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posted on 02 April 2016

Auto Production Footprints: Comparing Europe And North America

from the Chicago Fed

-- this post authored by Thomas H. Klier and James M. Rubenstein

Today's footprints of motor vehicle production1 in Europe and North America appear at first glance to be remarkably similar: In both regions, plants producing motor vehicles are highly agglomerated, which is typical of manufacturing activities. The auto industry is a global industry: A dozen or so mass producers compete with one another around the world.

Because these automakers employ similar production models in their plants, one might expect similar forces to shape their production location decisions. This article evaluates whether the same general factors explain the broad patterns seen in the auto industry's footprints in Europe and North America. This question is of particular interest because to date, little comparative analysis of this kind has been performed, especially involving Europe as a whole. In general, most auto industry analysis of Europe has focused on its individual countries instead of the entirety of the region.

We begin the article with a description of the current distribution of motor vehicle production in both North America and Europe. Then we review the principles of agglomeration and industrial location theories and discuss their applicability to auto production siting decisions. Next, we examine whether these principles adequately explain changes in the geographical distribution of auto production in North America.

We outline key events in Europe around 1990 that affected the spatial distribution of auto production there. And we evaluate to what extent the principles of agglomeration and industrial location theories are sufficient to explain the changing geography of auto production in Europe. In doing so, we also illustrate the growing importance of a northwest - southeast corridor in Europe, where the auto industry has become concentrated. Furthermore, we discuss trends in auto assembly plant openings and closings - both inside and outside this European corridor of production - since 1990. Finally, we highlight the features of auto production in Europe and North America that are not consistent with agglomeration theory.

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