Case Synopsis
This teaching module is unlike the others available on the Portal for North America website. It consists of a single image of a component of an automobile - a rear suspension assembly produced by Martinrea International Inc., a Canadian based Tier 1 automotive supplier and supplier to other industrial sectors. This rear suspension assembly was produced at Martinrea's plant in London Ontario for just in time (JIT) delivery to General Motor's Cami plant in Ingersoll Ontario where it was used in the Chevy Equinox and Pontiac Torrent models. (Until December 2009, Cami Automotive was a General Motors-Suzuki joint venture. GM then purchased the Suzuki share.) This single image opens the way to the consideration of emerging trends and patterns in the North American and global automotive industry and, from there, into discussions of many key dimensions of our economies, government policy and social systems.
Educational Objectives
The objective would be to have students dissect this single image and ask, "What does it tell us and what questions does it force us to consider?" This exercise encourages students to explore the auto sector's impact on the North American economy, transportation infrastructure, and the environment. With a little imagination, this single image can serve as the foundation for discussions concerning trade, extended production systems, outsourcing, logistics, transportation, and climate change, as well as Canada-US and North American relations.
One would probably begin by focusing on the system of suppliers of parts for this assembly. First, who are they and where are the located? From this, a wide array of questions will emerge dealing with topics from logistics management to transportation and to how JIT systems affect climate change.
One would probably begin by focusing on the system of suppliers of parts for this assembly. First, who are they and where are the located? From this, a wide array of questions will emerge dealing with topics from logistics management to transportation and to how JIT systems affect climate change.
Teaching Plan
The first cut at the image shows clearly the depth of the North American auto production system. The auto sector in North America is characterized by "deep" integration: "We don't sell cars to each other. We make them together." (This idea is developed in greater detail in another Teaching Module, The North American Free Trade Agreement and North America.)
The North American automotive sector is structured by supply chains that cross national borders and link specialized production facilities spread widely through the three NAFTA nations. To build this one component of the final automobile, parts are brought together from thirteen different suppliers - three in Canada and ten in the US - located in Ohio, Michigan, North Carolina, Alabama, Kentucky, Illinois, Indiana and Ontario. This leads into many important and interesting themes.
Trade policy issues can be considered here. The North American auto industry began with the Auto Pact of 1965 which created an integrated Canada-US production and marketing system. Mexican involvement increased as its parts industry developed. The 1988 Canada-US Free Trade Agreement (FTA) formalized the new system that had emerged since 1965. This led to the creation of larger, more efficient production units and encouraged national specializations. In 1994 the North American Free Trade Agreement (NAFTA) further extended the system - particularly Mexico's involvement - but the NAFTA agreements implied national companies trading at arm's length, not transnational companies trading as a function of joint production within their corporate systems.
The three national governments have continued to emphasize that NAFTA is a classic free trade agreement among sovereign nations. To address this issue, students might consider: how does trade theory cope with the reality of deeply integrated, cross border production systems? How might NAFTA be reshaped to better recognize and support these arrangements? What has emerged in North America is not just a free trade agreement among three autonomous nations. What is it?
The enormous change that has taken place in the structure of auto production reveals a great deal about trends in manufacturing strategy. In the traditional "Ford" model of auto production, the entire value chain was "internalized" under one management, with one owner and in one location. Today, this model has been replaced by a much more decentralized system. The auto industry is now characterized by de-integration - "outsourcing" - along much of the value chain. For courses in international business, management, strategy and IPE, the North American auto industry is a remarkable example of dramatic changes in organizational structure and strategy that have taken place throughout our economy in the past few decades. The module provides an excellent opportunity to discuss the strengths and weaknesses of this new model of corporate organization.
If we peer more deeply into this image, we see the incredible complexity of the North American auto supply chain system. As noted, Martinrea's rear suspension assembly combines elements from thirteen Canadian and US suppliers. Several of these suppliers are wholly owned by Martinrea, several are independent companies. Some of them provide similar components to several different auto makers.
It would be interesting for students to investigate each of these suppliers in detail. For example, some of the components supplied to Martinrea's plant in London are themselves assemblies with their own array of suppliers. The rear differential is supplied by Getrag, a German-owned company, from its plant in North Carolina. It assembles this component with parts shipped from a network of other plants.
Another key issue is how all of these components arrive at their destinations on time - that is, the critical role logistics plays in these highly extended production systems. The Martinrea assembly depends on trucks streaming into and out from each of these supplier plants, crossing the Canada-US border on strict JIT schedules and reaching the loading dock in London on time. This is the same for every component that eventually makes up the finished automobile.
This can lead into discussions about factors that impede the system including congestion, the lack of maintenance, the failure of the NAFTA governments to harmonize many key transport regulations, the impact of post-9-11 security measures and the "thickening" of the border. We can also examine ways to improve the flow (intelligent transportation systems for example). Security and border management and corporate strategy overlap with logistics and supply chain management as this point.
This image shows clearly the impact of globalization on the North American auto system. One dimension of globalization in the auto sector has been the expanding role of foreign companies. Foreign vehicles are exported to North America and produced here ("transplants") as well. In turn, the US Big Three firms also own foreign brands and produce vehicles overseas for both local and North American markets.
Under the name plate, foreign and North American elements are much mixed. Foreign companies supply parts and components for Big Three vehicles, often from operations in North America. Of the nine non-Canadian suppliers, three are American, one Chinese, one Japanese, one Korean, one German, one Swedish and one Mexican. Some of the foreign firms involved in the North American auto industry are well known - Toyota and Honda - while others are not. (For more details on Martinrea's supplier companies, see the Appendix below.)
Some of the suppliers - Martinrea, Getrag and Rassini - are themselves major international players in the auto industry. It no longer makes sense to speak of the North American auto industry in terms of the Detroit Big Three or even the Big Three plus foreign makers. The industry is obviously much more complex than this, with many more players located along the entire supply chain. A very interesting project would be for students to identify some of these new international automotive suppliers and to examine their business strategies.
Students should also consider which public policy issues are raised by building a tri-national manufacturing platform across three sovereign countries. Is a "national treatment" based agreement an adequate framework for managing the economic space jointly?
A recent but very important question is how climate change issues - particularly CO2 emissions-will affect freight transportation systems and JIT programs in particular. Even when governments share common interests and objectives in cleaner vehicles, differences in Canadian and US auto industry regulatory and border administration regimes continue to undermine deeper integration and greater efficiency. "Sustainable freight transportation" is much discussed now as are proposals to emphasize "local production" and to compress supply chains. On the other hand, new transportation technology and communications will enable even more extended supply chains in the near future! Considering ways in which companies are endeavouring to "green" the auto industry and the potential barriers to doing so could be another facet worthy of exploration.
Finally, how will the financial crisis of 2008 affect the North American auto industry? It might be interesting to examine the impact of the financial crisis on the Big Three, on foreign producers and on key automotive suppliers. With North America's population pushing toward 550 million, one cannot envisage supplying the auto market with imports. There will be a large domestic auto industry, and when it revives, it will do so quickly, one could assume, because of the impact of delayed purchasing over the past years. The interesting questions are how much - and what - will be produced domestically and, perhaps most interesting of all, who will be the most important players in the industry.
The North American automotive sector is structured by supply chains that cross national borders and link specialized production facilities spread widely through the three NAFTA nations. To build this one component of the final automobile, parts are brought together from thirteen different suppliers - three in Canada and ten in the US - located in Ohio, Michigan, North Carolina, Alabama, Kentucky, Illinois, Indiana and Ontario. This leads into many important and interesting themes.
Trade policy issues can be considered here. The North American auto industry began with the Auto Pact of 1965 which created an integrated Canada-US production and marketing system. Mexican involvement increased as its parts industry developed. The 1988 Canada-US Free Trade Agreement (FTA) formalized the new system that had emerged since 1965. This led to the creation of larger, more efficient production units and encouraged national specializations. In 1994 the North American Free Trade Agreement (NAFTA) further extended the system - particularly Mexico's involvement - but the NAFTA agreements implied national companies trading at arm's length, not transnational companies trading as a function of joint production within their corporate systems.
The three national governments have continued to emphasize that NAFTA is a classic free trade agreement among sovereign nations. To address this issue, students might consider: how does trade theory cope with the reality of deeply integrated, cross border production systems? How might NAFTA be reshaped to better recognize and support these arrangements? What has emerged in North America is not just a free trade agreement among three autonomous nations. What is it?
The enormous change that has taken place in the structure of auto production reveals a great deal about trends in manufacturing strategy. In the traditional "Ford" model of auto production, the entire value chain was "internalized" under one management, with one owner and in one location. Today, this model has been replaced by a much more decentralized system. The auto industry is now characterized by de-integration - "outsourcing" - along much of the value chain. For courses in international business, management, strategy and IPE, the North American auto industry is a remarkable example of dramatic changes in organizational structure and strategy that have taken place throughout our economy in the past few decades. The module provides an excellent opportunity to discuss the strengths and weaknesses of this new model of corporate organization.
If we peer more deeply into this image, we see the incredible complexity of the North American auto supply chain system. As noted, Martinrea's rear suspension assembly combines elements from thirteen Canadian and US suppliers. Several of these suppliers are wholly owned by Martinrea, several are independent companies. Some of them provide similar components to several different auto makers.
It would be interesting for students to investigate each of these suppliers in detail. For example, some of the components supplied to Martinrea's plant in London are themselves assemblies with their own array of suppliers. The rear differential is supplied by Getrag, a German-owned company, from its plant in North Carolina. It assembles this component with parts shipped from a network of other plants.
Another key issue is how all of these components arrive at their destinations on time - that is, the critical role logistics plays in these highly extended production systems. The Martinrea assembly depends on trucks streaming into and out from each of these supplier plants, crossing the Canada-US border on strict JIT schedules and reaching the loading dock in London on time. This is the same for every component that eventually makes up the finished automobile.
This can lead into discussions about factors that impede the system including congestion, the lack of maintenance, the failure of the NAFTA governments to harmonize many key transport regulations, the impact of post-9-11 security measures and the "thickening" of the border. We can also examine ways to improve the flow (intelligent transportation systems for example). Security and border management and corporate strategy overlap with logistics and supply chain management as this point.
This image shows clearly the impact of globalization on the North American auto system. One dimension of globalization in the auto sector has been the expanding role of foreign companies. Foreign vehicles are exported to North America and produced here ("transplants") as well. In turn, the US Big Three firms also own foreign brands and produce vehicles overseas for both local and North American markets.
Under the name plate, foreign and North American elements are much mixed. Foreign companies supply parts and components for Big Three vehicles, often from operations in North America. Of the nine non-Canadian suppliers, three are American, one Chinese, one Japanese, one Korean, one German, one Swedish and one Mexican. Some of the foreign firms involved in the North American auto industry are well known - Toyota and Honda - while others are not. (For more details on Martinrea's supplier companies, see the Appendix below.)
Some of the suppliers - Martinrea, Getrag and Rassini - are themselves major international players in the auto industry. It no longer makes sense to speak of the North American auto industry in terms of the Detroit Big Three or even the Big Three plus foreign makers. The industry is obviously much more complex than this, with many more players located along the entire supply chain. A very interesting project would be for students to identify some of these new international automotive suppliers and to examine their business strategies.
Students should also consider which public policy issues are raised by building a tri-national manufacturing platform across three sovereign countries. Is a "national treatment" based agreement an adequate framework for managing the economic space jointly?
A recent but very important question is how climate change issues - particularly CO2 emissions-will affect freight transportation systems and JIT programs in particular. Even when governments share common interests and objectives in cleaner vehicles, differences in Canadian and US auto industry regulatory and border administration regimes continue to undermine deeper integration and greater efficiency. "Sustainable freight transportation" is much discussed now as are proposals to emphasize "local production" and to compress supply chains. On the other hand, new transportation technology and communications will enable even more extended supply chains in the near future! Considering ways in which companies are endeavouring to "green" the auto industry and the potential barriers to doing so could be another facet worthy of exploration.
Finally, how will the financial crisis of 2008 affect the North American auto industry? It might be interesting to examine the impact of the financial crisis on the Big Three, on foreign producers and on key automotive suppliers. With North America's population pushing toward 550 million, one cannot envisage supplying the auto market with imports. There will be a large domestic auto industry, and when it revives, it will do so quickly, one could assume, because of the impact of delayed purchasing over the past years. The interesting questions are how much - and what - will be produced domestically and, perhaps most interesting of all, who will be the most important players in the industry.
Questions for Discussion
These discussions can lead on to key unanswered questions about the future of the North American auto industry:
- Can we still think in terms of a North American auto industry?
- Was the level of integration reached in the1990s the high point of integration and will it decline now?
- We saw major shifts in the location of the North American auto industry-- away from the traditional auto center in the rust belt. Will we see a further shift out of the traditional areas and towards, for example, Mexico?
- How will production systems/supply chains evolve over the next years? Further dis-integration, new integration, more globalization?
- One might ask, as well, who has benefited more - and less - from the emergence of this continentally integrated industry.
Relevant Courses
This module would serve well in a wide range of courses. It would be useful in courses dealing with International Business as a clear example of the impact of cross border production systems on international trade practice and policy. The module explores one of the industries that constitute the largest segment of North American trade and, in many ways, defines how the North American system operates. The Martinrea module provides important insight into recent changes in Corporate Organization and the impact of outsourcing. In this, it would make an excellent topic for courses in Management - and International Management in particular. Logistics is the key to the North American automotive system and the module would open the door for discussions of factors that affect movement along the supply chain. This is an excellent module for discussions on the success and failure of North American economic integration and would be useful in courses in International Politics and IPE. It would provide as well a good opening into the impact of the financial crisis on manufacturing and on the role governments might (or should not) play in rescuing firms in distress.
Useful Links from PNA
- The North American Auto Industry
- Washington in the Driver's Seat: Restructuring the Auto Industry
- PNA Experts: Automotive Industry
- Improving Cross-Border Integration and Regulation of the Automotive Industry
- 2010: Consumer Optimism's Return to America?
- Report Highlight: Freight Trucks and Climate Change Policy: Mitigating CO2 Emissions
- The Detroit Three... Two? or One?
Suggested Bibliography
I. Background on the North American Auto Industry
Gary Hufbauer and Jeffrey Schott, Chapter 6 "The Automobile Sector" in NAFTA Revisited; Achievements and Challenges, (Institute for International Economics, 2005) This is an excellent but now slightly dated overview of the industry.
II. On the Auto Pact
The Auto Pact: En Route to Free Trade; CBC Digital Archives
http://archives.cbc.ca/economy_business/trade_agreements/topics/326-1713/
Maureen Appel Molot, ed., Driving Continentally: National Policies and the North American Auto Industry (Carleton University Press, 1993)
Dimitry Anastakis, Auto Pact: Creating a Borderless North American Auto Industry, 1960-1971 (University of Toronto Press, 2005)
III. Changing Structure of the Auto Industry
Alfred Chandler, The Visible Hand: The Managerial Revolution in American Business (The Belknap Press of Harvard University Press, 1977)
James M. Rubenstein and Thomas Klier, "Restructuring of the Auto Industry: Geographic Implications of Outsourcing" (Industry Studies Association, Annual Conference 2009) http://www.industrystudies.pitt.edu/chicago09/docs/Rubenstein%202.2.pdf
IV. Logistics and freight transportation in North America
Stephen Blank and Barry Prentice, Canada-US Transportation and Corridor Policies, in Monica Gattinger and Geoffrey Hale, eds, Borders and Bridges; Canada's Policy Relations in North America (Oxford University Press, 2010)
ICF Consulting, 2010 and Beyond: A Vision of America's Transportation Future; 21st Century Freight Mobility NCHRP Project 20-24(33) A, Final Report, August 2004, Prepared for: The National Cooperative Highway Research Program (NCHRP)
Guy Stanley, "Review of Recent Reports on North American Transportation Infrastructure", North American Transportation Competitiveness Research Council Working Papers, No. 2 (September 2007)
Cambridge Systematics Inc, "Moving Cooler, "An Analysis of Transportation Strategies for Reducing GHG Emissions", Prepared for Moving Cooler Steering Committee (July 2009)
The Rocky Mountain Institute, "Transformational Trucking Initiative Report (June 2009) http://move.rmi.org/files/capabilities/transformationaltrucking/RMI_TTruckingInitiativeReport_090622_v1.pdf
Michael Hart, "Potholes and Paperwork: Improving Cross-Border Integration and Regulation of the Automotive Industry," C.D. Howe Institute Commentary: Border Papers, No. 286 (April 2009)
V. Climate Change and Freight Trucks
Jason Mark and Candace Morey, Rolling Smokestacks; Cleaning Up America's Trucks and Buses (Union of Concerned Scientists, October 2000) http://www.ucsusa.org/assets/documents/clean_vehicles/rolling_smokestacks.pdf
National Center for Freight and Infrastructure Research and Education, "Transport and Logistics Found to Be Chief Contributors to Greenhouse Gas Emissions" http://uwcfire.ning.com/notes/Transportation_&_Logistics_Make_Up_Most_of_Carbon_Footprint_for_Many_Businesses
Stephen Blank, Freight Trucks and Climate Change Policy; Mitigating CO2 Emissions (The Conference Board of Canada, Briefing, February 2010)
VI. Globalization of the Auto Industry
Timothy J. Sturgeon and Richard Florida, Globalization and Jobs in the Automotive Industry, Working Paper Series, Industrial Performance Center, MIT (MIT-IPC-00-012, November 2000) http://web.mit.edu/ipc/publications/pdf/00-012.pdf
Gary Hufbauer and Jeffrey Schott, Chapter 6 "The Automobile Sector" in NAFTA Revisited; Achievements and Challenges, (Institute for International Economics, 2005) This is an excellent but now slightly dated overview of the industry.
II. On the Auto Pact
The Auto Pact: En Route to Free Trade; CBC Digital Archives
http://archives.cbc.ca/economy_business/trade_agreements/topics/326-1713/
Maureen Appel Molot, ed., Driving Continentally: National Policies and the North American Auto Industry (Carleton University Press, 1993)
Dimitry Anastakis, Auto Pact: Creating a Borderless North American Auto Industry, 1960-1971 (University of Toronto Press, 2005)
III. Changing Structure of the Auto Industry
Alfred Chandler, The Visible Hand: The Managerial Revolution in American Business (The Belknap Press of Harvard University Press, 1977)
James M. Rubenstein and Thomas Klier, "Restructuring of the Auto Industry: Geographic Implications of Outsourcing" (Industry Studies Association, Annual Conference 2009) http://www.industrystudies.pitt.edu/chicago09/docs/Rubenstein%202.2.pdf
IV. Logistics and freight transportation in North America
Stephen Blank and Barry Prentice, Canada-US Transportation and Corridor Policies, in Monica Gattinger and Geoffrey Hale, eds, Borders and Bridges; Canada's Policy Relations in North America (Oxford University Press, 2010)
ICF Consulting, 2010 and Beyond: A Vision of America's Transportation Future; 21st Century Freight Mobility NCHRP Project 20-24(33) A, Final Report, August 2004, Prepared for: The National Cooperative Highway Research Program (NCHRP)
Guy Stanley, "Review of Recent Reports on North American Transportation Infrastructure", North American Transportation Competitiveness Research Council Working Papers, No. 2 (September 2007)
Cambridge Systematics Inc, "Moving Cooler, "An Analysis of Transportation Strategies for Reducing GHG Emissions", Prepared for Moving Cooler Steering Committee (July 2009)
The Rocky Mountain Institute, "Transformational Trucking Initiative Report (June 2009) http://move.rmi.org/files/capabilities/transformationaltrucking/RMI_TTruckingInitiativeReport_090622_v1.pdf
Michael Hart, "Potholes and Paperwork: Improving Cross-Border Integration and Regulation of the Automotive Industry," C.D. Howe Institute Commentary: Border Papers, No. 286 (April 2009)
V. Climate Change and Freight Trucks
Jason Mark and Candace Morey, Rolling Smokestacks; Cleaning Up America's Trucks and Buses (Union of Concerned Scientists, October 2000) http://www.ucsusa.org/assets/documents/clean_vehicles/rolling_smokestacks.pdf
National Center for Freight and Infrastructure Research and Education, "Transport and Logistics Found to Be Chief Contributors to Greenhouse Gas Emissions" http://uwcfire.ning.com/notes/Transportation_&_Logistics_Make_Up_Most_of_Carbon_Footprint_for_Many_Businesses
Stephen Blank, Freight Trucks and Climate Change Policy; Mitigating CO2 Emissions (The Conference Board of Canada, Briefing, February 2010)
VI. Globalization of the Auto Industry
Timothy J. Sturgeon and Richard Florida, Globalization and Jobs in the Automotive Industry, Working Paper Series, Industrial Performance Center, MIT (MIT-IPC-00-012, November 2000) http://web.mit.edu/ipc/publications/pdf/00-012.pdf
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