REMARKS AS PREPARED FOR DELIVERY SANDY K. BARUAH ASSISTANT SECRETARY OF COMMERCE FOR ECONOMIC DEVELOPMENT - THE AUTOMOTIVE COMMUNITIES PROGRAM ANNUAL MEETING - DETROIT, MICHIGAN

WEDNESDAY, JANUARY 16, 2008

AS PREPARED FOR DELIVERY

Introduced by Kim Hill, Associate Director, CAR, and Director, Automotive Communities Program

Introduction
Thank you, Kim, for that kind introduction, and for the invitation to be with you and the Automotive Communities Program today. Let me begin by applauding the leadership you and David Cole have brought to this effort – you’ve done great work and I’m pleased to support your efforts.

There is no doubt that the manufacturing communities and auto manufacturing communities in the Great Lakes region in particular, face significant challenges. And while I see light at the end of the tunnel, we have challenges to face together first. The Automotive Communities Program led by the Center for Automotive Research and the University of Michigan is doing something about those challenges and I am pleased that the Economic Development Administration is able to be a partner in these efforts.

My job as the head of the Economic Development Administration is to help America’s economic regions prepare for what’s next. It’s a question we all ask – and have asked since the dawn of time. The difference is that in today’s dynamic, fast moving and shrinking world, what’s next is a question we find ourselves asking more frequently than ever before.

It is sometimes a tough question. There are people across this country, many right here in Michigan, who worked hard and played by the rules and believed that they could make a good living working in manufacturing their entire lives. It always hasn’t work out that way for some. It’s not their fault, it’s not the companies’ fault, it’s not the government’s fault, but the fact is that the rules changed on them and we must respond – and respond in a way that acknowledges reality and looks forward. We can leave the finger pointing to others.

Importance of the Automotive Industry

There nothing more quintessentially American than the automobile. The automobile is part of the American experience, and automobile manufacturing plays a major role in the American economy. The auto industry:

• Is directly responsible for 4.5% of U.S. GDP;

• Remains one of the economy’s best paying industries, with wages 79% greater than the average for all manufacturing industries;

• The auto parts supplier industry is the largest manufacturing sector in the country; and

• Every job with one of the “Big 3” has a multiplier of about 7.5 – for every job at Ford, GM, and Chrysler, another seven-and-a-half jobs are created in other companies and in other industries.

So, it is clear that the automotive industry is critical not only to this region, but to our Nation as a whole.

The Automotive Industry is Changing Along with the Global Economy

I’m not sure you need an outsider like me to share my opinion on the new realities of the auto industry, but I do think there are some key elements we must keep in mind as we work to adapt to the competitive environment of the 21st Century, and I’ll share seven such realties with you this morning.

First, the way automobiles are built has fundamentally changed in the last generation. Auto makers used to be fully vertically integrated, making all components of the vehicle and then assembling that vehicle. Ford went as far as owning its own glass and steel mills, and many owned forests and lumber yards when wood was still a key component of the automobile.

The shift to using third party suppliers for component parts has significant ramifications for auto communities. No longer will auto jobs be only with one of the major companies, but will be spread out over multiple, smaller companies. That will require a focus on developing, recruiting, and nurturing more smaller and medium-sized companies – as opposed to tending to just a few very large companies – a fundamental shift in economic development strategy.

Second, employment in the auto industry is not likely to grow – but NOT because the U.S. auto industry won’t be coming back. The reality is that never again will one country dominate the auto industry – or any other industry – again like the U.S. dominated the auto industry in years past. Certainly, we are competitive today and will become even more competitive tomorrow, but it is unrealistic to think that our world-wide market share will ever rise to previous levels.

More importantly, however, is that gains in productivity mean that more cars will be able to be built with fewer people. This presents re-training and reality check challenges for many. Unlike previous downturns in the U.S. auto industry, there will be no “waiting it out” and expect jobs to return.

Third, the reality of the 21st Century is that our competition is no longer the city, county, or state next door. Today, our competition comes from any person, on any point on this globe with a good idea, a good education, and good Internet connection. We need to move our economic development approach away from the city vs. city, county vs. county, and state vs. state approach of years past, and work together in a shared regional fashion. Our communities will be stronger if we stand together as opposed to standing alone.

Fourth, the world-wide market for automobiles is robust. In the U.S. alone we will sell about 16 million of these four-wheeled wonders. And as the world grows more prosperous it will demand even more cars.

This is good news for the Great Lakes region because not only does this region maintain its title of the auto production capital of the world, this is where the greatest concentration of auto-related R&D occurs. In fact, there are more engineers here in Southeast Michigan than there are in Silicon Valley – the intellectual horsepower of the world-wide auto industry is centered around the very spot we are today and that, my friends, is a significant competitive advantage for this region.

Fifth, we need to find ways to re-kindle the entrepreneurial spirit that spurred the auto industry in the first place. Unfortunately, the tremendous success of the American auto industry weaned this region from its entrepreneurial roots and we need to find it again. Fortunately, many organizations, such as Ann Arbor SPARK and Automation Alley are doing a great job of encouraging entrepreneurship, which is the lifeblood of a growing and diversified economy.

Sixth, we need to acknowledge that many – and perhaps most – Americans no longer consider cars either foreign or domestic. The American people are ‘hip’ to fact that an American car may not be American and a foreign car by not be foreign. Is a Toyota Camry built in Kentucky more or less “American” than a Ford Fusion built in Mexico?

Not too long ago I was having dinner with a bunch of economists – this fact alone should prompt you to question my judgment. During the dinner, the topic turned to did we drive a foreign or domestic car? The gentleman next to me voted that he drove an American car. I voted that I drove a foreign car. Turns out that we both owned the same Volvo. He voted his Volvo as “American” because Ford owns Volvo.

Seventh, the global marketplace is a reality and we hide from it at our own peril. I know many long for a simpler time, but the march of time has brought about what America has been working and fighting for for generations: a rising standard of living not just for Americans, but for people all over the world.

If the global marketplace instills you with fear, keep in mind the following facts:

• 95% of our potential customers as American businesses and workers do not call America home. That means the more prosperous the world is, the greater number of potential customers we have for American goods and services.

• The worldwide marketplace has dramatically lowered costs and increased choice for American consumers.

• According to the respected Financial Services Forum, America’s participation in the global marketplace benefits, on average, the American family to the tune of $10,000 annually as a result of improved purchasing power and the greater opportunities presented for U.S. goods and services in the global marketplace.

• Our trade deficit with countries in which we have a Free Trade Agreement is significantly less than our trade deficit with countries without a Free Trade Agreement in place.

• Every time America has tried to seal ourselves off from world market forces, such as the Smooth-Hawley Tariff days, our economy – and families – have paid a terrible price.

• The global marketplace has been good for the auto industry. Ford has been able to take advantage of its ownership of Volvo and Mazda to develop world-class vehicles such as the new Taurus X and Fusion. GM is about to re-introduce rear-wheel drive performance in the mid-price segment using engineering from their Australian subsidiary, Holden, for the new Pontiac G8. People who own the Chrysler 300C often brag that their car is related to the Mercedes E-Class. And let’s face it, foreign competition has clearly made the products from the Big 3 significantly better – and that’s good not just for the companies, but for us as consumers as well too.

We need to respond to these new realities by realizing that we are all in this together. The companies can’t do it by themselves, neither can the workers, nor can the government. The fortunes of this industry, and the communities dependent on this industry, are linked in a multifaceted scenario of “united we stand, or divided we fall.”

This international link is important to economy – especially now that U.S. exports to the world are booming. This is important, particularly to Michigan. Michigan is already a leader in exports with shipments of $40 billion in 2006, a 20% increase since 2002. Michigan businesses are doing business in 195 countries.

As Mississippi Governor Haley Barbour says, I may have been born at night, but I wasn’t born last night. I know that international trade and FTAs are controversial in some parts of our country, but the fact is that FTAs reduce barriers to U.S. goods and services, better ensure intellectual property protection, promote fairer and more transparent trading practices and government processes, and level the playing field.

But regardless of where you stand on Free Trade Agreements, we can all agree that our marketplace is truly global and economic prosperity is directly tied to our success in this global marketplace. Also, let’s consider that while the U.S. economy may be slowing after several years of unprecedented growth, let’s ensure that American workers have the opportunity to sell their goods and services to markets overseas.

EDA’s Relationship with Automotive Communities

At the Department of Commerce’s Economic Development Administration, we are committed to helping communities position themselves to capitalize on what’s next, and to create an environment that promotes successful engagement in the worldwide marketplace.

CAR and the Automotive Communities Program are great examples of the type of regional, collaborative approach with private sector engagement that it takes for communities to succeed in the 21st century.

That’s why EDA has supported CAR and the University of Michigan in the development of the University of Michigan’s Center for Economic Diversification. This Center, under the leadership of Dr. Larry Molnar, is partnering with CAR and other organizations to work with both the auto industry and auto-dependent communities to make them more competitive. This past September, I was able to visit first-hand the work that CAR, the University of Michigan and the Economic Development Administration are accomplishing together – and I am gratified with our shared progress.

Toledo, Ohio provides another example of an automotive community EDA is helping to diversify their economy in light of the restructuring of the domestic auto market.

A few months ago, EDA invested $2 million in the University of Toledo for a high-tech business incubator to supplement the university’s already successful Clean and Alternative Energy Incubator that will diversify the regional economy.

Also, in 2006, EDA invested $1.9 million in the Medical University of Ohio at Toledo to assist with infrastructure necessary to build the Medical University of Ohio’s Advanced Technology Park, in which companies will commercialize discoveries made at the Medical University into products that the global economy is demanding.

These two investments by EDA support the Northwest Ohio Technology Corridor, which will diversify that area’s economy beyond automobile and other manufacturing.

These are just a few examples of regions that are developing and implementing strategies to succeed in an era of a changing automobile industry, and that advance EDA’s three key policy objectives:

1. A collaborative regional approach to economic development.

2. Support for entrepreneurship…and

3. Advancing innovation and competitiveness – answering the what’s next question.

CLOSING

I understand, of course, that it’s a lot easier to highlight challenges and opportunities than it is to do something about them. Even with the resources I have at my disposal as the head of a Federal agency, I don’t have the brainpower nor the financial resources to alleviate the challenges faced by automotive communities in the 21st century global marketplace.

But you do have my personal assurance that the U.S. Department of Commerce and the Economic Development Administration is ready, willing, and able to continue to roll up its sleeves and work with the Great Lakes region on collaborative solutions to these challenges.

I am devoting a substantial amount of my time to the issues that impact Michigan and the greater Great Lakes region. Just recently, I’ve met with all the economic development districts in Michigan, the President and the Chairman of the Michigan Economic Development Corporation to discuss future shared efforts, increased our partnership with the University of Michigan, and met with senior executives of the Big 3 and Toyota.

All this has confirmed to me that we have a lot of work to do together, but it has also confirmed my confidence in this region and the U.S.-based auto industry. Product introductions that we will see today such as the Ford Flex, Chevy Malibu, and Dodge Ram are promising and, I believe, will find success in the marketplace.

The industry is on the path back, but the path back will be not to the days of the past. While success and prosperity lay ahead for this region, it will look quite different from the past: more entrepreneurial, more diverse, more leading technology, more knowledge-based, more regional collaboration, and more international in perspective.

Thank you for your kind attention and thank you for the important work you do everyday to transform your regions into successfully integrated participants in the global marketplace. At the end of the day, it is up to leaders like you to ask – and help answer – the important what’s next question for your region. Enjoy the Auto Show.

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