Will Detroit remain the U.S. auto industry’s center amid the switch to EVs?

August 24, 2022 5:43 am

Bills recently signed into law by Joe Biden should help the domestic auto industry. (Photo: Susan J. Demas/Michigan Advance)

Nearly seven years ago, General Motors CEO Mary Barra said she had “no doubt that the auto industry will change more in the next five to 10 years than it has in the past 50 years.”

She was prescient, to say the least. About the only thing that hasn’t changed is Barra, who still runs GM.

Unless you’ve been held hostage in a garage for the past few years by a bunch of old Baby Boomers working on their 1960’s-era muscle cars, you must know that automakers are making a sweeping transformation from gasoline- to battery-powered cars and trucks.

Just in the past few weeks, there’s been a frunkload of developments designed to hasten the manufacturing of electric vehicles and their adoption by consumers.

It’s a critical time for Michigan’s automakers and policymakers. Vehicle electrification presents a huge opportunity for the state to keep and grow its signature industry. But there’s a significant risk it all could go south — literally.

The biggest development on the electric vehicle front the passage of the Inflation Reduction Act, which will make $369 million in climate and energy investments. Included are lucrative consumer incentives to purchase North American-built electric cars.

But the rules are complicated. The old $7,500 electric vehicle tax credit went away on Tuesday, the day President Joe Biden signed what supporters called a historic measure to tackle climate change.

The new $7,500 credit is available only on vehicles manufactured in the United States, Canada and Mexico. There also are domestic content requirements for batteries, vehicle price limits and income limits for buyers. Used electric vehicle buyers can get a $4,000 credit.

Most vehicles on the market won’t qualify for the incentives initially. But the sweeteners are seen as crucial in making the United States far less dependent on battery materials from China, boosting affordability of electric cars and reducing destructive, climate-changing greenhouse gasses.

Transportation is the leading producer of greenhouse gasses, according to the Environmental Protection Agency.

“Overall, we believe the package as a whole is good for the industry,” said Glenn Stevens, executive director of MICHauto, which promotes the state’s auto industry.

August was a good month for Biden, as he also signed the long-delayed CHIPS and Science Act into law.

The act is potentially a godsend for automakers, whose sales have plunged since the COVID pandemic due to semiconductor and other parts shortages. The new law provides more than $52 million for U.S. companies to make computer chips domestically, lessening reliance on Asian producers who dominate the market.

That could be a boon to Detroit automakers moving away from the internal combustion engine. An electric vehicle requires 2,000 chips, double the number needed in a gas-powered car, Commerce Secretary Gina Raimondo said in a speech last year in Detroit.

Producing more chips domestically also is crucial in meeting the Biden administration’s goal of having half of all new vehicles being electric by 2030, Raimondo said.

Those still skeptical that electric vehicles will dominate the roads got a shock from automaker Stellantis, which announced on August 15 that it will end production of its Dodge Charger and Challenger muscle cars — the kind of rubber-burning, gas guzzlers Detroit has long been famous for — at the end of 2023. They’ll be replaced with electric models.

And Ford Motor Co. said on Monday it will slash 3,000 salaried and contract jobs. The automaker has said it will reduce jobs on the gas-powered vehicle side of its business as it transitions to an electric future.

But it’s not a given that this new electric vehicle industry will be based in Michigan. A recent CNBC story carried this ominous headline: “The Motor City is moving south as EVs change the automotive industry.”

Automakers have invested $11.8 billion in the South since 2017, nearly double the $6.7 billion they’ve invested in Great Lakes states, CNBC reported, citing data from the Center for Automotive Research in Ann Arbor. Much of the spending is for electric vehicles.

Stevens acknowledged it’s unlikely Michigan will capture electric vehicle manufacturing investment from foreign automakers, which have long been established in the South. But the state can successfully compete for plant investments from Detroit’s automakers, he said.

And it must intensely focus on maintaining its competitive edge in engineering, research and other knowledge jobs required to drive the electric vehicle industry.

Michigan leads the nation with 26 automaker and supplier headquarters and technical centers. But it’s in a serious competition from places such as Silicon Valley, Ontario and even Ohio, Stevens said.

Tax incentives, energy costs and availability of land are all important in landing electric vehicle investments. But the Supreme Court’s recent ruling overturning the right to abortion under Roe v. Wade could also play a role in retaining and attracting young, educated talent Michigan needs to grow the critical knowledge segment of the electric vehicle industry, Stevens told me.

“What’s the moral climate in the state? Is it welcoming, inclusive and gives people the ability to make choices? That’s a factor,” he said. “We’re seeing that play out in Indiana.”

Ball State University economist Michael Hicks recently predicted that Indiana’s new, ultra-restrictive abortion ban will exacerbate Indiana’s already serious brain-drain problem and harm the state’s economy.

“Every human resource official in every major business in America is watching the abortion debate,” he said. “They are well aware that abortion access is now a bellwether issue for Americans considering relocating for a job.”

This column was originally published in the Michigan Advance.

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Rick Haglund
Rick Haglund

Rick Haglund writes the "Micheconomy" column for the Michigan Advance. He's a former reporter and business columnist for Booth Newspapers, now the MLive Media Group, with extensive experience covering Michigan’s economy and the auto industry.