CAR Research Paper
Contribution of the Automotive Industry to the Economies of all Fifty State and the United States
Authors: Kim Hill, Debra Menk, and Adam Cooper
Produced by: Center for Automotive Research, Economic Development Strategies Group
Date: April 2010
Categories: Economic Contribution Analysis
The United States automotive industry is a critical component of economic growth with extensive interconnections across the industrial and cultural fabric of the U.S. This report outlines many known elements and highlights tremendously important associations beyond the market space of manufacturing. It touches on the following elements as they relate to the automotive industry: national and regional employment; research, development and innovation; state and local government revenues; foreign direct investment; education; health care; U.S. trade; and quality of life.
The paper is organized into two sections: Section I provides qualitative context and current market metrics for the automotive industry, both of which are needed to truly appreciate the contributions of the industry to the broader economy and gauge where the sector may be heading; Section II features an in-depth quantitative analysis of employment and personal income associated with the automotive sector. Section II is subdivided into four primary sections to capture the distinct contributions of suppliers, assemblers, and dealers to the national economy with a final summary section that describes the state-level employment associated with the automotive industry.
The auto industry is one of the most important industries in the United States. It historically has contributed 3 – 3.5 percent to the overall Gross Domestic Product (GDP). The industry directly employs over 1.7 million people engaged in designing, engineering, manufacturing, and supplying parts and components to assemble, sell and service new motor vehicles. In addition, the industry is a huge consumer of goods and services from many other sectors, including raw materials, construction, machinery, legal, computers and semi-conductors, financial, advertising, and healthcare. The auto industry spends $16 to $18 billion every year on research and product development – 99 percent of which is funded by the industry itself. Due to the industry’s consumption of products from many other manufacturing sectors, it is a major driver of the 11.5% manufacturing contribution to GDP. Without the auto sector, it is difficult to imagine manufacturing surviving in this country.
Recently, the auto industry has fallen on tough times. However, the U.S. market is still one of the largest motor vehicle markets in the world; consequently, many automakers sell and manufacture in the U.S. In fact, many automakers make the lion’s share of their profits in North America. There has been a period of restructuring by the three U.S.-based companies in order to right-size their operations and be able to respond to this fierce competition in the U.S. market. In the latest restructuring, a bursting of the housing bubble and a collapse of the financial sector led to the current period of extremely tight credit, making it nearly impossible for companies and consumers to make investments. During this period, many supplier companies, dealerships and a couple of manufacturers found themselves fighting for survival and turning to the lender of last resort–the federal government. This led to an amazing time of public introspection concerning the value to the country of a U.S.-based auto industry.
In this paper, the authors touch on many of the factors that support the auto industry’s importance and standing in the national economy, along with an estimate of the industry’s employment and economic contribution to the national economy and to each of the 50 states and the District of Columbia.
As previously mentioned, over 1.7 million people are employed by the auto industry. In addition, the industry is a huge consumer of goods and services from many other sectors and contributes to a net employment impact in the U.S. economy of nearly 8 million jobs. Approximately 4.5 percent of all U.S. jobs are supported by the strong presence of the auto industry in the U.S. economy. People in these jobs collectively earn over $500 billion annually in compensation and generate more than $70 billion in tax revenues.
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