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Auto Industry Faces Profound Issues: Chicago Fed

Posted on: Tuesday, 18 April 2006, 10:05 CDT

By David Bailey

DETROIT -- U.S. automakers and auto parts suppliers face a string of issues created by the changed competitive landscape, Chicago Federal Reserve President Michael Moskow said on Tuesday.

"The challenges in the auto sector are profound and fundamental, affecting the viability of the manufacturers and parts suppliers as well as the hundreds of thousands of workers employed in the industry," Moskow said in remarks prepared for a Chicago Fed conference on the auto supplier industry.

Moskow did not address broader issues of the economy or monetary policy in his remarks.

The auto industry represents over 3 percent of U.S. gross domestic product and a bigger share of output in the Fed's 7th District, which includes the auto-dependent Midwestern states of Michigan, Indiana and Ohio.

As a group those three states have lost 17 percent of their jobs in the motor vehicle and parts industries since 2001, Moskow noted. The rest of the country has lost only 6.8 percent of its auto industry jobs during that time.

"Uncertainty about the automotive industry's future is foremost in the minds of the Midwest," Moskow said. "The industry and its traditional core region face a painful adjustment."

The central banker noted that the loss of market share by Detroit's "Big Three" automakers had hurt parts suppliers clustered in the Midwest.

"Since 1990 there have been eight new assembly plants built or announced in the United States ... All eight have been built by foreign nameplates, and seven of them are in the South," he said.

It remains to be seen if Midwestern auto parts companies can adapt to new customers and markets, and if so if they would need to move closer to the new plants, Moskow said.

"The transition to new customers may be a formidable challenge for many suppliers," he said.

Besides the central question of the prospects for a turnaround by the "Big Three," parts suppliers face issues of organizational restructuring plus changing labor relations, employment costs and working conditions, Moskow said.

Source: REUTERS

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