is the largest independent manufacturer of transmissions inthe world.23

Hi-Lex Cable Systems was established in 1978 in Battle Creek, Michigan, by Hi-Lex Corp,founded in 1946 and headquartered in Japan. The company is a leading supplier of controlcables, window regulators, door modules, and power closure products to some of the world’sleading auto manufacturers and is represented in all major automotive markets globally.24

MacLean Vehicle Systems, LLC, manufactures and distributes plastic and composite,fastener, power train, and suspension and linkage products for the original equipment man-ufacturers in automotive, truck/trailer, off-road, recreational, farm equipment, military, andaerospace markets. The company was incorporated in 1998 and is based in Mundelein,Illinois, with additional offices in Qingdao and Shanghai, China; Tokyo, Japan; Taipei, Taiwan;Quebec, Canada; Toluca, Mexico; Seoul, South Korea; and Bangalore, India. It is as a whollyowned subsidiary of MacLean-Fogg corporate holding company.25

Mando Corporation is a Korean firm, founded in 1962 and based in Pyung taek-si, SouthKorea. It develops and markets brake, steering, and suspension systems for the automobilemanufacturers and ranks No. 77 on the Automotive News list of top 100 global suppliers withoriginal-equipment automotive sales of $1.96 billion in fiscal 2006 (Wortham 2007). MandoAmerica Corp. opened its 150,000-square-foot factory in Opelika, Alabama, in June 2004 tosupply Hyundai Motor Co.’s assembly plant in nearby Montgomery. Less than a year later,a $35-million expansion more than doubled the Opelika factory’s size and made room forMando’s North American headquarters, which had been in Detroit. The latest expansion bringsMando’s total investment in Alabama to $86 million.26

Rassini (SanLuis Corporación S.A.B. de C.V.) Headquartered in Mexico City and foundedas a small suspension repair shop in 1929, Rassini today designs and produces auto parts forsuspension and brake systems and is the world’s largest designer and manufacturer of leafsprings. It is the primary producer of suspension components on the American continent andthe undisputed leader in the NAFTA and Brazilian leaf spring markets.27

Trelleborg AB is a Sweden-based chemical engineering firm founded in 1905. It is the par-ent company of the Trelleborg Group. The Group operates in four business areas includingTrelleborg Automotive, which supplies anti-vibration products for the light vehicles indus-try; Trelleborg Sealing Solutions, which is a supplier of precision seals for customers in theindustrial, automotive, and aerospace sectors; and Trelleborg Wheel Systems, which providesindustrial tires for forklift trucks and other material-handling equipment as well as special tiresfor agricultural and forestry machines. As of December 31, 2009, Trelleborg AB had approxi-mately 118 wholly owned subsidiaries throughout the world with around 20,000 employees inmore than 40 countries.28

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While some of the parts supplied to Martinrea are fairly simple metal pressings, oth-ers are assemblies with their own array of suppliers. For example, the rear differential isfabricated by Getrag, the German-owned company, in its plant in North Carolina. Getragassembles this component with parts shipped from a network of other plants. It should benoted that while we know that the parent firms of eight of these plants are located outsideof the US, we do not know what or how much of the materials they use to manufacture theparts shipped to Martinrea in Ontario are sourced in the US, North America or somewhereelse. Nor have we examined the ownership of the parent companies of the Tier II suppliers.We know where they are located, but not—not yet—who owns them.

Almost all of these Tier II suppliers are international players in the auto industry. Whilesome foreign firms in the North American auto industry are well known—such as Toyota,Volkswagen and Honda—others are not. How many people have heard of Mando, Telleborgor Getrag? But these firms—as well as the US- and Canadian-based supplier firms—arebig deal companies, with substantial work forces and an international presence.

Some of these suppliers may well be on the next first team. Magna29 is a very large,global Tier I supplier of many auto components with serious ambitions to move up thesupply chain. It has seen itself as a “Tier 0.5” supplier—delivering larger portions ofthe auto bodies or even, in the not too distant future, a complete body module. Magna’sSteyr-Diamler-Puch assembly facility in Graz, Austria, is an example of a supplier takingassembly responsibility for an entire vehicle.30

It is not at all clear how production systems are likely to evolve over the next years. Willthere be further de-integration, re-integration, more globalization?31 One easy and obviousconclusion is that it no longer makes sense to speak of the North American auto industryin terms of the Detroit Big Three or of the Big Three plus foreign makers. We have toreformulate our vision of the industry with many more participants.

Unanswered questions

Can we still think in terms of a North American auto industry?32

With North America’s population pushing toward 500 million in the coming decades, itis difficult to envisage supplying the North American vehicle market entirely with imports.There will surely be a large domestic auto industry although precisely how large remainsuncertain.33 It is likely that when the industry revives after the current recession, it willdo so quickly, given the impact of delayed purchasing over the past years. Replacing bothpassenger and freight vehicles has been put off and fleets are aging. It is reasonable toproject a significant fleet replacement in the not too distant future.

It is hard to imagine that North America will be weaned off its auto fix. Althoughsome boomers are retiring from the suburbs to the city centers, most aren’t, and while thegoal of owning a house is slightly less attractive these days, most people still want to havetheir own house. This almost always means one or several cars. Metro-transit systems areenormously expensive to construct and are unlikely to be started in the foreseeable future.In any case, except for a few cities with extensive subway and bus infrastructure, mostpeople need a car to get to metro-transport stations. In short, individual autos of some sortwill continue to rule.

This relatively rosy view does not mean that we can anticipate a neat fit betweenthe existing supply of auto production capacity in North America and new demands forvehicles. The rising cost of fuel, tougher environmental regulations, and new technologywill almost surely shift demand away from existing capacity. In short, the stuff we maketoday is probably not going to be the stuff people will want to buy in the near future.

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A recent article on Japan’s auto industry points to emerging problems (as well as poten-tial opportunities) for today’s auto industry caused by technological obsolescence. Japan’sauto manufacturing industry:

consists of a web of manufacturers like Toyota and Honda supported by thousands of com-panies that turn out engine blocks, exhaust pipes and hundreds of other parts specific to gaspower. According to a study published in August 2010 by the Shizuoka Economic ResearchInstitute, almost 30 percent of sales in Japan’s 34.6 trillion yen ($430 billion) auto parts indus-try come from parts that could be rendered obsolete by electricity-powered vehicles. (Tabuchi2010, B1)

The article continues that in areas particularly known for strengths in engine technol-ogy, the number jumps to 48 percent (Tabuchi 2010).

Assuming that there will be a large vehicle market in North America, the vital questionsare what and how much will be produced domestically and who will be the most importantplayers in the industry.

The decentralized supply system we have discussed could operate for other firms thatassemble and market autos. These might be totally new companies, companies involvedin other activities such as electronics, or companies already located somewhere along theauto industry value chain. This would particularly be the case if the technology of corecomponents such as motors and fuel changes radically.

A very big question is how much of the higher tech, higher value parts andcomponents—new green engines, batteries and such—will be owned by North Americancompanies. The core competence of the Japanese automakers lies in their corporate cul-ture and in their engineering, particularly of motors and drive trains. They controlled thesemost critical mechanical elements. China is likely to build greener autos in the US. Willthey control the most valuable technology?

Was the 1990s the high point of integration and will integration diminish now? It is hardto say. On the first bounce, much depends on whether Ottawa, Washington, and MexicoCity are able to work out more effective collaboration on border issues. Since 9/11, effortsto make our internal borders more “secure” have trumped efficient economic integration.Even without “thicker” borders, however, much needs to be done to restore our freighttransportation infrastructure of roads, rails, and bridges and create a freight transportationsystem appropriate for the new technology and new demands of the twenty-first century—which, as noted above, is on no one’s agenda.

Even if a substantial auto industry remains in North America, it is not clear whereit will be. We have seen the locus of auto production shift from the historical auto cen-ter of Michigan, to the US southeast (where the Asian automakers preferred to establishtheir plants) and to the Auto Alley described above. More recently, Mexican assembly hasexpanded substantially giving rise to fears in Canada that Mexico would take its placeas the US’s second most important auto partner. But some feel that cheaper assets in theold auto region will draw automakers back home. One auto site analyst observes, “As theindustry looks beyond the current gloom, it will continue to search for the best value. Someanalysts are suggesting that in this search for value, the Midwest could start to look attrac-tive again.” She quotes an expert on auto location: “There will be industrial assets availableat 25 cents on the dollar. ... The combination of cheap real estate and a skilled but under-employed work force prepared to make a deal on wages in places like northern Ohio couldmake things more interesting from a location perspective down the road” (Moline 2009).

Another important issue is how efforts to mitigate CO2 emissions will affect autodesign and production on one hand and auto use on the other. How autos are produced and

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used will be affected by changes in engines and fuel, and by new regulatory frameworksset up by governments. As noted above, we can assume major changes in vehicle design,propulsion, and fuel in the upcoming years, as well as new regulations that affect how wepurchase and use autos. Even when governments share common interests and objectivesin cleaner vehicles, differences in regulatory and border administration regimes continueto undermine deeper integration and greater efficiency. Michael Hart has shown howCanadian and US efforts to achieve basically the same goals of cleaner autos can becometrade barriers when communication, collaboration, and common planning are lacking.34

Labor needs in the industry are also a critical uncertainty. In the post-World War II era,the auto industry was the portal into the blue-collar middle class for millions of Americanand Canadian workers and the foundation for economic growth in the auto producingregion. Since the Auto Pact in 1965, the treatment of labor in Mexico’s auto industry hasbeen the center of controversy. While we can anticipate that a substantial auto industry willcontinue to exist in North America, it is not at all clear what kind of jobs will be availableand where these jobs will be.35

The three North American governments have continued to emphasize that NAFTAis a classic free-trade agreement among sovereign nations. But NAFTA implied nationalcompanies trading at arm’s length, not transnational companies operating joint productionarrangements within their corporate systems. Most of the proposals for improving NAFTAhave focused on ways to make it a more efficient trading system—like instituting a com-mon external tariff. But we must also ask how NAFTA can cope with the reality of deeplyintegrated, cross-border production systems and how it might be reshaped to better recog-nize and support these arrangements. We know that what has emerged in North Americais not just a free-trade agreement among three sovereign nations. We also know that NorthAmerica will never become the European Union. It is a different beast. We need to figureout what it is and how to make it work better.

And Canadian Studies . . .

What has all of this got to do with Canadian Studies? The obvious answer is that issueslike autos—as well as agriculture, energy, electronics—are critical elements of what US–Canada and North American relations are about. These issues are urgent from manyperspectives—competitiveness, jobs, income, demographics, the geographic distributionof economic activities, environment, and social policy.

The auto industry has been the biggest industry on the continent, deeply integratedacross the entire continent, has lost millions of jobs, and now represents a critical fron-tier of technological innovation. With autos, global competitiveness can be lost or globalcompetitiveness can be restored. Shouldn’t we be interested?

Why don’t we know more? There are lots of reasons. We have tended from beginning tothink of North America only in terms of the FTA and NAFTA—that is, as a trading block,and trade specialists have dominated research and writing on North America. I mentionedearlier that North America was institute “light.” That goes very much for academic organi-zations. Across all three countries only a bare handful of North American studies programsexist. Perhaps this is where we differ most with the EU, which is given a very strong com-mitment from the earliest days to create informed constituencies within universities andresearch centers and to encourage research, teaching and debate on European issues.

There are no on-going centers for research specifically on North American energy,North American transportation or North American autos. North America never made muchimpression in economics or political science departments; certainly not in business schools.There are no journals on North America, no business magazines.

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Except for two organizations produced by NAFTA—the Commission onEnvironmental Cooperation (CEC) and the Commission on Labor Cooperation (CLC)—there are no North American institutions. None of the three national governments has aNorth American ministry and critical departments such as transportation and environmentdon’t have a North American desk.

There is much informal contact, and regular consultative arrangements do exist at lowerlevels throughout the governments. But nothing suggests that anyone is thinking seriouslyabout North American policies, programs, or strategies.

In business, the success in the 1980s and 1990s in building new extended systems andthe rapid increase in the movement of goods across the borders in a policy environment ofderegulation and privatization convinced many that organizations, associations and, aboveall, government was unnecessary. No one wanted North America to be like the EuropeanUnion and, in addition, given the rising tide of hostility to globalization and outsourcing—not to mention supply chains as a major element of competition—companies were noteager to talk about their supply chains. Don’t ask, don’t tell . . .

So we wind up with remarkable asymmetry between the North American economy,which remains deeply integrated, and a North American governance system, which is veryweak, fragmented and uninformed. We depend greatly on a system about which we knowlittle.

While I am not going to advocate that Canadian Studies should become “NorthAmerican studies” (although I have done this), I do urge that the kind of topics I havediscussed in this article should be of greater interest to Canadian Studies, and that effortsshould be made to examine these issues from many disciplinary perspectives. What I urgeis not in any way to exclude the traditional core areas of Canadian Studies, but rather toenlarge the whole operation—to build bridges to new subject areas and bridges to newdisciplinary contacts.

Notes1. See, for example, Paul Ingrassia, Crash Course; The American Automobile Industry’s Road

from Glory to Disaster (Random House, 2010).2. For more (though not necessarily clearer) information on this, see the “Cars.Com American-

Made Index,” http://www.cars.com/go/advice/Story.jsp?section=top&subject=ami&story=amMade0808. See also Joseph B. White, “What is an American Car? These Days Its Hard toTell, and That Could Snag the Push to Save Detroit Auto Makers” and the interactive graphicthat accompanies the article online (Wall Street Journal, January 26, 2009) http://online.wsj.com/article/SB123265601944607285.html#articleTabs%3Dinteractive.

3. The only people who ever talked about a North American Union are those who desperately andfearfully oppose it.

4. See Stephen Blank and Jerry Haar, Making NAFTA Work; U.S. Firms and the New NorthAmerican Business Environment (Lynne Rienner for the North-South Center, University ofMiami, 1998).

5. Think of the difference in economic impact if a ship with a load of autos from South Korea,for example, was held up for a week, and the economic impact if the Ambassador Bridgewas closed down for a week. In the first, perhaps 5,000 autos would arrive late, annoying thepurchasers but not disrupting the economy. In the second, hundreds of factories would closetheir doors and thousands of workers would be out of jobs because parts and components didnot arrive on time, with huge regional and perhaps even national economic implications.

6. Thanks to Rob Wildeboar, Executive Chairman, Martinrea International, for permission to usethis image and for his encouraging the project.

7. None of the suppliers for this particular assembly is located in Mexico, which makes thiscomponent somewhat unusual in the industry. Still, Mexico, as we will see, is a very largeplayer in the North American auto industry.

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8. On Ford’s mass production system, see David A. Hounshell, From the American System toMass Production; The Development of Manufacturing Technology in the United States (TheJohns Hopkins University Press, 1984), Chapter 6. “The Ford Motor Company and the Riseof Mass Production in America” (pp. 217–261). On Ford’s vertical integration, see James M.Rubenstein, Making and Selling Cars: Innovation and Change in the U.S. Automotive Industry(The Johns Hopkins University Press, 2001), Chapter 3. “From Making Parts . . . ” (56–87).

9. See “History of the Rouge,” The Henry Ford Rouge Factory Tour (www.thehenryford.org/rouge/history.asp)

10. On this shift, see Womack et al., 58–62.11. See Thomas Klier and James Rubenstein, Who Really Made Your Car; Restructuring and

Geographic Change in the Auto Industry (Upjohn Institute 2008).12. Gary Hufbauer and Jeffrey Schott’s NAFTA Revisited: Achievements and Challenges (Institute

for International Economics, 2005) is the undisputed gold standard for all things NAFTA. SeeChapter 6, The Automotive Sector. See also Sidney Weintraub and Christopher Sands, eds.,The North American Auto Industry Under NAFTA (CSIS Press 1998).

13. See Stephen Blank and Barry Prentice, “Canada-US Transportation and Corridor Policies” inMonica Gattinger and Geoffrey Hale, eds, Borders and Bridges; Canada’s Policy Relations inNorth America (Oxford University Press 2010).

14. See Guy Stanley, “Review of Recent Reports on North American TransportationInfrastructure”, North American Transportation Competitiveness Research Council, WorkingPaper 3 (September 2007) http://natcrc.org.

15. See Stephen Blank, Graham Parsons, Juan Carlos Villa, “Freight TransportationInfrastructure Policies in Canada, Mexico & the US: An Overview and Analysis”North American Transportation Competitiveness Research Council, Research Paper No. 5,March 2008 http://www.portalfornorthamerica.org/teaching-resources/freight-transportation-infrastructure-policies.

16. These numbers come from a presentation by James Rubenstein (“Supply Base—Sizeand Interdependency”) delivered to a conference on “Competitive Forces Shaping theAuto Industry,” May 10–11, 2010 http://www.chicagofed.org/digital_assets/others/events/2010/automotive_perfect_storm/2010_Detroit_autoconference_Rubenstein.pdf.

17. See also James M. Rubenstein and Thomas H. Klier, “Restructuring of the Auto Industry:Geographic Implications of Outsourcing,” Industry Studies Association, 2009 AnnualConference www.industrystudies.pitt.edu/chicago09/docs/Rubenstein%202.2.pdf.

18. See Thomas H. Klier and James M. Rubenstein, “Imports of Intermediate Parts in theAuto Industry—A Case Study,” prepared for conference on “Measurement Issues Arisingfrom the Growth of Globalization” conference, November 6–7, 2009, in ConferencePapers W.E. Upjohn Institute for Employment Research, National Academy of PublicAdministration (August 2010), pp. 217–234 http://www.napawash.org/wp-content/uploads/2010/09/bea_2010_conference-papers_final.pdf.

19. This is a fairly complicated story that extended over several years and several threatened(and finally completed) closings. There is a fairly complete overview in Martinrea’s AnnualInformation Form for the fiscal year ended December 31, 2009, 7–11.

20. See Martinrea’s website for more information: http://www.martinrea.com/Public/Home.aspx.21. www.cooperstandard.com.22. www.flexitech.com/index.php?option=com_content&view=article&id=48&Itemid=54.23. http://www.getrag.de/en/16.24. www.hi-lex.com.25. www.mfmvs.com.26. www.mando.com. See also: http://investing.businessweek.com/research/stocks/private/

snapshot.asp?privcapId=75278 1.27. www.sanluisrassini.com.28. www.trelleborg.com/en/Home.29. http://www.magna.com/magna/en/about/.30. Magna came close to purchasing Opel from GM in the summer of 2009.31. For a sense of the dynamism as well as uncertainty in today’s supplier industries, see Grant

Thornton, “The North American automotive industry in 2012: Supplier opportunities” (GrantThornton LLP Corporate Advisory and Restructuring Services) Summer 2009. http://www.grantthornton.com/staticfiles/GTCom/CIP/Automotive/09%20Auto%20Whitepaper.pdf.

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32. See Canis and Yacobucci for a good background on the crisis in the US auto industry through2009.

33. A Special Report on the North American auto industry” from the TD Bank Financial Groupsees a new normal level in the US market of 14–15 million units over the next decade, downfrom the 16–17 million range achieved a few years earlier. (“North American Auto Industryto Bounce Back . . . But How High?” TD Economics, March 29 2010, 6: http://www.td.com/economics/special/dc0310_auto.pdf.

34. See Michael Hart, “Potholes and Paperwork: Improving Cross-Border Integration andRegulation of the Automotive Industry,” The Border Papers (C.D. Howe Institute Commentary,No. 286, April 2009).

35. See Sidney Weintraub, “Incomes and Productivity in the Auto Industry in North America,”in Weintraub and Sands, eds., The North American Auto Industry Under NAFTA; WilliamGreen and Ernest Yanarella, eds., North American Auto Unions in Crisis; Lean Productionas Contested Terrain (State University of New York Press 1996); Huberto Juarez Nunezand Steve Babson, eds, Confronting Change; Auto Labor and Lean Production in NorthAmerica (Wayne State University Press, 1998); and Norman Caulfield, NAFTA and Labor inNorth America, Chapter 6. The North American Auto Industry; The Apex of ConcessionaryBargaining (University of Illinois Press, 2010).

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Canis, Bill, and Brent D. Yacobucci, “The U.S. Motor Vehicle Industry: Confronting a New Dynamicin the Global Economy,” Congressional Research Service, Report R41154, March 26, 2010.

Gattinger, Monica and Geoffrey Hale, eds, Borders and Bridges: Canada’s Policy Relations in NorthAmerica, Oxford University Press, 2010.

Jensen, Cheryl, “For Baffled Buyers, a Guide to Cars Made in North America,” The New York Times,June 21, 2009.

Klier, Thomas H., and James M. Rubenstein, “Who Really Made Your Car?” Employment Research,Upjohn Institute, April 2008a.

Klier, Thomas H., and James M. Rubenstein, “Who Really Made Your Car? Restructuring andGeographic Change in the Auto Industry,” Upjohn Institute, 2008b.

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Moline, Ann, “Driving Forecast: Cloudy,” Site Selection Magazine, January 2009, http://www.siteselection.com/features/2009/jan/North-American-Auto/.

Rubenstein, James, Making and Selling Cars: Innovation and Change in the U.S. AutomotiveIndustry, Johns Hopkins University Press, 2001.

Rubenstein, James M. and Thomas H. Klier, “Restructuring of the Auto Industry: GeographicImplications of Outsourcing,” Industry Studies Association, 2009 Annual Conference, www.industrystudies.pitt.edu/chicago09/docs/Rubenstein%202.2.pdf.

Tabuchi, Hiroko, “Japan’s Auto Parts Makers Try to Anticipate Shift to Electric Cars,” The New YorkTimes, November 3, 2010, p. B1.

Womack, James P., Daniel T. Jones and Daniel Roos, The Machine that Changed the World, RawsonAssociates, 1990.

Wortham, April, “Mando expands Alabama plant for second time,” Automotive News,September 18, 2007. http://www.autonews.com/apps/pbcs.dll/artikkel?Dato=20070918&Kategori=FREE&Lopenr=309180006.

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