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7/29/2020 Automotive Industry Revs Up in Eighth District Automotive Industry Revs Up in Eighth District 96-30 Contact: Charles B. Henderson (314) 444-8311 For release: April 24, 1996 ST. LOUIS -- Michigan and Ohio are still the dominant states for the automobile industry in the United States, but an analysis by an economist at the Federal Reserve Bank of St. Louis indicates that an increasing share of the nation's cars and trucks are being produced in five of the seven states in the Federal Reserve's Eighth District: Illinois, Indiana, Kentucky, Missouri and Tennessee. "All told, motor vehicle production in these five states in 1995 totaled about 3.8 million units -- an all-time record and more than triple the 1.1 million vehicles produced during the recession in 1982," says Kevin L. Kliesen, an economist with the Federal Reserve Bank of St. Louis. Kliesen's analysis and comments appear in "District Automotive Sector Flourishing," an article in the April 1996 edition of The Regional Economist, the St. Louis Fed's quarterly review of business and economic issues in the Eighth District. In all, six of the world's 10 largest automotive manufacturers have operations in the five District states. The analysis also reveals that the production of car parts is important to the District as well, with about 25 percent of the nation's automotive supply plants located in Illinois, Indiana, Kentucky and Tennessee. Some recent examples of these states' growing importance in automobile manufacturing include: Toyota's announcement last year of the construction of a $700 million plant just north of Evansville, Ind., to produce its full-size pickup truck, marking the sixteenth automotive manufacturing facility in the District states. Motor vehicle production in Tennessee in the past 20 years has increased from a little less than 3,000 units to more than 780,000 units in 1995. Auto production in Kentucky in 1975 totaled 240,000 units (a little more than 2.5 percent of U.S. Production), while it equaled about 8.5 percent of the nation's auto output by 1995. Kliesen says that the rise in foreign transplants like Toyota occurred in the 1980s for several reasons. First, Japanese manufacturers saw the establishment of manufacturing facilities in the United Sates as a way to stem protectionist legislation, thereby circumventing newly imposed restrictions on imports. Second, a sustained rise in the value of the yen against the dollar, beginning in 1985, substantially boosted the dollar price of imported Japanese vehicles. In addition, says Kliesen, both domestic and foreign manufacturers chose to locate in states such as Tennessee because their labor laws favor employers and the unionization rates are lower. He also notes that the average manufacturing wage rate in Kentucky and Tennessee ( the two states with the largest increase in automotive production over time) has been considerably lower than in Midwestern manufacturing states. Another important reason is that Illinois, Indiana, Kentucky and Tennessee have all offered lucrative financial incentives to attract manufacturers, including tax credits, capital improvements and worker training programs. "Although productivity gains have resulted in the loss of several hundred thousand jobs since the 1980s," says Kliesen, "the industry has rebounded impressively. Despite a slight drop in 1995, primarily because of https://web.archive.org/web/19970220113028/http://www.stls.frb.org/releases/9630.htm 1/2 7/29/2020 Automotive Industry Revs Up in Eighth District moderating economic growth in the United States, total U.S. automotive production was still near the all-time high set in 1978." Subscriptions to The Regional Economist are free and can be obtained by calling (314) 444-8809. The publication is also available on the Internet by contacting the Bank's World Wide Web site at: http://www.stls.frb.org. The Federal Reserve Bank of St. Louis has branches in Little Rock, Louisville and Memphis. It serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. In addition to serving as a bank for depository institutions and the U.S. government, each Reserve Bank supervises state-chartered member banks and bank holding companies, monitors economic conditions in the District and participates in formulating monetary policy. ### Please send comments or questions to henderson@stls.frb.org. This page has been accessed 51 times since August 12, 1996. https://web.archive.org/web/19970220113028/http://www.stls.frb.org/releases/9630.htm 2/2
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