Rick Haglund: Michigan’s economy is more diverse, but still too dependent on the auto industry

GM headquarters, Detroit | Susan J. Demas

By Rick Haglund, Michigan Advance

There’s been so much hoopla lately about Michigan’s auto industry making a radical switch to electric vehicles, you might think there’s little else happening in the state’s economy.

But you’d be wrong. The vast majority of Michigan jobs are in health care, retail trade, finance and a variety of professional and business services, including accountants, marketers, engineers and consultants.

Just 170,000 of the state’s 4.3 million payroll jobs in April were in factories making cars, trucks and parts.

“Michigan’s economy is much more diverse than it was a few decades ago when we were extraordinarily dependent on manufacturing in general and the auto industry in particular,” Michigan State University economist Charles Ballard told me.

Motor vehicles and parts as a percentage of the state’s gross domestic product has fallen from 25% in the late 1960s to about 7% in 2018, according to data compiled by Ballard.

But the state’s economy needs to become even more diverse.

Despite having more jobs outside of factories, Michigan remains heavily dependent on the auto industry and durable goods manufacturing in general. The highly cyclical auto industry, while shrinking, is still big enough to push Michigan into deep recessions when the national economy stumbles. 

A report last year commissioned by the Detroit Regional Chamber’s MICHauto Group found the auto industry directly and indirectly employed about 1.1 million workers, or about 20% of Michigan’s workforce. Every new production job in an auto assembly plant, for instance, results in six or seven new spinoff jobs, experts say.

State government has placed a billion-dollar bet that auto industry employment in the state will grow in the transition from gasoline- to battery-powered vehicles. Gov. Gretchen Whitmer wants to raise the ante by another $500 million.

Michigan’s economic development strategy is primarily focused on boosting the auto industry and other manufacturing sectors. Most of the cash the state doles out under its primary Michigan Business Development Program is awarded to manufacturing projects.

But the job prospects in the electric vehicle are uncertain. It’s also unclear how successful Michigan will be in achieving its goal of remaining the nation’s center of electric vehicle design, engineering and manufacturing.

While Michigan has the most mechanical engineers of any state, it lacks the software engineering talent critical to the development of electric vehicles.

Michigan is the leading manufacturer of cars and trucks in the United States, responsible for 18% of the nation’s vehicle output. But that share is down from 27% in 1990, according to the free-market Mackinac Center for Public Policy. 

The inflation-adjusted value of vehicles and parts produced in Michigan has fallen from a high of $38.1 billion in 2007 to $30.7 billion in 2020, according to the St. Louis Federal Reserve.

And the state has lost about half its auto and parts manufacturing jobs over the past 22 years, according to the Bureau of Labor Statistics.

Michigan has a huge opportunity to prosper from the electric vehicle revolution. But the transition to battery-powered vehicles, arguably the biggest transportation upheaval since cars replaced horses as the primary way of getting around a century ago, also poses enormous risks to Michigan’s automakers and suppliers.

A recent study by the Massachusetts Institute of Technology’s Roosevelt Project found that a successful changeover to electric vehicles could result in the creation of 265,000 new manufacturing jobs in Michigan, Indiana and Ohio.

Doing so will require a variety of federal and state supports, including job training, tightening domestic content rules, expanding electric vehicle tax credits and ensuring equity in employment and investment, according to the study.

But Roosevelt Project researchers caution that other factors could make the upper Midwest a loser in the race to develop an electric vehicle industry.

China and Europe, which have more stringent vehicle emissions regulations than the United States, have a significant head start in developing electric vehicles, the study said.

Michigan, Indiana and Ohio are home to 34% of North America’s internal combustion production and 62% of North American transmission output, according to the Roosevelt Project. Electric vehicles don’t require those engines and transmissions, and the jobs that produce them.

Small auto suppliers, which are key players in Michigan’s manufacturing sector, may lack sufficient capital and size to capitalize on the electric vehicle revolution, the study found.

Roosevelt Project researchers interviewed 150 autoworkers, managers, former autoworkers and community leaders in Michigan, Indiana and Ohio, many of whom said they were not optimistic they will benefit from a new electric vehicle industry.

Autoworkers “grudgingly accepted that electric vehicle production would be better than nothing at all, yet also feared they would be easily replaced and ultimately left behind,” the study said.

That fear is borne out of decades of auto disinvestment in places like Detroit, Flint and Pontiac. Automakers have closed 180 factories in Michigan, Indiana and Ohio since 1980, the Roosevelt Project said, leaving an environmentally and economically scarred landscape behind.

Electric vehicles give hope for a newly invigorated domestic auto industry, but the industry’s job-loss track record can’t be ignored.

We can be proud of being home to an auto industry that other states covet. But Michigan’s economic development strategy must reflect the strong possibility that the auto industry will no longer provide the plentiful, middle-class jobs it did in the past.