The New Geography in the Global Automotive Industry 9798895300299, 9798895300770

Table of contents :
Contents
Preface
Abstract
1 Introduction
2 Chinese Automotive Industry
3 Indian Automotive Industry
4 Central and Eastern Europe
5 USA, Canada, Japan, Mexico and Brazil
6 Conclusion
References
About the Authors
Index

Citation preview

Marcelo José do Carmo Mário Sacomano Neto Júlio César Donadone Aditya Kuthar Shreya Gupta

The New Geography in the Global Automotive Industry Translation by Jane Godwin Coury

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Copyright © 2024 by Nova Science Publishers, Inc. DOI: https://doi.org/10.52305/NGSD2284

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Published by Nova Science Publishers, Inc. † New York

Contents

Preface

.......................................................................................... vii

Abstract

........................................................................................... xi

Chapter 1

Introduction .......................................................................1 1.1. International Division of Labor in the Automotive Industry 3 1.2. The New Geography in the Global Automotive Industry 4 1.3. International Vehicle Production 9 1.4. Joint Ventures in China 11 1.5. Clusters and Joint Ventures in India 12 1.6. Central and Eastern Europe 14 1.6.1. Slovakia ......................................................... 15 1.6.2. Czech Republic .............................................. 16 1.6.3. Poland ........................................................... 16 1.6.4. Hungary ......................................................... 17

1.7. Countries and Automobile Production (2000 and 2018) 1.8. How to Explain the Decline of Traditional European, US and Japanese Producers? 1.9. Changes in Workers’ Wages 1.10. The Impact of COVID-19 and Wars on Car Production Chapter 2

17 18 19 22

Chinese Automotive Industry .........................................25 2.1. Changan Automobile 28 2.2. Geely Group 29 2.2.1. Mergers and Acquisitions .............................. 29

2.3. Great Wall Motors (GWM) 2.4. SAIC Motor (Shanghai Automotive Industry Corporation)

30 30

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2.5. Chery Automobile 2.6. FAW (First Automobile Works) 2.7. Dongfeng Motor Corporation 2.8. BYD (Build Your Dreams) 2.9. GAC Group (Guangzhou Automobile Group) 2.10. Geographical Locations of Production and Vehicle Sales in China 2.11. Social Changes and Workers’ Situation in China 2.12. ‘Exploitation’ or New Opportunities for Workers?

31 32 33 33 34 34 37 39

Chapter 3

Indian Automotive Industry ...........................................43 3.1. The Three Clusters and the Constituent Companies 43 3.2. A Visual Representation of the Clusters 43 3.3. Salaries Prevalent in the Sector 44 3.4. Automotive Industry in India: Before and After 51 3.5. Automotive Clusters of India 52 3.6. The Pros and Cons of the Automotive Clusters 53 3.7. Labor Conflicts 56 3.8. Investments and Initiatives in the Sector 57 3.9. A Look at the Future 60

Chapter 4

Central and Eastern Europe ...........................................63 4.1. Czech Republic 68 4.2. Slovakia 68 4.3. Hungary 69 4.4. Romania 70 4.5. Decline of Germany, France, Spain, UK, and Italy 70 4.6. Job Creation and Job Losses 71 4.7. Salaries 73

Chapter 5

USA, Canada, Japan, Mexico and Brazil ......................75 5.1. Losses and Gains in Terms of Jobs and Wages 76 5.1.1. United States.................................................. 76 5.1.2. Japan ............................................................. 82 5.1.3. Mexico ........................................................... 83 5.1.4. Brazil ............................................................. 90

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Chapter 6

Conclusion ........................................................................93 6.1. The Role of the State in the Automotive Industry 98 6.2. Financialization in the Automotive Industry 99

References

.........................................................................................101

About the Authors ....................................................................................113 Index

.........................................................................................121

Preface

The automotive industry is a traditional object of sociological research in countries such as Brazil, Mexico and France, particularly within Sociology of Work and Organizations. Investigations multiplied throughout the 1980s, 1990s and 2000s, notably addressing aspects related to productive restructuring and its impacts on the labor market. Due to its uninterrupted transformation and enormous disruptive capacity, this industry often sets technological, organizational and management trends that inspire other sectors and underpin academic discussions in subjects such as Administration, Production Engineering and Social Sciences. This is how research and discussions concerning, for example, the transition from the Fordist model of work organization to the Toyotist model (or Japanese model, for a more comprehensive perspective) have multiplied in recent decades. In countries such as Brazil, academic production regarding the automotive sector dates back, at least, to the early 1980s. However, this initial research largely focused on how this industry symbolized the emergence of a developmental and import substitution cycle that would help the country to overcome its “economic backwardness,” to use a term coined by Alexander Gerschenkron. An automatic effect of this industrialization cycle formed a solid and significant industrial working class, especially in the ‘ABC Paulista’ region, where this industry practically began in Brazil. From then on, a successive wave of research emerged, focusing on the development of the “New Unionism” movement, the reasons behind the region’s productive depletion and the respatialization aspects that unfolded from the mid-1990s. These shifts were motivated by the economic liberalization policies during that period and the fiscal war between states and municipalities to attract new investments. At this point, a pivotal research agenda began on the new geographies of automotive production, a theme that guides this book. It is worth noting that the configuration of these new geographies of production, although only emerging as a topic of research in Brazil following the industrial decline in the ABC region, had already been the object of

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analysis in Europe. Countries, such as England, experienced significant plant closures between the late 1970s and early 1980s. In the United States during this period, there was a notable shift of automakers to southern states and later to the northern region of Mexico, forming what the literature termed the “maquiladora industry.” This refers to a network of vehicle assembly units characterized by intensive use of low-cost labor, which was a scenario further facilitated for corporations since the 2012 Mexican labor reform relaxed regulations. This book is a valuable contribution for all those interested in the functioning of the historical geography of capitalism, which is a perspective uniquely exemplified by the automotive industry. As Sociology has emphasized for several years, throughout the 20th century, capital has increasingly perfected its mobility capacity, subjecting communities, workers, and territories to heightened vulnerability to locational blackmail — the constant threat of plant closures. This process is due, for example, to union pressure and the reluctance of other agents to ensure production stability. As these plants adopt increasingly modern practices, characterized by highly compact industrial organization models, such as Completely Knock-Down (CKD) and its prefabricated and imported kits, the attachment of these companies to their locations weakens. Consequently, the trend of investment becomes more prevalent. This work accurately identifies these movements, particularly in terms of Foreign Direct Investments (FDIs), which inundate countries and regions lacking “indigenous” automobile groups and transform them into low-cost production and export platforms. This profile characterizes not only Mexico, but also Eastern European countries. On the other hand, emerging countries such as China and India, have been paving the way to their inevitable protagonism by strengthening many industrial sectors, including the automotive sector. However, as data provided by reputable sources, such as the International Organization of Motor Vehicle Manufacturers (OICA), presented throughout this book, indicate, the path chosen by these States extends beyond merely becoming greenfields of North American, European and Japanese corporations. They aim to consolidate the multinationalization of their companies, many of which are already competing in expanding market niches, notably electric vehicles. There is a wealth of data and evidence that helps to interpret the accelerated protagonism of these countries, especially China, which has pursued the development of the automotive sector as a long-term industrial policy aligned with a program to popularize and disseminate electric vehicles.

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On the other hand, traditional production centers in North America and Europe, if they have not experienced depletion, have been losing ground or specializing in areas that add significant value, such as product innovation processes, although they employ fewer people. Others, such as Brazil, despite recent efforts in industrial policies such as Inovar-Auto, face more dramatic and concerning cases as they face the enormous challenge of remaining competitive in the coming years. Finally, it is worth highlighting that the significant collective effort undertaken by Carmo, Sacomano Neto, Donadone, Kuthar and Gupta should be read as a defense of Economic Sociology. This subfield of Sociology is well-equipped to address a wide range of issues that require investigation, particularly those concerning the impact of financialization on corporate strategic decision-making and the increasing sophistication of global value chains, which deepen the international division of labor within this industry. This is a very welcome effort and adds to the commitment of numerous researchers who believe in the empirical potential of the automobile. They see its redefinition as key to enhancing Sociology´s role as a science attentive to ongoing disruptive processes.

Raphael Jonathas da Costa Lima Professor in the Graduate Program in Sociology (PPGS) Brazilian Research in Auto Industry (BRAIN) PPGA/PPGS/UFF Fluminense Federal University Volta Redonda, Rio de Janeiro, Brazil May 2024.

Abstract

The automotive industry has undergone significant changes in recent years, particularly regarding the geographical location of production. In 2000, automakers based in the United States, Japan, Germany, and France were responsible for a substantial portion of global automobile production, accounting for 42% of the total output, according to data from the International Organization of Motor Vehicle Manufacturers (OICA). China ranked eighth, producing two million cars, which accounted for 4% of the world’s total production. India stood in 15th position, manufacturing only eight hundred thousand automobiles within its borders, comprising slightly over 1.5% of global production. Two decades later, the landscape has completely changed. Although the USA, Japan, Germany and France remain among the world’s largest producers, their share of global production has decreased. From 2000 to 2018, their output fell from 31 million cars to 28 million, reducing their share of global production from 42% to 30%. China saw a meteoric rise in automobile production, increasing from two million cars in 2000 to 27.8 million in 2018. This surge secured China’s position as the world leader in automotive manufacturing, accounting for 30% of the 95.6 million cars, both light and heavy, produced globally that year. Meanwhile, India moved from fifteenth to fourth place. Car production surged from eight hundred thousand in 2000 to 5.1 million in 2018, marking a six-fold increase over eighteen years. Where and how much do automakers produce and in what way? Through joint ventures or alone? What situation are the new players in, such as China and India? How can we explain the decline of the old European producers, the USA and Japan? To what extent have these changes in production location affected countries and the automotive sector itself, especially in terms of workers’ wages? The purpose of this book is to map the geographical changes in world automobile production and to attempt to answer these questions using an analytical framework grounded in economic sociology. Through case studies, our aim is to investigate how car manufacturers (large multinational companies) have structured new industries in emerging countries, restructured

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their domestic bases and developed new production regions. We conducted an exploratory analysis of the global automotive production situation, its geographical shift, and the impacts this shift has had on workers’ socioeconomic conditions and all those involved in what remains one of the largest industrial sectors. Keywords: automotive sector, production region, joint venture, economic sociology

Chapter 1

Introduction The automotive industry is currently facing several challenges ranging from the rise of emerging economies to new mobility, environmental product responsibility, and digitalization of production to the issue of changes in the geography of production. Moreover, companies are restructuring their processes internally, which significantly impacts labor, while externally, they are structuring new industries and manufacturing elsewhere, particularly in China and India (Pardi, 2017, D´Costa, 1993, 2009, 2011). Furthermore, the internationalization process of the automotive industry has notably accelerated in recent years, and this process is one of the main strategies of vehicle manufacturers. Thus, internationalization, geographical distribution and the international division of labor are key issues in understanding the dynamics of the automotive sector (Freyssenet and Lung, 2004). Although the expansion of the automotive industry is global in nature, the realities and peculiarities of each market call into question the existence of unique production models, as a result of the legitimization of best management practices. Volpato (2002) points out that internationalization of the automotive sector has two extremes: on the one hand, a significant standardization of organizational forms and decision-making processes emanating from the headquarters and, on the other, locality and adaptation to each regional context. Freyssenet and Lung (2000) suggest possible scenarios for the automotive industry: (1) global homogenization at the extreme, (2) regional heterogenization at another extreme and (3) regional diversification with global “commonalization” (a term explained in the next section of this chapter) as an intermediate alternative. As Freyssenet and Lung (2004) point out that the challenge for the automobile industry in the 1980s was to change its industrial models; since the 1990s, the challenge has been to reorganize internationally. The automotive industry is facing the following scenario: either these companies remain profitable in unstable international environments, potentially leading to competitive homogeneity in terms of production, capital and labor, or they look for different locations in regional economies where conditions for regulated growth can be created (Freyssenet & Lung, 2000). The authors also

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state that internationalization is under the impact of four different and contradictory processes: financial globalization; the liberation of international trade; the constitution of regional entities around each pole of the triad; and the emergence of new industrialized countries. According to the authors, these processes reinforce the global nature of the competitive process and lead to different paths toward internationalization. New producing countries have appeared in Asia (China and India) and Central Europe (Poland, Czech Republic), as well as Russia and Ukraine. The purpose of our book is to map the geographical changes in world automobile production and to attempt to understand them by using an analytical framework grounded in economic sociology. By studying case studies, we aim to investigate how car manufacturers (large multinational companies) have structured new industries in emerging countries, restructured their domestic bases, and developed new production regions by conducting an exploratory analysis of the global automotive production situation, its geographical shift, and the socio-economic condition impacts on workers and all those involved in what nowadays is still one of the largest industrial sectors. In addition to this new geographical configuration of production, the impacts on workers’ work and wages will also be analyzed. In the tables below, we describe all the main countries in terms of production volume in 2000 and 2018. Then, another table shows how much each automaker produced at the beginning of the 21st century and how much was produced in the 2020s. In addition, a survey of wages was carried out. This was done to show that mature automakers pay different and generally lower wages in the countries to which they are migrating and higher in their headquarters, but this cannot be generalized as there may be different dynamics in each automaker. This book adopts a qualitative and exploratory research approach, using case studies from car manufacturers worldwide, examining their locations in various countries and their relationships with other manufacturers, including international joint ventures. The research is documentary in nature, conducted through electronic surveys and secondary data analysis, followed by content analysis guided by economic sociology. The purpose is to analyze economic phenomena through sociology, from a multidisciplinary approach, aiming to integrate different dimensions into economic analysis. The data collected were obtained from the International Organization of Automobile Manufacturers (OICA) at the www.oica.net website and the figures related to employment and salaries at www.glassdoor.com and www.paylab.com, which are international salary survey platforms. The bibliography can be found at www.gerpisa.org. Other data were collected

Introduction

3

electronically on the internet from the various websites listed in the references at the end of the book.

1.1. International Division of Labor in the Automotive Industry Internationalization, geographical distribution and the international division of labor are essential themes for understanding the dynamics of the contemporary automotive sector. These issues have become even more relevant due to the stabilization of vehicle production and sales in the Triad markets: the United States, Japan and Europe, as pointed out by Humphrey, Lecler and Salerno (2000). As a result, there has been a significant change in the role of regional markets and a new geography in the global automotive industry (Lung, 2000; Guzik, Domański & Gwosdz, 2020; Marx, Mello & Lara, 2020). In recent decades, the sector has expanded its production structures in most countries worldwide. According to Humphrey, Lecler and Salerno (2000), the dynamics of the automotive sector are mainly organized into three markets: Protected Autonomous Markets (PAMs); Integrated Peripheral Markets (IPMs); and Emerging Regional Markets (ERMs). The first (Protected Autonomous Markets - PAMs) comprises countries that have protected themselves from external competition through domestic markets, such as India, China and Malaysia. These countries sought a national orientation to expand their automobile industry to protect their markets from external competition (Humphrey, Lecler and Salerno, 2000). According to the authors, Malaysia opted to encourage local owners, while China sought modernization through joint ventures between Chinese and transnational automakers. Between 1996 and 1999, India attracted ten new ventures for passenger car production. The second (Integrated Peripheral Markets - IPMs) joins countries together that are located close to major markets, such as Mexico, the Czech Republic, Hungary and Poland. IPMs (Mexico and Central Europe) are fully integrated into their respective regional markets. According to Humphrey, Lecler and Salerno (2000), Spain has transitioned from an import substitution economy, protected by industry, to a major producer and exporter to European markets. Moreover, Mexico has specialized in serving North American markets. These countries have specialized in producing products with comparative advantages, such as high labor intensity in the manufacturing of parts and components (Humphrey, Lecler & Salerno, 2000).

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The third (Emerging Regional Markets - ERMs) consists of countries in the emerging blocs, such as Brazil, Argentina, Russia and Turkey. Although these markets represent “new spaces” for automakers and auto parts suppliers to operate, Humphrey, Lecler and Salerno (2000) mention that the internationalization of the automotive sector is not a homogeneous process. The EMR (Brazil, Argentina, Russia and the ASEAN countries - Association of Southeast Asian) are markets characterized by the regional integration of their countries. The future of these markets is uncertain as to whether they prefer a national automotive industry or integrate into the global automotive industry (Humphrey, Lecler and Salerno, 2000).

1.2. The New Geography in the Global Automotive Industry In 2000, a large part of the world’s automobile production was under the responsibility of automakers installed in the United States, Japan, Germany and France, which accounted for 42% of production that year, according to data from the International Organization of Automobile Manufacturers (OICA). China ranked eighth, producing two million cars, which accounted for 4% of the world’s production. India was in 15th position, manufacturing only eight hundred thousand automobiles domestically, which is just over 1.5% of the global production. Two decades later, the scenario has completely changed. Although the USA, Japan, Germany and France remain among the world’s largest producers, their combined share of world production has decreased from 31 million cars in 2000 to 28 million in 2018, resulting in a drop from 42% to 30% of global participation. China saw a meteoric rise, escalating from two million cars produced in 2000 to 27.8 million in 2018, securing its position as the world leader with 30% of the 95.6 million cars, both light and heavy, manufactured that year. Meanwhile, India moved from fifteenth to fourth place, with car production surging from eight hundred thousand in 2000 to 5.1 million in 2018, marking a six-fold increase over eighteen years. These two countries have dramatically risen in importance over the past two decades. China moved from eighth to first position, while India made a leap from fifteenth to fourth place in just eighteen years (OICA, 2019). This movement was twofold: first, mature automakers in developed capitalist countries sought lower production costs due to external competition and domestic market saturation; second, new automakers emerged in countries considered to be developing, particularly China and India, which have large

Introduction

5

consumer markets to be supplied, as well as in Russia, Iran, Central and Eastern Europe, and Southeast Asia. These regions invested in new companies and established international joint ventures with long-standing market leaders, such as General Motors, Ford, Toyota, and Volkswagen. In 2018, Volkswagen produced 10.9 million cars, of which 4,116 million were manufactured at 23 locations in China, through Joint Ventures with SAIC Volkswagen and FAW Volkswagen. The German automaker opened new vehicle and component factories in 2018. At the Tianjin plant, 300,000 SUVs are expected to leave the assembly line each year. The opening of the second vehicle plant in Foshan, which will increase the total capacity to 600,000 vehicles per year, is considered a pioneering role in the “Roadmap E” electrification strategy. In 2020, VW planned to start making vehicles based on battery systems known as the Modular Electric Drive (MEB) Toolkit and also the batteries themselves in Foshan. In Qingdao, electric vehicles will soon be produced alongside models with combustion engines. In addition to the production of battery systems for the MQB platform, the production of MEB vehicles was scheduled to start operating in Anting, near Shanghai, in 2020 (VW annual report, 2018, pp. 44-45). Extensive efforts made by Volkswagen in China have more to do with the positioning of the automaker to supply the demand for automobiles for a small segment of the country (with higher prices) rather than winning over a wide mass of middle-class consumers, as has been the case of India, which produces vehicles for large sections of the population, at lower prices (Pardi, 2017). In China, massive investments in automobile electrification are essential to becoming the world’s largest market for electric vehicles. The country has already witnessed the sale of almost one million new electric vehicles since 2011 (Boyer and Freyssenet, 2017, p. 5). There is also a need for developing and producing batteries, as well as integrating complementary technologies in the so-called Industry 4.0, thus achieving efficiency and synergy between suppliers and their factories (Minkoff, 2019). At the same time, relocating operations to China can lead to higher profits due to paying lower wages to its workforce, which has recently been integrated into the Chinese labor market (Glassdoor, 2019). Volkswagen’s production in China significantly exceeded production in Germany, which totaled 2.4 million cars, including the Audi and Porsche brands that are part of the Volkswagen group. It also produced over 1 million cars: 619 thousand in Mexico and 408 thousand in Brazil (OICA, 2019). In other words, from the 10.9 million automobiles produced by Volkswagen, only 2.4 million were manufactured in Germany, accounting for just 23% of

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its worldwide production. Conversely, in 2000, VW produced only 315,000 cars in China, and more than 2 million in Germany, with more than 40% production in its homeland (OICA, 2017, 2018, 2019). This trend is rapidly reversing, leading to a significant portion of certain automakers’ production being conducted outside the country, as demonstrated by the cases of Honda and Toyota (Lepadatu, 2018). Honda produced just 817,000 units in Japan in 2017 and 4.4 million units abroad, accounting for around 80% of the total. Toyota produced over 10.4 million cars in 2017, with only 4,264 million of them manufactured in Japan (OICA, 2019; Shintaku, 2016). The pursuit of cost-effective production and expansion into larger markets has been the primary focus of automakers in recent decades. However, there is considerable debate regarding whether this quest for efficiency has been achieved and whether developing countries have benefited from this new production configuration (Smitka, 1992, 2015, 2017, 2018a, 2018b, 2018c). The author questions whether China has an industrial policy. According to the author, some objectives were not achieved by the Chinese automotive industry, such as “the creation of national champions, the promotion of an independent technological base, low-cost cars,” but he says that the country has been “successful in developing an industry of local content” (Smitka, 2015, p. 6). As Tommaso Pardi (2017) defined: “In the case of China, we highlighted a two-fold anti-Fordist dynamic. First, at the market level, the accelerated growth of the 2000s was not driven by the demand from the middle classes, but rather by the “premium” demand of the urban elites. These were the main beneficiaries of the country’s boom in industrial exports and of the massive investment policies in infrastructure and industrial production. Second, precisely on account of this relatively atypical market configuration for an emerging economy, the structuring process of the Chinese automotive industry was placed under the control of multinational foreign manufacturers. It was carried out in accordance with the global standards of their advanced production systems. This structuring process involves very high capital intensity in the final stages of manufacturing and assembly, of which the costs are amortized by a flexible use of the labor force and a considerable amount of subcontracting. Amongst the consequences of this development, we have highlighted the polarization and the increasing segmentation of the labor force.”

Introduction

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And continues by saying: “At the top of the subcontracting pyramid, in the assembly plants, there is a core of urban wage earners who benefit from good working and employment conditions, and this may be associated with the model of High Road development, without being in any way Fordist. Indeed, one of the main challenges for the manufacturers and first-tier component suppliers is to train and retain a skilled core workforce to keep the high capital intensity side of the production apparatus going. However, alongside this highly qualified core of workers, there is an increasing number of migrant and precarious workers, even in the carmakers’ assembly plants, while the rest of the value chain is characterized by poor and worsening working and employment conditions, which corresponds to the Low Road model of development. This two-fold anti-Fordist dynamic recently led to a series of wildcat strikes that particularly affected the second-tier and third-tier component suppliers. More importantly, it is in opposition to the increasing need to rebalance the Chinese growth model of exports and investment towards one more geared to domestic demand (apud Pardi, 2017, p. 2).”

In India, on the contrary, the strategy focused on the mass market of the middle class, also through Joint Ventures and affordable products. One of the most notable and successful examples is the partnership between Maruti and Suzuki, which managed to produce cars priced as low as US$ 5,000 (Pardi, 2017). India has industrial relations different from those of China. As the world’s largest democracy, India adopts a model that accommodates labor unions, making labor costs higher compared to China. Accepting unions does not prevent the onset of violent strikes in the sector, especially in the largest one, Maruti-Suzuki (Nowak, 2016). In many cases, there are “two sets of employees doing the same job with different jobs in the same location, which is not only discriminatory, but also susceptible of gross supervision” (Sreenivasan and Tripathy, 2014, p. 499). In this article, they tried to understand the problems related to employment relationships in the Indian automotive sector and to analyze the reasons for these aggressions in the workplace witnessed in recent times. All of this is against a backdrop of huge transformations in the Indian workforce, which is mostly informal and has been changing rapidly (Srivastava, 2012). The current strategy of Indian automotive production is primarily focused on serving the gigantic domestic market, although exports also account for

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significant volumes. Hyundai, Renault, Nissan, Datsun, Mitsubishi, Ford, Fiat, Honda, Toyota, Volkswagen, Skoda, Audi, Jaguar, Land Rover, MercedesBenz, BMW and MINI are foreign automotive companies that manufacture and market their products in India (OICA, 2019). In Eastern Europe, countries such as Slovenia, Slovakia, Hungary, Poland, and the Czech Republic have seen an increase in automotive production. These nations have become destinations for new production plants, as manufacturers move operations from developed European countries to this region to benefit from lower labor costs. “One of the important aspects of the globalization of the automotive industry in recent years has been the rapid increase in the assembly of automobiles and equipment for the production of automotive components and parts outside the traditional regions of automotive manufacturing” (Pavlínek and Zenka, 2010). As a result, there is an expectation that “the possibility of cars and component production will be relocated from factories currently in operation in Spain and elsewhere to factories in other Central and Eastern European countries, and that new investments under corporate internationalization strategies may be directed to countries that seek to gain from the benefits inherent to installation in their states” (Bilbao-Ubillos and Camino-Beldarrain, 2008). Huge foreign direct investments were fundamental for the restructuring of the automotive industry in Central and Eastern Europe (Radosevic and Rozeik, 2005). Moreover, in addition to this geographical aspect and spatial changes in production, researchers have also been concerned with the issue of the future of work and the situation of wages in the automotive sector. The Fordism strategy including better wages, full-time jobs, bonuses, and other benefits, has been replaced by more flexible aspects, which allow outsourcing practices, lower wages, lack of benefits, part-time work, and differentiated salaries for the same positions, among other elements that undermine labor relations (Pardi, 2017; Wartzman, 2017) and concern the whole society. In parallel to these concerns about the future of work and changes in the geography of employment, as we will see later in this book, there are also theses about economic development and the origins of power, poverty and prosperity. In their famous book Why Nations Fail, Daron Acemoglu and James Robinson (2012) paint a more comprehensive picture of the development process of countries and argue that institutional aspects are fundamental in shaping the economic structures of contemporary society. In this book, they present the thesis that every society develops a set of political and economic institutions that are called extractive institutions and inclusive institutions. At the end of the book, the authors dedicate a section to China,

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arguing that China’s rapid development in the 21st century will be unsustainable and must be curtailed in the forthcoming years. This contention aligns with the observed trend, as China’s economic growth has been taking place on the basis of extractive institutions in the economy and mainly in politics, governed by a single party resulting from the 1949 revolution. The global production of automobiles, now spearheaded by China, operates within a framework of extractive institutions. These institutions have shown limited progress towards becoming inclusive, where the benefits of the process extend beyond the elite to the entire population.

1.3. International Vehicle Production We will now turn to the analysis of the first research results, utilizing the empirical data found, to gain a better understanding of this important industry. Before analyzing the automakers’ production locations, whether independently or through international joint ventures, we present below the number of cars produced for both light and heavy vehicles in the two years under scrutiny; 2000 and 2017. We do not have data for 2018 categorized by assembler. However, we do have complete data for 2017, as can be seen in Table 1.1, which will be presented later in the text. Table 1.1 illustrates the progression of global production among various assemblers, detailing the variations they experienced, whether positive or negative, over the specified period. Taking a brief look at the group of assemblers worldwide (the 50 registered by the OICA), we can see that most of them have increased their production volume in the last two decades. Moreover, 17 automakers increased their production between 2000 and 2017. Another, even larger group of 27 automakers, did not exist in 2000 or was part of other automakers that no longer exist. Only six of them showed a decrease in their production levels in this period of almost two decades. Apart from General Motors and Ford, which decreased their production by 17% and 13%, respectively, and Mitsubishi and Daimler AG, which also retreated 33% and 45%, respectively, all major automakers grew, especially the Chinese that already existed in 2000. The spotlight falls on Changan, showcasing a growth of 795%. Its production surged from slightly over 203,000 cars in 2000 to over 1.6 million in 2017. Furthermore, Dongfeng Motor produced 157,000 automobiles in 2000 and rose to 1.4 million in 2017, showing a spectacular growth of 925%. India’s Tata also grew enormously,

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from 193,000 cars produced in 2000 to 932 thousand in 2017, an increase of 380% while South Korean Hyundai grew by 290%, from 2.4 million in 2000 to 7.2 million cars produced in 2017. Table 1.1 shows the numbers in two periods. Table 1.1. Units produced in 2000, 2017 and variation in % Automaker Toyota Volkswagen Hyundai General Motors Ford Nissan Honda Fiat Renault PSA Suzuki SAIC Daimler AG BMW Geely Changan Mazda Dongfeng Motor BAIC Mitsubishi Subaru Great Wall Tata Iran Khodro Saipa Mahindra Isuzu Chery FAW GAC Anhui JAC Automotive BYD Brilliance Hunan Jiangnan China National Heavy-Duty Truck Chongqing Lifan Motor Co. Shannxi Ashok Leyland South East (Fujian)

2000 5 954 723 5 106 749 2 488 321 8 133 375 7 322 951 2 628 783 2 505 256 2 641 444 2 514 897 2 879 422 1 457 056 n/a 4 666 640 834 628 n/a 203 127 925 876 157 038 n/a 1 827 186 581 035 n/a 193 580 n/a n/a n/a 539 085 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

2017 10 466 051 10 382 334 7 218 391 6 856 880 6 386 818 5 769 277 5 236 842 4 600 847 4 153 589 3 649 742 3 302 336 2 866 913 2 549 142 2 505 741 1 950 382 1 616 457 1 607 602 1 450 999 1 254 483 1 210 263 1 073 057 1 041 025 932 387 710 869 648 324 612 595 612 421 605 331 592 688 513 870 493 199 421 590 362 166 315 363 296 594 214 145 189 066 160 208 159 473

Variation +75% +103% +290% -17% -13% +115% +108% +75% +60% +30% +125% -45% +300% +795% +75% +925% -33% +85% +380% +13% -

Introduction

11

Automaker 2000 2017 Variation Paccar 101 572 153 405 +51% Changfeng n/a 135 682 Rongcheng Huatai n/a 132 511 Tesla n/a 101 027 Haima Cars n/a 94 932 GAZ 227 673 88 902 -60% Chengdu Dayun n/a 79 737 Navistar 95 242 68 258 -28% Zhengzhou Yutong n/a 67 231 Proton n/a 67 170 Leyland Trucks n/a 59 795 Total 58 392 376 96 922 080 Source: http://www.oica.net/wp-content/uploads/2007/06/worldranking2000.pdf; http://www.oica.net/wp-content/uploads/World-Ranking-of-Manufacturers-1.pdf.

The fact that most automakers have increased their production volume, while their host countries have been declining in volumes (Table 1.2) is evidence that there has been a growing migration of production, mainly from Western Europe, the United States and Japan to Central and Eastern Europe, for Asia, Southeast Asia and Latin America. As there was no global decrease in production in the automotive sector; indeed, on the contrary, the production volume rose from 58 million in 2000 to 96 million in 2017, an increase of almost 70% in less than two decades. This migration alone explains the increase in global production combined with the decrease in production in the automakers’ host countries. What is happening is a restructuring of production in mature countries and structuring of new production regions aimed at reducing costs and accessing larger consumer markets (Pardi, 2017). Despite this trend, there are interesting contradictions in this process. For instance, Japanese automakers, such as Toyota and Honda have significantly shifted production not only to developing countries but also to the south of the United States (Lepadatu, 2018). However, that does not mean that they did not attempt, even in the wealthy United States, to pay less in cheaper places in that country, as is the case of some southern states in the United States of America.

1.4. Joint Ventures in China How are automakers producing vehicles in these new production regions, especially in China? We will see that it is mainly through joint ventures between mature and Chinese automakers, but not only this. China has at least

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seven large state-owned automakers: Shanghai Automotive; Beijing Automotive; Dongfeng Motors; Changan Auto; First Auto Works; JAC Motors; and Guangzhou Automotive (Dunne, 2018). Moreover, it has three more large non-state-owned automakers: Geely; Great Wall Motors; and Brilliance Auto (Armstrong, 2017). In addition to several others, there are approximately ten more small automakers. These large automakers have entered into agreements with traditional automakers, such as Volkswagen, Ford, Nissan, GM and Toyota, among others, to organize joint ventures that account for a large part of the automobile production carried out in China. The ten largest joint ventures operating in China were responsible for producing and selling more than 13 million cars, almost 50% of Chinese production in 2017, which was 28 million cars. There is no doubt that this business model has predominated and ensures mature automakers’ profits and access to huge consumer markets, such as China. For Chinese automakers, this is a partnership that has brought advantages, such as the country’s industrialization, infrastructure, employment, income (low, but created in places lacking opportunities) and increasing technological appropriation. However, the development of production in China has not solely relied on joint ventures. The remaining half of the 28 million cars were either manufactured by foreign companies in their own facilities or by small Chinese automakers. Today, the number of Chinese automakers exceeds 20 companies, and ten of these produce less than 350,000 units a year. The companies that did not exist in 2000 are increasingly contributing to the total production volume in China’s vast industrial park, distancing China from its North American, European and Japanese competitors each year.

1.5. Clusters and Joint Ventures in India Most of India’s automotive industry is divided into three “clusters.” Around Chennai, in the far south, is the largest cluster, with a 35% revenue share, representing 60% of the country’s automotive exports, and the site of operations for Ford, Hyundai, Renault heavy vehicle and engine factories, Mitsubishi, Nissan, BMW, Daimler, Mini etc (Menon, 2010). Near Mumbai, Maharashtra, along the Chakan corridor, near Pune, is the western cluster, accounting for 33% of the car market. Audi, Volkswagen and Sköda are located in Aurangabad. Mahindra and Mahindra have an SUV engine and assembly plant in Nashik. General Motors, Tata Motors, Mercedes Benz, Land

Introduction

13

Rover, Jaguar, Fiat and Force Motors also have automakers in this area (Cubiccapacity, 2009). The northern cluster is located in the capital region of the country and contributes 32% of production. Gurgaon and Manesar, in Haryana, are home to the country’s largest car manufacturer, Maruti-Suzuki. An emerging cluster is found in the state of Gujarat, with the installation of MG Motors, Atul Auto factories in Rajkot and Ford. “The Maruti-Suzuki and Peugeot-Citroen factories are also planned for Gujarat” (Pearson, 2011). Indeed, they have been built since then. There are also the cities of Noida, where Honda is located; Bangalore where Toyota is installed, as well as Volvo and Scania; and Isuzu and Kia are in Andhra. These cities are part of other regions of automotive production developed in the country. India’s largest joint venture is Maruti-Suzuki, which manufactures the Suzuki brand and sold 1,514,338 units in 2016. Mahindra & Mahindra (M&M) and Ford recently announced a joint venture, in which the Indian company holds a 51% stake. “This agreement includes Ford India’s automotive business (FIPL) and allows M&M to gain access to two new mid-size SUVs produced on the Ford platform, leading to a shorter model introduction cycle. In addition, upcoming emission regulations in India would increase the company’s R&D expenses. The JV will help both to reduce vehicle development costs” (Phillip, 2019). According to Tavares (2019), Ford is leaving India. “Factories, employees and dealerships will be transferred to the joint-venture, controlled by the Indian manufacturer” (...) “Ford will continue to hold control of the engine plant. This decision is a way for Ford to try to recover part of the more than $2 billion invested in India, which is the fourth largest automotive market in the world. However, the American brand has only a 3% share in a country in which Maruti-Suzuki dominates with a 50% market share. This agreement will help keep Ford in the local market and share the financial costs with Mahindra” (Tavares, 2019). The case of Ford in India reveals that the issue of production costs was fundamental, as Ford had migrated partially from the US (where it sharply reduced its workforce) and expanded its production in India, and now has practically withdrawn from the Asian country making its mark in a business in which it owns 49%. It is a significant retraction in its business strategy, but all in an attempt to survive in the face of this new context of world car production. “Among the measures adopted by Ford is the closure of the plant in São Bernardo do Campo, São Paulo, Brazil; the end of the operation in Russia and the closing of four factories in Europe” (Tavares, 2019).

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There are other joint ventures in India, such as Ashok Leyland - originally a joint venture between Ashok Motors (owned by the Hinduja Group) and Leyland Motors; currently, there are joint ventures between Ashok Leyland and Nissan Motors (Japan) for the manufacture of Light Commercial Vehicles and with John Deere (USA) for construction equipment (Ashok Leyland, 2019). There are also several notable joint ventures: KaMAZ Vectra - a joint venture between KaMAZ (Russia) and the Vectra Group; MAN Force - a joint venture between Force Motors and MAN AG (Germany); SML Isuzu, originally known as Swaraj Mazda, a joint venture between Punjab Tractors and Mazda, currently majority owned by the Sumitomo Group (53.5%); Tatra Vectra Motors Ltd, which is now defunct; Vectra’s initial truck partnership with India that has been replaced by Russian KaMAZ; Tatra trucks for sale in India are now manufactured in collaboration with Bharat Earth Movers Limited; and VE Commercial Vehicles Limited - a joint venture between the Volvo Group and Eicher Motors Limited (Vectra Group, 2019). In summary, joint ventures serve as a significant entry point for established automakers in countries considered emerging or developing ones. They effectively address the challenge of cost savings in developed capitalist nations, expand their production in new markets and considerably large ones, as is the case in India. While there are different production strategies in China and India, China focuses on serving a “premium” consumer market with higher-priced products, whereas India targets the production of affordable cars aimed at large masses of consumers (Pardi, 2017). (Pardi, 2017). Both countries have successfully adopted and managed this strategy of international joint ventures, which partially contributed to their respective achievements as the first and fourth-largest producers of cars worldwide.

1.6. Central and Eastern Europe Table 1.2. shows the number of cars produced in several countries. In Central, Southern and Eastern Europe, there has been exponential growth over the last two decades, which we will see below.

Introduction

15

Table 1.2. Units produced Country 2000 2018 United States 12,799,857 11,314,705 Japan 10,140,796 9,728,528 Germany 5,526,615 5,120,409 France 3,348,361 2,270,000 South Korea 3,114,998 4,028,834 Spain 3,032,874 2,819,565 Canada 2,961,636 2,020,840 China 2,069,069 27,809,196 Mexico 1,935,527 4,100,525 United Kingdom 1,813,894 1,604,328 Italy 1,738,315 1,060,068 Brazil 1,681,517 2,879,809 Russia 1,205,581 1,767,674 Belgium 1,033,294 308,493 India 801,360 5,174,645 Poland 504,972 659,646 Czech Republic 455,492 1,345,041 Turkey 430,947 1,550,150 Thailand 411,721 1,041,739 Taiwan 372,613 253,241 South Africa 357,364 610,854 Australia 347,122 98,632 (2017) Argentina 339,632 466,649 Sweden 301,343 226,000 (2017) Indonesia 292,710 1,343,714 Malaysia 282,830 564,800 Iran 277,985 1,095,526 Netherlands 267,319 157,280 (2017) Portugal 246,724 294,366 Other 190,649 493,784 Slovakia 181,783 1,090,000 Hungary 137,398 430,988 Source: http://www.oica.net/category/production-statistics/2000-statistics/; www.oica.net/category/production-statistics/2018-statistics/.

Variation -12% -4% -8% -32% +29% -7% -32% +1344% +211% -12% -40% +70% +46% -70% +645% +30% +296% +360% +250% -32% +71% -72% +37% -25% +460% +100% +395% -41% +20% +260% +600% +315%

1.6.1. Slovakia Slovakia’s automotive production grew by 600% from 2000 to 2018, increasing from 181,000 cars produced in 2000 to 1,090,000 units in 2018. The country hosts manufacturing plants of Volkswagen, Kia, Peugeot, Citroën, Audi, Porsche, SEAT and SKÖDA (the latter four brands belong to the VW Group) (PAYLAB, 2017). The Volkswagen group produced 303

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thousand cars in Slovakia in 2017, four times more than the 77 thousand produced in 2000 (OICA, 2019). Peugeot-Citroën (PSA) started producing cars in Slovakia only in 2006, manufacturing 52,037 units initially and increasing this to 335,118 cars in 2017 - a six-fold increase in just eleven years.

1.6.2. Czech Republic The leader in production in Eastern Europe went from 445,000 cars in 2000 to 1.3 million in 2018, a growth of 296%. Currently, the market includes SKÖDA, Peugeot-Citroën (PSA), Hyundai and Toyota. A similar phenomenon unfolded here, that is, the migration of factories from Western European countries and even from Japan and South Korea to Eastern European countries. The VW group manufactured 450,000 units through SKÖDA, in the Czech Republic, in 2000, and 858 thousand, through the Volkswagen brand, in 2017, achieving growth of almost 100%. Toyota started production in 2010, producing 82,000 cars and 88,000 in 2016, indicating stability, but at a low level of production Hyundai significantly increased its production in the Czech Republic, expanding from 12,000 units in 2008, the year production began, to 361,000 cars produced in 2017 (OICA, 2019). This represents a 30-fold increase over the span of nine years.

1.6.3. Poland Poland showed a 30% growth in its production over two decades, rising from 504,972 vehicles produced in 2000 to 659,646 cars manufactured in 2018 (OICA, 2019). At least four major brands can be found in Poland, such as Opel, which since 2017 has belonged to the PSA group, Volkswagen, Fiat and Lancia (FCA group, Fiat-Chrysler) (PLATY.SK, 2017). VW did not produce any cars in Poland in 2000, but by 2018 production had reached 102,415 cars. This figure is significantly lower than, for example, the Czech Republic, which is the second-largest producer of the Volkswagen brand in Europe, only behind Germany. The PSA group manufactured only 53,811 vehicles in Poland, one of the last destinations for the French automaker. It has been increasing its share, for example, in Iran, where it produced 232,991 units in 2016 and 443,739 cars in 2017, a growth of almost 100% in just one year.

Introduction

17

1.6.4. Hungary Hungary has experienced substantial growth in its production volume in recent years. From 137,398 units produced in 2000, it surged to 430,988 cars produced in 2018, an increase of 315% in eighteen years. Automakers in Hungary include Suzuki, Mercedes-Benz (Daimler AG) and Audi (VW group). Audi produced 105,000 vehicles in 2017, growing more than 100% of its production in the country, which was 57,000 in 2000. Mercedes-Benz, which produces cars in seven countries in Europe, ranked Hungary as the second-largest producer of Mercedes on the European continent, producing 197,000 cars in 2017, second only to Germany. Suzuki tripled its production in sixteen years, increasing from 77 thousand cars produced in 2000 to 211,000 units manufactured in 2016 (OICA, 2019).

1.7. Countries and Automobile Production (2000 and 2018) In 2000, the largest automobile producers were the USA, Japan, Germany and France, which accounted for 42% of the world production of cars, both light and heavy. China produced 2 million cars, representing 4% of the world volume while India produced only 800 thousand cars, making up less than 1.5% of global production. These data can be seen in Table 1.2, which shows the eighteen-year variation in the position each country occupies in the world production scenario. It should be noted that practically all the rich countries retracted their production volume. The United States, Japan, Germany, France, Spain, Canada, the United Kingdom, Italy, Belgium, Australia, Sweden, Netherlands reduced their production level between 2000 and 2018. Noteworthy declines include Italy, with a 40% retraction in the volume produced; France and Canada, with a 32% decrease; and Belgium, which reduced its production by 70%, from more than one million cars produced in 2000 to 308,000 in 2018. Finally, Australia, which reduced its production level by 72% over the last two decades. Table 1.2 shows these data. In contrast, Asian and Latin American countries grew exponentially in automotive production. China notably increased its production by 1.344% from 2 million units in 2000 to 27.8 million in 2018. Moreover, India, grew 645% increasing from 800 thousand units produced in 2000 to 5.1 million in 2018. The following countries also grew during this period: Indonesia (460%), Iran (395%), Turkey (360%), Mexico (211%), South Africa (71%), Brazil

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(70%), Russia (46%), Argentina (37%), South Korea (29%) and Portugal (20%). The latter was the only one in Western Europe to increase its automotive production over the last two decades. Portugal confirms our thesis that the issue of production costs (mainly labor costs) presides over the choice to produce cars in cheaper places, as in the case of the Iberian country, which is cheaper than its European western counterparts.

1.8. How to Explain the Decline of Traditional European, US and Japanese Producers? The dynamic High Road development model of the automotive sector (Pardi, 2017), mentioned previously, in which good salaries were paid to more qualified workers, in full-time work and gaining various benefits was generally very expensive, from the point of view, obviously, of the employers. For the workers, the opportunity to work in an automaker was any professional’s dream. This situation has been changing in leaps and bounds, leading to restructuring that involves maintaining a small core of well-trained and more qualified employees, who earn well and are more stable, surrounded by a mass of low-skilled, outsourced workers, who earn little and have a high turnover. This mass exemplifies what Pardi (2017) refers to as Low Road development. Developed countries were hard hit by production costs, notably labor expenses. The average salary of an assembler in the United States and Western Europe is between US$ 40,000 and US$ 50,000 per year, while in China this value drops to less than US$ 20,000 (see Table 1.3) and can fall to US$ 4,000 annually in Mexico. In other words, the migration of production from developed to non-developed or developing countries is directly related to production cost savings, especially in terms of workers’ wages. Thus, the situation of wealthy countries in the current geographic configuration of production in the automotive sector is one of decline, as can be observed in the cases of France, Belgium, Italy, Sweden, Canada, Australia and Germany, for example. However, Japan and the United States have also reduced their domestic production and shifted towards producing cars in other regions to benefit from lower costs and gain access to emerging markets, given the stagnation and saturation in traditional markets. This shift has directly impacted workers’ wages, which have been significantly reduced in these new regions. Despite this, local populations, previously economically

Introduction

19

disadvantaged, have experienced relative gains. Below, we will explore how salaries paid to assembly workers in these new production regions are considerably lower compared to those in the companies’ home countries, often varying significantly for the same function within the same company

1.9. Changes in Workers’ Wages Car assemblers have always had a salary policy compatible with the market values practiced in the places where they are located. There are large variations in values for the same or similar functions in each country analyzed. Even in the US, there are wage differences in the sector and by city, as can be seen in Table 1.3. In 2014, Ford paid its assemblers around US$ 47,000, while GM paid US$ 37,000, Hyundai paid US$ 54,000 and Toyota US$ 29,000 per assembly worker in the United States, yearly. Note that there is no single explanation for the wage differences in terms of more developed and less developed states, as Hyundai pays more in Alabama than Toyota does in Texas, the third richest US state. The argument that the cost of living regulates wages does not apply in this context. It could perhaps explain the amount of skilled labor available. Table 1.3 shows the average salary of employees, annually in US$, from 2014 to 2019, paid by different automakers in different cities around the world. General Motors, for example, offers a wide range of salaries that vary significantly within the United States. It pays US$ 71,000 annually for a software engineer in Austin, Texas, and US$ 84,000 for a design engineer in Warren or Detroit, both located in Michigan, the automaker’s birthplace. Furthermore, it pays only US$ 18,000 annually for the same design engineer in Toluca, Mexico, a difference of almost five times less paid to the same professional. It is quite obvious that plant closings in the US and openings in Mexico are directly linked to the cost of labor. In Brazil, a General Motors engineer receives an average of US$ 28,895.16, more than in Mexico, but far below the North American average. Continuing the example of General Motors, we can consider the difference paid to an automotive service technician, who earns an average of US$ 30,319.00 a year in the US and only US$ 4,424.76 a year in Ramos Arizpe, in the Mexican state of Coahuila (Glassdoor, 2019). A GM worker can earn US$ 3,758.03 in San Luis do Potosí, also in Mexico. That represents a salary difference of seven to ten times between workers with the same functions within the same automaker but in different countries. The same happens with

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Volkswagen, which pays workers in Germany very well, while in other places the values are much lower. A worker in the German production area earns around US$ 67,000 annually, while a VW engineer in Brazil earns US$ 27,000 annually, almost a third of the value of a German production worker. When we compare the functions at the management level, it can be observed that a manager in Germany earns US$ 90,000 a year, while a purchasing manager in China earns US$ 23,000 a year. In the case of technicians in automotive services, Volkswagen behaves in the same way as GM, paying US$ 6,733.95 in Puebla and US$ 4,546.91 annually in León, which are both Mexican cities. However, somewhat contradicting this logic of cost savings in terms of wages, there are two exceptions to the rule, which help to confirm this. Hyundai and Toyota do not follow the same salary standards everywhere. Hyundai reverses the logic, as it pays US$ 54,000 annually for an assembler in Alabama (USA) and US$ 47,000 for a Research & Development (R&D) engineer in South Korea. In other words, it pays more for a less qualified worker in the country than for an engineer. In China and India, Hyundai also values its workers more than in Korea. A Hyundai mechanical engineer in India earns US$ 96,000 annually and a quality engineer earns US$ 144,000 in China, more than triple what an R&D engineer in South Korea earns at the same automaker. Toyota also does the same: while it pays an engineer in Japan US$ 58,000 annually, it pays the same engineer US$ 86,000 in Torrance, California (USA). These are the exceptions we found and which we will discuss in the conclusion. In Eastern Europe, we find an intermediate situation between the production regions. While in developed countries as in Western Europe, the USA, and Japan, assemblers typically earn between US$ 40,000 to US$ 50,000 annually, and in Mexico, salaries can be as low as US$ 4,000 per year, Eastern European countries tend towards intermediate wage growth in the automotive sector. In Slovenia, the average salary is 1,545 euros a month, just over 18,000 euros a year, around US$ 20,000 yearly (Paylab, 2019). It is undoubtedly lower than the wages practiced in the wealthiest countries, such as Germany, France and the United Kingdom. The biggest salary increases were seen in Hungary from 2016 to 2017; they were 10%, which put the average monthly salary at 1,209 euros, 15,000 euros per year or US$ 16,500 per year. This confirms that one of the main reasons for this restructuring in the production regions is directly related to production costs, especially those related to the workforce.

Table 1.3. The average salary of employees - annual in US$ - 2014 to 2019 Professional Service Assistant USA Assembler USA

Ford 37,600.50 46,996.50

GM 37,421.00

Automotive Service Technician USA Electrical Engineer USA Software Developer USA Engineer USA Product Engineer USA

107,738.00 -

30,319.00 80,500.00 71,116.00 Austin (TX) -

-

84,872.00 Warren (MI) Detroit (MI) 73,821.00 Austin (TX) -

Design Engineer USA Software Engineer USA Production Worker Germany Manager Germany R&D Engineer South Korea Engineer Japan Test Engineer China Purchasing Officer China Engineer Brazil Production Worker Mexico Design Engineer Mexico Technician Mexico

Hyundai 54,000.00 (Alabama) -

Toyota 29,500.00 (Texas) -

-

82,500.00 86,994.00 Torrance (California)

47,000.00

-

-

20,246.16 Beijing

-

58,810.00

-

28,895.16 São Caetano do Sul (SP) 3,758.03 San Luís Potosí 18,755.76 Toluca 4,424.76 Ramos Arizpe

-

-

Volkswagen -

74,165,14 67,200.00 90,160.00 -

23,433.90 27,574.06

6,733.95 Puebla 4,546.91 León Sources: authors, based on www.payscale.com websites; www.glassdoor.com; www.carrerbliss.com and www.indeed.com. Dollar quoted at R$ 4.06 and ¥ 7.11 on 9/11/2019; and US$1 = 19.44 Mexican pesos on 9/16/2019.

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In other words, the geographical changes in production in the automotive sector hugely impact workers’ wages and their living and working conditions. Although there are different dynamics in salary payments among automakers, as we have seen so far, the fact is that there is a tendency for the disparity between salaries in wealthy countries and those paid in countries considered to be poor or developing to increase. Regardless of the issue of differences in the cost of living in wealthy countries and developing countries, which can be noted through the purchasing power parity method, there are substantial discrepancies between the salaries paid in central capitalist countries and in countries that have recently developed, in addition to salary differences for the same functions, among other differences.

1.10. The Impact of COVID-19 and Wars on Car Production In 2020, the first year of the new coronavirus pandemic, car production, light and heavy, fell sharply compared to the previous year. In global terms, 91,786,861 cars were produced in 2019 and in 2020, this number dropped to 77,621,582; this is a 16% decline in the total volume produced. Taking 2017 as an example, the peak of the historical series, which witnessed a production record that reached 97,302,534 cars built worldwide, we will see a drop of almost 21% in car production. Health policies and lockdowns around the world heavily disrupted production chains, and the global automotive sector regressed to 2010 levels, when 77,583,519 automobiles were produced worldwide (OICA, 2023). Obviously, this meant that factories were closed down in wealthy countries at a fast pace, wages and benefits were cut, among other consequences for workers and other stakeholders. However, shareholders were less affected, often continuing to receive dividends even during serious crises, such as the COVID-19 pandemic (Ellyatt, 2021). The drop in demand caused by the pandemic affected suppliers even more than two years later (June 2022), according to reports on the subject. “Although vehicle orders have surged to unexpected heights, a shortage of automotive semiconductors is forcing OEMs to close production lines or remove some popular features, such as heated seats, from their offerings” (…) “This strategy, however, may result in a shortage of lower-margin vehicles and could cause extreme fluctuations in demand for automotive chips” (Burkacky et al., 2022). The armed conflicts that followed the pandemic also strongly impacted the supply of inputs to the automotive sector, especially semiconductors.

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“Russia’s invasion of Ukraine has introduced further uncertainties to both the semiconductor supply chain and automotive demand. For instance, Ukraine supplies 25 to 35 percent of the world’s purified neon gas, and Russia supplies 25 to 30 percent of palladium, a rare metal used for semiconductors” (Burkacky et al., 2022). That is, exogenous factors strongly influence the automotive industry, which is always very dependent on environmental aspects. Having covered this entire panorama of the “Industry of industries” (Womack et al., 2004), we will now move on to the chapters that will describe the geographic transformations in the automotive industry worldwide.

Chapter 2

Chinese Automotive Industry While global production volume fell in most regions between 2019 and 2022 in the Asia-Oceania region, there was a reverse movement (Americas fell from 20.1 million in 2019 to 17.7 million cars in 2022; Europe, from 21.5 million in 2019 to 16.2 million cars produced in 2022). The region, which had produced 49.3 million cars in 2019, plummeted to 44.2 million in 2020, having recovered ground and rising to 46 million in 2021 and reaching a remarkable number of 50 million cars produced in 2022. Within this region, which includes India and China, there is also Japan, South Korea and Australia, whereby only the latter showed a positive balance. However, the volume produced by Australia is insignificant compared to world production. Japan fell from 9.6 million cars produced in 2019 to 7.8 million in 2022 and South Korea fell from 3.9 million in 2019 to 3.7 million in 2022 (OICA, 2023). Only China and India showed substantial increases in production. India, in particular, saw its production rise from 4.5 million units in 2019 to 5.4 million units in 2022. China went from 25 million cars produced in 2019 to 27 million in 2022. The country has at least seven large state-owned automakers, which are: Shanghai Automotive (SAIC); Beijing Automotive (BAIC); Dongfeng Motors; Changan Auto; First Auto Works (FAW); JAC Motors; and Guangzhou Automotive (GAC) (Dunne, 2018). Moreover, it has three more big non-state-owned automakers: Geely; Great Wall Motors; and Brilliance Auto (Armstrong, 2017). Table 2.1 shows the main joint ventures established for production in China. In 2017, China produced 29 million light and heavy automobiles, and at least 13 million of them were through joint ventures, as can be seen in Table 2.1. They range from 840 thousand units, such as the partnership between Ford and Changan, to 3 million units produced through the collaboration of Volkswagen with FAW and SAIC. Joint ventures aim to achieve synergy between mature automakers seeking new consumer markets and reduced production costs, such as VW and Ford, and emerging automakers in China, such as FAW, SAIC, Chery, Dongfeng, and Gelly. In addition to these Chinese automakers, there are a dozen more that produce smaller quantities, but are

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experiencing accelerated growth, contributing to an ever-increasing volume, such as China National Heavy-Duty Truck, Chongqing Lifan Motor Co or Zhengzhou Yutong, among others. Table 2.2 lists the nine largest Chinese automakers by sales volume in 2021. Table 2.1. Joint Ventures in China. Units sold in 2017 Ranking Brand Automaker Units Sold 1st Volkswagen FAW, SAIC 3,135,236 2nd Honda GAC, Dongfeng 1,405,021 3rd Geely Geely 1,248,004 4th Buick SAIC GM 1,223,429 5th Toyota FAW, GAC 1,131,616 6th Nissan Dongfeng 1,116,709 7th Changan Changan 1,062,716 8th Baojun SAIC-GM-Wuling 1,016,224 9th Haval Great Wall 851,855 10th Ford Changan 840,946 Total 13,049,756 Source: Available at: https://www.marklines.com/en/statistics/flash_sales/salesfig_china_2018.

Table 2.2. The Big 9 from China – 2021 Ranking Brand Units Sold (Excludes Joint Ventures) 1st Changan Group 2,300,530 2nd Geely Group 2,026,729 3rd Great Wall 1,280,951 4th SAIC 1,106,876 5th Chery 961,926 6th FAW 809,660 7th Dongfeng 761,683 8th BYD 740,131 9th GAC 449,992 Total 10,438,478 Source: Authors, based on Juan Felipe Munoz (2022). Available at: https://www.motor1.com/news/588376/nine-chinese-automakers-ready-conquer-world/ http://en.caam.org.cn/.

and

Only the nine largest Chinese automakers shown in Table 2.2 sold more than 10 million cars in 2021, a volume surpassing that produced by entire countries such as the United States and Japan and at the same levels as automakers, such as Toyota and Volkswagen. This highlights China’s increasing prominence in this new geographic configuration of production in the global automotive sector. These numbers reflect an unprecedented growth

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in automobile consumption in Chinese history. This Asian country still has a low level of motorization compared to the average of rich countries. While New Zealand has 869 cars for every 1,000 inhabitants, the USA has 860 and Australia has 737 cars for every 1,000 inhabitants, China has 223 cars for every 1,000 inhabitants (OICA, 2024). However, Chinese consumption growth is extremely fast, as millions of cars are added to the national fleet each year. In 2015, there were 162,845,000 cars, and five years later, in 2020, this number almost doubled and reached 318,034,000 cars. With just 223 cars per 1,000 inhabitants, China still has substantial room for growth, given the expected increase in demand over the next few decades. However, the rate of this growth remains uncertain, and it is challenging to predict how swiftly this expansion will unfold. Nevertheless, many authors suggest that this growth will continue to increase. According to Henryk Kierzkowski “it is pointed out that many Chinese families already enjoy having modern home appliances, such as washing machines and refrigerators. Many families also have televisions and computers. However, having a car is still an unfulfilled wish of countless Chinese, and only 158 per 1,000 people are car owners” (Kierzkowski, 2011). This number refers to 2011 and has been rising since then, as we saw in the previous paragraph, reaching 223 cars per 1,000 inhabitants in 2020. The growth of the Chinese economy is fed back by the automotive industry, which not only contributes to the economy but also benefits from it. As GDP per capita increases (aided significantly by the automotive sector), more people gain the purchasing power to become car consumers. In 2023, the industrial sector accounted for 31.7% of Chinese GDP (Statista, 2024), and the automotive industry played a substantial role in this portion of GDP. What draws the most attention to car purchases in China is the wide range of prices, spanning from US$3,400 to US$20,000 or even, remembering that the latter value is 50% higher than the average Chinese per capita income, which was US$12,000 in 2022. “In 2021, the Wuling Hongguang MINIEV was the best-selling car model in China, selling a volume of 426,480 units. The Volkswagen Lavida was the second best-selling model in China with sales of approximately 391,360 units that year” (Zhang, 2024). Having seen the volumes produced and sold by automakers alone or through joint ventures, let us now learn a little about the history of each of the nine largest Chinese automakers.

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2.1. Changan Automobile In Chinese, Changan means “Lasting Safety,” embodying a brand promise with a history dating back at least 157 years. Similar to Toyota, which began in the nineteenth century as a company producing looms and later transitioned to automobile production only in 1937, Changan’s origins trace back to 1862 as an engineering company following Western models. This emergence coincided with the country’s westernization movement at the end of the Qing dynasty (1636-1912). This movement gained strength during the first half of the twentieth century but was slowed down with the advent of the communist revolution in 1949, when the automaker only produced a few cars until 1959 and began producing for government contracts. In 1984, the company produced its first mini vehicle, called Star, which was a great success. From 1999 onwards, the government began providing resources to increase production, which boosted its volume and market share, becoming the first automaker in China (Global Changan, 2023). “Headquartered in Chongqing, southwest China, it was the country’s top vehicle manufacturer in 2021 with 2.3 million units sold, not including sales through joint ventures. Volume increased 15% from 2020 and 31% from 2019. Changan manufactures vehicles under the Changan brand (China’s second most popular domestic brand in 2021), Oshan, and Kaicene. Currently, Changan has joint ventures with Ford and Mazda. Last year, Changan sold more cars than other companies like Mazda and the Tata Group” (Munoz, 2022). The automaker is state-owned and belongs to the China South Industries Group Corporation, which in turn is owned by the Chinese State, managed through a commission entitled SASAC, “State-owned Assets Supervision and Administration Commission of the State Council”, subordinate to the Chinese Communist Party. It is estimated that the combined assets of all Chinese stateowned companies will reach the US$30 trillion mark and the value of their shares will exceed US$10 trillion. This entity is considered the largest and most valuable in the world (Wu, 2017; The Business Times, 2018). More than 40 million people work for Chinese state-owned companies, and more than 10 million of these people are members of the Communist Party. These are unimaginable numbers for the West and reflect the size of the population, but also the speed of capital accumulation in formerly communist China. The automaker produces cars in several locations, such as Anhui, Beijing, Chongqing, Hebei, Heilongjiang, Jiangsu, Jiangxi and Shanghai.

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2.2. Geely Group The Geely Auto Group is an automobile manufacturer based in Hangzhou and was founded in 1997 as a subsidiary of Zhejiang Geely Holding Group. “This is arguably the most global Chinese OEM thanks to its controlling stake in Volvo Cars and the strong push of some of its brands outside of China. With 2.03 million units sold in 2021, this conglomerate began producing cars under the Geely brand. Years later, Geely bought foreign brands such as Sweden’s Volvo, Malaysian Proton, and Britain’s Lotus. Geely has also launched new brands such as Lynk & Co, which is present in Europe with great success in the Netherlands and Italy. Polestar, Zeekr, and Geometry are also under the Geely Group umbrella” (Munoz, 2022). “In the 2022 Fortune Global 500 list, Geely Holding Group ranked 229th with a revenue of US$55.86 billion, and has ranked among the Fortune Global 500 for eleven consecutive years. Geely Holding Group ranked 8th in Brand Finance’s Top 10 Most Valuable Auto Portfolio Brands 2022 — the only Chinese auto group on the list” (Geely, 2023). The automaker has 22 production plants across China, as well as 3 assembly plants overseas. It has five factories in Taizhou, one from the joint venture with Volvo, producing Lynk & Co brand vehicles and another engine factory, in addition to other factories; 6 factories in Hangzhou; 6 factories in Ningbo; 2 factories in Jinhua and 2 factories in Shanghai. The Group currently employs over 120,000 people around the world as of April 2019. Within its brands, the Group has over 40 manufacturing and assembly plants, 8 R&D centers, and 6 design centers across North America, Europe, China, and Southeast Asia.

2.2.1. Mergers and Acquisitions In 2005, Geely Auto became the first Chinese automaker to be listed on the Hong Kong Stock Exchange. In 2010, Geely Holding Group acquired 100% of the shares of the Volvo Car Corporation from the Ford Motor Company. “In 2017 Geely signed an agreement to acquire a 49.9% stake in Malaysian automaker Proton and acquire a 51% controlling stake in luxury sports car brand Lotus” (Geely, 2023). Geely is the first private automaker in China, forming a hybrid ecosystem in terms of corporate ownership, in which the government coordinates all activities and intervenes heavily in the automotive market.

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2.3. Great Wall Motors (GWM) Considered the 51st Chinese company in market capitalization, reaching US$28.8 billion in October 2023, Great Wall Motor Company Limited is the 575th most valuable company worldwide. The automaker was worth US$79.3 billion on October 29, 2021, but has been in free fall since then (Companies Market Cap, 2023). “This privately held company is primarily known for its SUVs. It produces vehicles under its own brands such as Haval, China’s largest SUV brand, Wey, Tank, ORA, and Great Wall. Although most of the 1.28 million cars delivered in 2021 were sold in China, it has begun exploring the European market through the ORA brand and its retro-styled small cars. Haval is also present in developing markets such as South America and the Middle East” (Munoz, 2022). GWM began to export vehicles in 1998, including SUVs and pickups, and the company is today in more than 60 countries and regions. “By the end of 2018, GWM had more than 400 overseas networks covering regional markets such as Russia, South Africa, Australia, the Middle East, Africa, South America and Asia Pacific, with total overseas sales of more than 600,000 units” (Great Wall Motor, 2023). Even though it produces just over a million cars, the automaker is among the largest producers worldwide. It plays a significant role in establishing China as a leader in both light and heavy vehicle production, far surpassing pioneering automotive nations, such as the United States, Japan, and Germany.

2.4. SAIC Motor (Shanghai Automotive Industry Corporation) This automaker is the 64th in market capitalization in China, valued at US$23.6 billion in 2023 with a total revenue of US$110.6 billion. “In 2022, SAIC Motor sold more than 5.3 million vehicles, ranking first in China for 17 years in a row; sales of the carmaker’s self-owned brands exceeded 2.78 million units, accounting for 52.5 percent of its total sales.” (SAIC Motor, 2023). “SAIC is the current owner of MG, Morris Garages, and other brands such as Roewe, Maxus, and Feifan. In 2021, SAIC sold 1.11 million cars worldwide, excluding sales of the cars made under joint ventures with GM-Wuling (which produces the Wuling Hongguang Mini EV, the bestselling EV in China), Volkswagen, General Motors, and Iveco. Through

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the MG brand, this manufacturer was the second-largest Chinese automaker in terms of sales in Europe in 2021, with 53,100 units sold. This equates to more than 80 percent of all Chinese brands marketed in the Old Continent, excluding Geely.” (Munoz, 2022)

The joint venture strategy, initiated by the largest and most established automakers seeking lower production costs, sparked a highly beneficial movement on behalf of automakers in developing and emerging countries. China established a requirement that new companies to be formed by the merger of two previous ones should have an equal 50%/50% ownership split, preventing developed countries from completely dominating the business and exploring the low-cost potential in these regions. Hence, incorporating technology has been advantageous for China, which has been constantly renewing its industrial infrastructure and developing a market supplied by dozens of domestic automakers. This approach prevents only established brands from using the country as a production hub to sell their products in the region’s markets. This is different from Brazil, for example, which has never managed to develop its own brands, even through joint ventures with other producers, but which has always been a production location for North American, European and Japanese brands.

2.5. Chery Automobile “Chery Automobile is a state-owned automobile industry in China. The company was founded in 1997 to stimulate the economy of the Wuhu region, having initially been a manufacturer of children’s toys and games” (Chery, 2023). Over the last twenty years, the automaker has invested heavily in R&D, maintaining a team of more than 5,500 researchers, in countries such as China, Germany, the United States and Brazil. It is present in more than 80 countries and regions and has sold more than 10 million cars worldwide with brands such as Arrizo and Tiggo (Chery, 2023). “It started exporting cars in 2001 but still has a very limited presence in developed markets. However, it has production facilities outside of China, specifically in Brazil and Egypt. Last year, Chery sold 962,000 units under the brands Exeed, Karry, Jetour, and its own Chery nameplate. Most of the cars assembled by DR Automobiles in Italy are of Chery origin” (Munoz, 2022). Chery is a successful example of Chinese state capitalism, where state subsidies have facilitated the creation of profitable companies capable of

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internationalizing and spreading Chinese brands worldwide. This strategy has redefined the presence of these brands in various global markets.

2.6. FAW (First Automobile Works) Another example of a successful state-owned company, the former First Automobile Works has been expanding its production share year by year. According to Munoz (2022), the Chinese automaker: “It was founded in 1953 and is one of the key manufacturers in China due to its strong ties to Chinese state officials. Last year, the company sold 810,000 vehicles among its brands, which include Jiefang trucks, Bestune traditional cars, and Hongqi luxury cars. The latter brand produces the Hongqi L5, the official state car of China. FAW has joint ventures with Toyota, General Motors, and Volkswagen Group. Hongqi is present in Europe with the E-HS9 luxury SUV in Norway.” (Munoz, 2022)

In 1992, the name First Automobile Works was changed to FAW Group Corporation. According to the automaker´s annual report: “FAW is headquartered in China’s northern city of Changchun, Jilin province, and manufacturing plants are located in northeastern China’s Jilin, Liaoning and Heilongjiang provinces, eastern China’s Shandong province and Tianjin municipality, southern China’s Guangxi Zhuang autonomous region and Hainan province, and southwestern China’s Sichuan province and Yunnan province.” (FAW, 2023)

As a result of joint ventures with Volkswagen and Toyota, FAW sold more than 3 million cars in 2017 and 3.5 million in 2021, the year following the worst year of the pandemic, which was 2020 (FAW, 2023). After a drop in revenue from 2014 to 2015, when it fell from 494 billion yuan to 394 billion (around 50-60 billion dollars), the company arrived in 2021 with a revenue of 705 billion yuan (FAW, 2023). This amount translates to over US$ 100 billion, placing it among the companies with revenues exceeding one hundred billion dollars in a single year. This performance underscores its outstanding achievement from all perspectives.

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2.7. Dongfeng Motor Corporation Founded on September 28, 1969, in Shiyan, Hubei Province, as Second Automobile Works Co, Dongfeng automaker is also state-owned. “Dongfeng is a sprawling company in terms of brands: Venucia, Fengdu, Aeolus, Forthing, Voyah, and of course, Dongfeng proper. It also produces cars for Honda, Nissan, Kia, and Peugeot-Citroën. In 2021, this group sold 762,000 vehicles all total (excluding joint ventures), up 13% compared to 2020 and 23% versus 2019. Dongfeng markets some vehicles in Europe (Seres 3, Dongfeng 580, and F5) but its biggest strength in global markets lies within the light commercial vehicle segment” (Munoz, 2022). In September 1992, the automaker changed its name to Dongfeng Motor Corporation and Dongfeng Motor Group. A year earlier, in 1991, the company had already produced more than one million light and heavy cars throughout its history.

2.8. BYD (Build Your Dreams) A private company that started in 1995 as a rechargeable battery factory, Build Your Dreams’ largest shareholders are Chinese businesspeople, such as Wang Chuanfu, who holds 17.6% of the automaker’s shares, Lu Xiangyang (13.5%), and Li Lu (8.2%), but also groups of institutional investors such as Berkshire Hathaway (9.8%), Western Capital Group (7.7%), Youngy Investment (5.3%), The Vanguard Group (2.1%), BlackRock (1.9%), and Dimensional Fund Advisors (0.64%). “Founded as a carmaker in 2003 when BYD Company bought Qinchuan Automobile, last year the company sold 740,000 cars within an articulated range that includes the Dynasty series, featuring the eye-catching BYD Tang midsize SUV and the modern BYD Han plugin/electric sedan. There is also the Ocean family with the Dolfin, the Seal, and many more models to come. BYD already sells Tang SUVs in some European markets and has a presence in the Middle East and South America” (Munoz, 2022). BYD has established over 30 industrial parks across 6 continents and plays a significant role in industries related to electronics, autos, renewable energy and rail transits. “With a focus on energy acquisition, storage, and application, BYD offers comprehensive new energy solutions with zeroemission. As a company listed on both the Hong Kong Stock Exchange and

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Shenzhen Stock Exchange, its turnover exceeds RMB 200 billion (almost US$ 30 billion)” (BYD, 2023).

2.9. GAC Group (Guangzhou Automobile Group) Guangzhou Automobile Group Co., Ltd. (GAC Group) is a state-owned automobile manufacturer headquartered in Guangzhou, Guangdong. Founded in 1954, it is currently the fifth largest automobile manufacturer in China, accounting for 2.144 million sales in 2021. (GAC, 2023). “In 2021, this group sold 450,000 units through GAC, Trumpchi, and Aion. These are basically SUVs of various sizes, plus a few sedans and interesting electric vehicles. In addition, it produces cars as part of a joint venture with Mitsubishi, Toyota, Honda, and Stellantis. At present, GAC’s global expansion hasn’t reached Europe or the United States, but the group is investing heavily with Toyota to make more competitive electric cars” (Munoz, 2022). In 2013, the automaker opened an international business department, preparing for exports. In the same year, the company began participating in several auto shows, the first in North America. In 2015 and 2017, the company participated in the Dubai auto show, in 2018 in Paris and Moscow and, in 2019 they launched their brands in Panama, Ecuador and Russia. In 2020, the carmaker launched its brands in Saudi Arabia and, in 2021 in Nigeria and Malaysia. In 2022, it exported 89,000 vehicles, which is a small amount compared to China’s total automobile exports. However, this figure has been growing rapidly, contributing to China’s ascent to the position of the world’s largest automobile producer (GAC, 2023).

2.10. Geographical Locations of Production and Vehicle Sales in China The main car manufacturers operating in China have been concentrating on the provinces located in the east of the country, which have access to the sea and are close to major centers, such as Beijing, Shanghai, Hong Kong and Macau. The exception is Sichuan Province, which is in the center of the country and borders the Tibet Autonomous Region. In Sichuan province, there are automakers such as Changan and Hyundai, which have a production capacity of more than 3 million cars annually. Sichuan is also one of the seven

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provinces that sold the most cars in the country, as we will see later. The remaining provinces are on the coast, which bring together human resources in large population clusters, ports, airports, and roads to transport production. As any large country, China is almost continental and very diverse, ranging from Mongolia to Hong Kong and from Tibet to Beijing, with different climates, reliefs, fauna and flora. In the case of the automotive industry, the requirements demanded by any enterprise were observed when the assembly companies were set up. Table 2.3 shows the main provinces in which the largest multinational automakers are located. Table 2.3. Geographical production locations in China – 2016 Group General Motors

Nº of plants 14

Capacity (cars) 5,000,000

Province Guangdong; Xinjiang; Yunnan; Guangxi; Heilongjiang; Jilin; Liaoning Xinjiang; Jilin; Shandong; Hebei Guangdong; Sichuan; Chongqing; Guizhou Jilin; Sichuan; Chongqing Hebei; Shandong; Guangdong; Zhejiang Shandong; Guizhou; Shaanxi

Volkswagen 9 4,600,000 Changan 18 2,000,000 Hyundai 8 1,350,000 Toyota 6 1,030,000 Chery 8 900,000 Total of 6 53 14,880,000 carmakers Source: Authors, based on website https://www.word4asia.com/.

If we take 2016 as a reference in the table above, we see that only six automakers had a production capacity of almost 15 million cars annually. In 2016, China produced 28 million cars, 30% of global production, which rose from 94 million that year (OICA, 2023). Only the six automakers presented in Table 2.3, located in less than ten Chinese provinces, collectively account for more than half of the Asian country’s production capacity. This concentration follows global production trends, where massive quantities of products are located in a few places, and apparently describes a Pareto diagram, where 80% of the volume produced is concentrated in 20% of the locations. Perhaps this is not the case in China, as there appears to be greater distribution throughout the territory, but we saw that only six automakers were responsible for 60% of production capacity in 2016.

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Source: Authors created on https://www.mapchart.net/china.html. Figure 2.1. Geographical distribution of vehicle sales in China – 2018.

Not only is production very focused in a few places, but car sales in China are also concentrated in some provinces, which form a quarter of the country’s geographic structure, made up of 23 provinces, five autonomous regions and two administrative specials regions. Figure 2.1 shows the seven provinces that sold the most cars in 2018. Table 2.4. Geographical distribution of vehicle sales in China – 2018 Province Number of vehicle sales YoY growth of sales Guangdong 2,570,000 5.3% Jiangsu 1,700,000 6.9% Zhejiang 1,680,000 0.7% Shandong 1,560,000 11.2% Henan 1,450,000 7.5% Hebei 1,140,000 12.2% Sichuan 1,130,000 4.5% Total of 7 provinces 11,230,000 Source: Authors, based on website https://daxueconsulting.com/chinese-automakers-compete-forfirst-place/.

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As shown in the map in Figure 2.1 and Table 2.4, the seven provinces that sold the most cars, except for Sichuan, are all located on the coast and are linked to the country’s largest cities. Table 2.4 shows that the seven Chinese provinces were responsible for sales of 11.2 million cars in 2018. Moreover, the variations in sales from year to year were significant in most of them. In Hebei province, where more than 1.1 million cars were sold, this volume represented a 12.2% increase compared to the previous year. The same happened in Shandong, where car sales increased 11.2% year after year. These numbers have been growing every year and demonstrate the strength that China has today in the automotive industry, producing 30% of the world’s total, a true revolution for a country that had a share in production volume of around 3% to 4% at the beginning of the 2000s.

2.11. Social Changes and Workers’ Situation in China China was an agrarian country until the last quarter of the 20th century. After the death of Mao Zedong in 1976 and the rise of Deng Xiaoping in 1978, the country began to adopt pro-capitalist economic measures, without, however, giving up the monolithic political power held by the Chinese communist party. The reforms attracted foreign companies that were looking for cheaper and more labor, of more than 1.4 billion people, raw materials and access to the gigantic Asian market. The advancement of the automotive industry in China coincides with this period of economic opening. However, this opening did not follow the traditional capitalist expansion, where affluent countries transferred their companies to poorer or developing nations, retaining ownership and utilizing these countries as assembly hubs for their products or for export production. In the case of China, and perhaps this is a component of its exponential economic growth, the model pursued was that of joint ventures in the automotive sector. This approach facilitated the development of more than a dozen automakers that benefited from advanced technology shared by developed countries. This aspect allowed the development of an industrial park that today represents 30% of the world’s automobile production volume and has changed the scenario of many cities and locations, previously lacking in industry, wages and income. Table 2.5 presents a set of professions in the automotive industry and their respective monthly or annual salaries in yuan renminbi and US dollars.

Table 2.5. Carmakers’ salaries in China – 2023 Carmaker

Professional

Salaries (yearly/monthly) Salaries (yearly/monthly) Yuan Renminbi United States Dollar Mean of Industry Assembler 67,835 (yr) 9,317.99 (yr) Porsche Automotive Engineer 349,804 (yr) 48,009.30 (yr) BAIC Automotive Engineer 8,576 (mo) 1,176.52 (mo) Geely Automobile Automotive Technician 206,589 (yr) 28,348.32 (yr) Ford Motor Company Automotive Designer 203,142 (yr) 27,904.12 (yr) Great Wall Motors Automotive Designer 33,495 (mo) 4,600.96 (mo) SAIC-GM-Wuling Automobile Senior Automotive Designer 276,079 (yr) 37,922.93 (yr) Tata AutoComp Systems Automotive Engineer Manager 40,117 (mo) 5,510.57 (mo) GAC Group Automotive Interior Designer 418,083 (yr) 57,428.98 (yr) General Motors Test Engineer 147,392 (yr) 20,246.16 (yr) Volkswagen Purchasing Officer 170,598 (yr) 23,433.90 (yr) Source: authors, based on the following websites: https://www.glassdoor.com/Salaries/china-automotive-engineer-salary-SRCH_IL.0,5_IN48_KO6,25.htm; https://www.salaryexpert.com/salary/job/automotive-assembler-motor-vehicle-worker/china and https://www.xe.com/pt/currencyconverter/convert/?Amount=349804&From=CNY&To=USD. 1 United States dollar was equivalent to 7.28 yuan renminbi on November 10, 2023.

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We saw in the introduction to this book that the salaries paid by the same automaker vary across different countries. There would be no point in closing factories in wealthy countries and opening others in developing countries to maintain the same production costs, from the point of view of business strategies. Hence, we were able to observe the pay for some engineers in the United States reaching US$70,000 to US$80,000, depending on the location. When we see these same companies in China, Mexico or Brazil, the values drop to US$20,000 to US$30,000, reaching US$18,000 annually for a design engineer in Toluca, Mexico, at the General Motors plant, for instance. Even if we used purchasing power parity for comparison purposes, there would be a large salary disparity for the same companies and employees performing the same tasks. This has been a major driver of the migration of car manufacturers from countries with higher labor costs to countries with lower costs.

2.12. ‘Exploitation’ or New Opportunities for Workers? Concerning wage or income inequality worldwide, there is a tendency in academia to use Marxist-type analyses to try to explain this economic phenomenon. For Marxists, workers have been exploited by employers since the advent of capitalism, through unpaid work, or surplus value, which enables the accumulation of capital on the one hand, and the increase in poverty on the other. Hence, wage differences are increasingly profound and the ‘exploitation’ of workers is more commonplace. In China, this fact would be even more observable. However, we disagree with these approaches, as they overlook the factors of production, where labor force is one of the factors, and capital is the other, in addition to land, factories, machines and other production instruments. Therefore, there is no theft, there is no unpaid work. The worker is rewarded for the hours of work performed, or the quantity of parts produced, thus this relationship is an exchange of work for money. This is a free relationship between sellers and buyers of the workforce. Any other characteristic that involves extortion, worker imprisonment, forced labor, or mechanisms that reproduce situations of slavery and indignity must be considered as a non-capitalist, or pre-capitalist, form, which is a crime, and in fact still exists in contemporary society. However, it is a mistake to classify them as natural to capitalism. What is natural in capitalism is the exchange of goods and work, voluntarily and freely, without any constraints or violence. In the case of China, we have a sui generis situation. A country dominated by the Communist Party, a single party that has maintained a relentless

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dictatorship against its own people for 75 years, is the same country that abandoned the planned economy and migrated to a market economy, albeit with a great deal of state intervention. However, it brought the values of wage labor and competition to society as valid and worthy of pursuing. It is obvious that the power exercised by the Communist party and its bodies over society is oppressive and transforms a relationship of free exchange of work for money into something imposed and often cruel and painful, as we saw in the case of Apple in China, through its outsourced companies such as Foxconn, Pegatron and Catcher (Carmo et al., 2023). These companies have high rates of complaints, worker turnover and even suicide attempts, to the point where management has installed safety nets to prevent workers from throwing themselves off the roof. Even so, with all these serious problems associated with ‘Chinese capitalism’, the fact is that the introduction and development of the automotive industry in China, as well as all other industrial sectors, is much more positive than negative, from the point of view of economic progress for the people, having helped the country to leave an agrarian, hungry situation to another situation that is much more prosperous than before, and in a matter of a few decades. China’s GDP per capita was just US$ 90 in 1960, reaching US$ 165 in 1976, the year of Mao Zedong’s death, surging to US$ 1053 in 2001 and reaching US$12,720 in 2022 (Macrotrends, 2023a). The automotive industry has played an important role in the Chinese economy as a whole and contributes to the increase in average per capita income. This situation must be understood with sufficient balance, as pros and cons coexist in this equation. We cannot say, based on the GDP per capita data presented, that Chinese industrialization has made more people impoverished. On the contrary, it multiplied per capita income by 12 in the space of just twenty years. These data underscore the perception that despite the challenges discussed earlier, Chinese economic development has resulted in significantly higher incomes for its people than anticipated before the research began. A salary of approximately US$20,000 per year for an engineer today far exceeds what could have been imagined 40 years ago, although it remains substantially lower than wages in developed countries. This must be taken into consideration. The same is happening with India, a developing country that has increased its average income, also thanks to the automotive industry. Furthermore, its installation has also meant advancement and improvement in the living conditions of Indian populations in which car manufacturers were installed, as we will see later in the next chapter focusing on the Indian case.

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What our analysis aims to highlight is the diversity of situations found in today’s society when we refer to geographic locations of production, wages, employment, etc. While the driving force behind automakers’ decisions to leave the USA, Japan, England or France and settle in China, India or the Czech Republic is fundamentally due to production costs (where salary costs form a significant proportion), we must recognize that such investment decisions in practically agrarian countries represent substantial societal progress for the Chinese, Indian or Czech people. This is true even if the salaries of these new workers are considerably lower than those of workers in established automakers located in developed countries. This is a paradox that we found studying the development of the contemporary automotive industry and current capitalism. Moreover, this paradox is just one more thing that we are learning more about in this book, based on the analysis of these rich case studies. Let us now turn to the case of India.

Chapter 3

Indian Automotive Industry 3.1. The Three Clusters and the Constituent Companies India’s automotive industry has distinct regional clusters that play pivotal roles in the country’s automotive landscape. The Chennai cluster, situated in the southern region, serves as the largest cluster, commanding a substantial 35% share of revenue and accounting for 60% of India’s automotive exports. Meanwhile, in the western corridor near Mumbai, Maharashtra, particularly around Chakan and Pune, the Western cluster thrives, capturing 33% of the nation’s car market. In the northern region, within the capital area, is the Northern cluster, contributing 32% of the country’s automotive production. Notably, Gurgaon and Manesar, located in Haryana, house India’s largest car manufacturer, Maruti-Suzuki, exemplifying the industry’s dynamic and geographically diverse landscape. Table 3.1 presents a concise summary of key details for 40 prominent automotive companies with substantial operations in India.

3.2. A Visual Representation of the Clusters Figure 3.1 below shows a visual representation of the three automotive clusters. Similar to China, the same occurred in India; geography imposed the choice of automotive clusters in areas connected to major cities and coastal margins. The largest cluster, known as the Chennai cluster in the south, is responsible for 35% of the country’s automotive revenues and more than 60% of its exports. This cluster has access to both the Arabian Sea and the Indian Ocean, in the immense Bay of Bengal, which provides it with access to foreign markets, mainly Southeast Asia.

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Source: Authors. Figure 3.1. Automotive Clusters in India.

3.3. Salaries Prevalent in the Sector The sector provides employment to a wide range of individuals across various job roles. Table 3.2 outlines the salary ranges for numerous positions within the industry.

Table 3.1. Automotive companies with operations in India Company Name Ashok Leyland

Production mode Independent Manufacturer

Headquarters Chennai, Tamil Nadu

Audi India

Independent Manufacturer (SAVWPIL factory) Independent Manufacturer

Mumbai, Maharashtra

Bharat Forge

Independent OEM

Pune, Maharashtra

BMW India Pvt. Ltd.

Independent Manufacturer Independent OEM

Gurugram, India

Independent Manufacturer

Bengaluru, Karnataka Chennai, Tamil Nadu (Key offices)

Bajaj Auto Ltd.

Bosch

Caterpillar

Pune, Maharashtra

Bengaluru, Karnataka

Manufacturing Plants Ennore, Tamil Nadu Bhandara, Maharashtra Hosur (2 units), Tamil Nadu Alwar, Rajasthan Pune (SAVWPIL Factory), Maharashtra Aurangabad, Maharashtra Waluj, Maharashtra Chakan, Maharashtra Pant Nagar, Uttaranchal Pune, Maharashtra Baramati, Maharashtra Satara, Maharashtra Chennai, Tamil Nadu

Cluster Chennai, Northern, Western

No. of Employees 10101

Western

405

Northern, Western

10134

Western

4079

Chennai

650

Gangaikondan, Tamil Nadu Oragadam, Tamil Nadu Naganathapura, Karnataka Nashik, Maharashtra Gurugram, Haryana Tiruvallur, Tamil Nadu Hosur, Tamil Nadu Aurangabad, Maharashtra Banda, Uttar Pradesh Chennai, Tamil Nadu

Chennai, Western

Northern,

30000+

Chennai, Western

Northern,

7300+

Table 3.1. (Continued) Company Name Citroën India

Production mode Joint Venture (AVTEC Ltd.) Independent Manufacturer Independent Manufacturer Joint Venture Joint Venture

Headquarters Chennai, Tamil Nadu

Joint Venture

Pune, Maharashtra

Hero MotoCorp

Independent with Joint OEM ventures

New Delhi

Hindustan Motors

Independent Manufacturer

Based in Kolkata, West Bengal

Honda Cars India Ltd

Independent Manufacturer Independent Manufacturer Independent Manufacturer

Greater Noida, Uttar Pradesh Gurugram, Haryana

Daimler India Commercial Vehicles Eicher Motors Ltd Escorts Kubota Ltd FCA India Automobiles Pvt. Ltd. Force Motors Ltd.

Hyundai Motor India Ltd. Isuzu Motors India

Kancheepuram District, Tamil Nadu New Delhi Faridabad, Haryana Pune, Maharashtra

Sri City, Andhra Pradesh

Manufacturing Plants Tiruvallur, Tamil Nadu Hosur, Tamil Nadu Oragadam, Tamil Nadu

Cluster Chennai

No. of Employees 97

Chennai

4000+

Pithampur, Madhya Pradesh Thane, Maharashtra Faridabad, Haryana Ranjangaon, Maharashtra

Northern, Western

4739

Northern Western

3823 487

Akurdi, Maharashtra Pithampur, Madhya Pradesh Dharuhera, Haryana Gurugram, Haryana Chittoor, Andhra Pradesh Haridwar, Uttarakhand Neemrana, Rajasthan Halol, Gujarat Tiruvallur, Tamil Nadu Uttarpara, West Bengal Pithampur, Madhya Pradesh Tapukara, Rajasthan

Northern, Western

3928

Chennai, Western

9173

Irungattukottai, Tamil Nadu Sriperumbudur, Tamil Nadu Sri City, Andhra Pradesh

Northern,

Chennai, Northern

292

Western

10642

Chennai

16870

Chennai

1045

Company Name Jaguar Land Rover India

Production mode Independent Manufacturer

Headquarters Mumbai, Maharashtra

JCB India Ltd.

Independent Manufacturer

Ballabgarh, Haryana

Jeep India John Deere

Joint Venture Independent Manufacturer

Pune, Mahrashtra

Kia India

Independent Manufacturer Independent Manufacturer

Gurugram, Haryana

Joint Venture

New Delhi

Independent Manufacturer Independent Manufacturer Subsidiary of BMW group

Mahindra & Mahindra

Maruti Suzuki India Ltd. Mercedes-Benz India MG Motor India MINI India

Manufacturing Plants Local Vehicle Assembly facility is co-located with parent company (Pune, Maharashtra) Ballabgarh, Uttar Pradesh Jaipur, Rajasthan Pune, Maharashtra Ranjangaon, Maharashtra Sangamwadi (Pune), Maharashtra Dewas, Madhya Prasesh Anantapur, Andhra Pradesh

Cluster Western

No. of Employees 399

Northern, Western

4659

Western Northern, Western

38

Chennai

4718

Chennai, Northern, Western

260000

Northern

16259

Pune, Maharashtra

Kandivali, Maharashtra Nashik, Maharashtra Chakan, Maharashtra Haridwar, Uttarakhand Zaheerabad, Telangana Bengaluru, Karnataka Gurugram, Haryana Manesar, Haryana Chakan, Maharashtra

Western

2647

Gurugram, Haryana

Halol, Gujarat

Western

1592

Gurugram, Haryana

Assembly in India (BMW production unit in Chennai, Tamil Nadu)

Chennai

861

Mumbai, Maharashtra

Table 3.1. (Continued) Company Name Piaggio Vehicles Pvt. Ltd. Renault Nissan Škoda Auto Volkswagen India (SAVWPIL) SML Isuzu Ltd. Suzuki Motorcycle India Pvt. Ltd. TAFE - Tractors and Farm Equipment Ltd.

Production mode Independent Manufacturer Joint Venture Independent Manufacturer (SAVWPIL factory) Joint Venture Independent Manufacturer Independent Manufacturer

Headquarters Pune, Maharashtra

Manufacturing Plants Baramati, Maharashtra

Cluster Western

No. of Employees 1332

Chennai, Tamil Nadu Pune, Maharashtra

Oragadam, Tamil Nadu Chakan, Maharashtra Shendra (Aurangabad), Maharashtra Sri City, Andhra Pradesh Gurugram, Harayana

Chennai Western

280 2085

Chennai Northern

916 2557

Chennai, Northern

4568

Tata Hitachi

Joint Venture

Bengaluru, Karnataka

Chennai

2220

Tata Motors Ltd

Independent Manufacturer

Mumbai, Maharashtra

Chennai, Tamil Nadu Madurai, Tamil Nadu Doddaballapur, Karnataka Mandideep (Bhopal), Madhya Pradesh Dharwad, Karnataka Kharagpur, West Bengal Jamshedpur, Jharkhand Pune, Mahrashtra Lucknow, Uttar Pradesh Pantnagar, Uttarakhand Dharwad, Karnataka Sanand, Gujarat

Chennai, Northern, Western

81811

Chandigarh New Delhi Chennai, Tamil Nadu

Company Name Toyota Kirloskar Motor

Production mode Joint Venture

Headquarters Bengaluru, Karnataka

Manufacturing Plants Cluster No. of Employees Bidadi, Karnataka Chennai 3998 Bengaluru, Karnataka TVS Motor Company Independent Chennai, Tamil Nadu Hosur, Tamil Nadu Chennai, Northern 5161 Manufacturer Mysore, Karnataka Nalagarh, Himachal Pradesh Volvo Joint Venture Gurugram, Haryana Hoskote, Karnataka Chennai, Northern 3500 Pithampur, Madhya Pradesh Yamaha Motor India Independent Gautam Budh Nagar, Surajpur, Chhattisgarh Chennai 2559 Manufacturer Uttar Pradesh Kanchipuram, Tamil Nadu *The information presented in the table has been compiled through meticulous research from sources including Google Finance, official company websites, LinkedIn profiles, and the broader online domain. While every effort has been made to ensure accuracy, potential discrepancies due to outdated or incomplete online data should be noted. Furthermore, the count of employees may not encompass blue-collar workers, who may not be accounted for in these sources. Any inadvertent inaccuracies are deeply regretted.

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Table 3.2. Salaries in the Indian automotive industry Professional

Estimated annual salary Estimated annual salary (Averages in INR) (Averages in US$) Indian Rupia USA Dollar Service Assistant 1.8 - 1.93 LPA 2,167-2,324 Assembler 2 LPA 2,408.60 Automotive Technician 1.96 LPA 2,360.43 Electrical Engineer 2.7 - 3.3 LPA 3,251-3,974 Software Developer 6.5 LPA 7,827.97 Mechanical Engineer 2.9 LPA 3,492.48 Design and Quality Engineer 2.5 LPA 3,010.76 Production Worker 1.8 LPA 2,167.74 Assembly Manager 12 LPA 14,451.65 R&D Engineer 4.5 LPA 5,419.37 Test Engineer 3.8 LPA 4,576.35 Purchasing Manager 13.6 LPA 16,378.54 Technician 2.2 LPA 2,649.47 Service Manager 3.99 LPA 4,805.17 Source: *The information presented in the table was sourced through AmbitionBox, Indeed and Glassdoor. LPA is Lakhs Per Annum, 1 LPA = 100,000 INR. 1 USD = 83,0355 INR, according to https://www.xe.com/pt/currencyconverter/convert/?Amount=1&From=INR&To=USD. Accessed on October 2, 2023.

With a nominal GDP of US$3,385 trillion, India ranked 5th worldwide in 2022, with a per capita income of US$2,850.00 annually. When we analyze Purchasing Power Parity, this GDP reached US$10,056 trillion in 2022, reaching a per capita income of US$8,379.00 (The World Bank, 2023). The wage disparity between automaker workers in India and those in wealthy countries is vast, exceeding even the gap observed in China. However, from the point of view of per capita income, salaries in the automotive sector are slightly above the national average when it comes to engineers and management positions. While the per capita income is US$2,850 (nominal GDP), we found several salaries above this, but we also encountered some salaries below this, as is the case with an assembler (US$2,408 per year), an automotive technician (US$2,360) and a service assistant (US$2,167 to US$2,324 annually). The same reasoning regarding salaries applies to India as it does to China. Although wages in India may seem minimal compared to those in wealthy Western countries, they represent significant progress for Indian workers and their families. This advancement has brought about a substantial transformation in the economic landscape of various regions, as we will explore below.

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3.4. Automotive Industry in India: Before and After Before the automotive industry was implemented in India, the economic landscape and income levels of the localities varied significantly. India’s automotive industry started gaining momentum in the 1990s and witnessed significant growth in the following years. Before the industry’s establishment, the income levels of the localities primarily depended on traditional sectors such as agriculture, small-scale industries, and services. While these sectors provided employment opportunities, the income levels were generally modest, and the overall socio-economic conditions were relatively low. However, with the advent of the automotive industry, particularly after economic liberalization in the early 1990s, there was a notable transformation in the economic and social aspects. Before 1982, there was a closed market with just 5 players. This situation caused long waiting periods and presented outdated models. The establishment of manufacturing plants by various automotive companies led to the creation of job opportunities, both directly and indirectly, resulting in a significant boost in income levels for the local population (IBEF, 2023a; 2023b). From 1983 to 1992, there was significant state intervention in the formation of this market, whereby the Indian Government and Suzuki formed Maruti Udyog and began production in 1983. During this period component manufacturers entered the market via Joint Ventures (IBEF, 2023b, p. 7). This process led to a major expansion of automotive production in India, with Japanese automakers bringing know-how to the country and contributing to the formation of the Indian industrial park, which is increasingly gaining strength. Table 3.3. Car production in India, sales and exports. 2017-2022 – in millions Year Produced Sold Exported 2017 25.33 21.86 3.48 2018 29.07 24.97 4.04 2019 30.92 26.27 4.63 2020 26.36 21.55 4.77 2021 22.65 18.61 4.13 2022 22.93 17.51 5.62 Source: https://www.ibef.org/download/1682310128_Automobile-February-2023.pdf.

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Although OICA data for 2022 indicates the production of 5,456,857 light and heavy vehicles, the total automotive production numbers are much higher. This is because they also include other types of vehicles that are very common and popular in the country, such as mopeds, scooters, electric scooters, passenger carriers, and goods carriers. The automotive manufacturing industry in India comprises the production of commercial vehicles, passenger vehicles, three-wheelers, and two-wheelers (IBEF, 2023b). According to the India Brand Equity Foundation (IBEF), from which we took a large amount of data for our study, the automotive production figures in India are as follows in Table 3.3. The automotive industry has had a positive impact on the Indian economy as a whole. The industry accounts for about 7% of India’s GDP and employs over 32 million people. It is also a major exporter and contributes significantly to India’s foreign exchange earnings. The automotive industry is expected to continue to grow in India in the coming years. This will lead to further increases in income for localities and the industry and help to reduce poverty. The automotive industry has brought investments, technology transfer, and employment opportunities in manufacturing, assembly, supply chain, and related services. In turn, this has led to increased income and improved socioeconomic conditions for the localities, as well as the development of ancillary industries, infrastructure, and skill enhancement programs to support the automotive sector.

3.5. Automotive Clusters of India •

Pune: In Pune, the average income increased by over 50% in the years following the implementation of the industry. Before the automotive industry had gained prominence in Pune, the city’s income levels were relatively lower. Pune was known for its educational institutions, manufacturing of traditional products, and the presence of various small-scale industries. The income of the localities is predominantly derived from agriculture, textile, and other traditional sectors. However, after establishing automotive manufacturing plants, including those of Tata Motors (Automotive Logistics, 2011), Volkswagen, and Mercedes-Benz, the income levels of the localities in Pune witnessed a significant boost. The automotive industry

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•

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brought in new job opportunities, both directly and indirectly, leading to improved income and socio-economic conditions. Chennai: In Chennai, the automotive industry is the largest employer in the city, and it generates billions of rupees in tax revenue. Chennai, which had been an industrial hub even before the advent of the automotive industry, had relatively higher income levels compared to other regions. The city had a strong manufacturing base including industries such as textiles, chemicals, and electronics driving the local economy. However, with the growth of the automotive industry and the establishment of manufacturing plants by major companies, such as Hyundai, Ford, and Renault-Nissan, the income levels of the localities in Chennai experienced further growth. The automotive sector created a substantial number of employment opportunities, which contributed to an increase in income and overall socioeconomic development in the region. Manesar: Prior to establishing the automotive industry in Manesar, the income levels of the localities were largely influenced by traditional sectors and agricultural activities. Manesar was primarily an agrarian area that had limited industrial development. However, with the advent of automotive manufacturing plants, especially the Maruti Suzuki plant in Manesar, the income levels of the localities witnessed a significant transformation. The automotive industry brought in new employment opportunities, increased wages, and stimulated the growth of ancillary industries and services. This led to a notable improvement in income and socio-economic conditions in the Manesar region.

3.6. The Pros and Cons of the Automotive Clusters The formation of automotive clusters offers the following advantages: 1. Economies of Scale: Clusters allow companies to benefit from economies of scale. Concentrating automotive activities in a specific region leads to a higher concentration of suppliers, skilled labor, and infrastructure, resulting in cost efficiencies in production and distribution.

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2. Supplier Networks: Clusters provide easy access to a well-developed network of suppliers and component manufacturers. This proximity reduces lead times, transportation costs, and inventory levels, leading to smoother production processes. 3. Knowledge Sharing and Innovation: Proximity to other automotive firms, research institutions, and educational centers fosters collaboration and knowledge sharing. This leads to innovation, technological advancements, and the development of best practices within the industry. 4. Skilled Labor Pool: Clusters attract skilled and specialized labor due to the presence of automotive companies and related industries. This availability of skilled talent contributes to higher productivity and better quality of output. 5. Infrastructure and Connectivity: Clusters often develop in regions with good infrastructure and connectivity, reducing logistical challenges and enabling efficient transportation of goods and raw materials. 6. Government Support: Many governments provide support and incentives to promote the development of industrial clusters. This can include tax breaks, subsidies, infrastructure development, and favorable regulatory policies, which encourage further investment in the cluster. 7. Enhanced Competitiveness: By fostering healthy competition and specialization, clusters drive companies to improve their products and processes continually. This increase in competitiveness benefits consumers and contributes to the growth of the industry. 8. Research and Development: Clusters provide a conducive environment for R&D activities. The concentration of experts and institutions encourages innovation and the development of cuttingedge technologies. 9. Reduced Risk: Being part of a cluster can help companies mitigate risks. In times of economic downturn or industry-specific challenges, clusters can provide a support network and shared resources to overcome difficulties. 10. Local Community Development: The development of automotive clusters often leads to the growth of ancillary industries and the creation of job opportunities in the surrounding areas, contributing to the overall development of the local community.

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Automotive clusters in India also have certain disadvantages, including: 1. Environmental Impact: The concentration of automotive manufacturing and related industries in clusters can lead to increased pollution and environmental degradation. This includes air pollution from manufacturing processes and vehicular emissions, as well as water pollution from industrial runoff. 2. Traffic Congestion: Proximity of multiple automotive facilities can result in heavy traffic congestion in and around these clusters, leading to longer commute times for employees and increased stress on local transportation infrastructure. 3. Land and Resource Competition: Clusters often require large plots of land, which can lead to competition for land resources in areas where clusters are established. This can result in the displacement of local communities and agricultural activities. 4. Supply Chain Vulnerabilities: While clusters can enhance the efficiency of supply chains, they can also create vulnerabilities. If a major disruption occurs in one part of the cluster (e.g., due to natural disasters or strikes), it can disrupt the entire supply chain. 5. Economic Inequality: The benefits of automotive clusters might not be evenly distributed. They can lead to economic disparities between regions with clusters and those without, potentially exacerbating income inequality. 6. Resource Intensiveness: Developing and maintaining automotive clusters can be resource-intensive, requiring significant investments in infrastructure, utilities, and support services. This can divert resources from other essential sectors. 7. Dependence on a Single Industry: Overreliance on the automotive industry within a cluster can make the local economy vulnerable to fluctuations in the automotive market. Economic downturns in the industry can have severe repercussions for the entire region. 8. Skill Concentration: While automotive clusters can attract skilled labor, they may also result in a concentration of specific skills, potentially limiting the diversification of the labor force and local economy. 9. Regulatory Challenges: Managing environmental regulations, labor laws, and other regulations can be more complex in densely packed automotive clusters, potentially leading to compliance issues and legal challenges.

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10. Infrastructure Strain: The rapid growth of automotive clusters can strain local infrastructure, including roads, utilities, and healthcare facilities, leading to overcrowding and overburdening public services.

3.7. Labor Conflicts The sources of discontent within the labor landscape in various industries can be attributed to several key factors. Prevalent causes behind the occurrence of strikes and lockouts are disputes related to salary levels and workforce reductions (Sreenivasan & Tripathy, 2014; Chauhan, 2016; Nowak, 2016; Chawla et al. 2019). Additionally, many companies opt to employ contract laborers, a practice driven by the cyclical nature of the market and the substantial wage discrepancy between permanent and contract workers. This practice can lead to resentment among the workforce, as these contract workers often lack the statutory benefits and protections afforded to permanent employees. Judicial precedents exist where the courts have strongly criticized industries for adopting such practices. However, with the restructuring of Indian labor laws, now categorized into four labor codes, these issues are expected to be resolved. Specifically, the 2020 draft Code on Social Security stipulates that contract laborers are entitled to receive social benefits as outlined in this code, aligning them with the benefits applicable to regular company employees. Another cause of resentment can be attributed to the increasing presence of robots and automation in pivotal manufacturing areas, which has become a growing concern. As these machines assume roles that were traditionally performed by human workers, it can further exacerbate tensions and job insecurity among labor forces. Numerous cases have been brought before the courts, involving worker unrest triggered by the suspension or termination of employment that was contested as unfair or arbitrary by trade unions or individual employees. Regarding labor issues, companies such as Maruti and others have been observed engaging in negotiations and settlements with their workforce. One prominent incident of labor unrest was the turmoil that occurred at Maruti Suzuki’s manufacturing plant in 2012. The escalating discontent among workers stemmed primarily from miscommunication between management and employees, requests for wage increases, permanent employment, the reinstatement of dismissed workers, and the recognition of labor unions, among other factors.

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The labor dispute at Maruti Suzuki during 2011 and 2012 captured the most extensive national and international spotlight among all industrial conflicts in India over the past two decades. This can be attributed to several factors, including the central role played by the automotive industry, the company’s substantial influence within this sector, the critical importance of the Manesar plant to the company’s production operations, its significant impact on industrial relations in the Gurgaon region, and the unwavering determination and solidarity demonstrated by both permanent and contract workers throughout the struggle. In March 2013, a tool-down strike occurred at Mahindra & Mahindra’s automotive plant in Nashik, Maharashtra, due to disputes related to wage negotiations and the suspension of certain workers. Similarly, in July 2016, employees at Honda Motorcycles and Scooter India staged significant protests aiming to reinstate labor union leaders who had been terminated. In October 2018, a substantial number of employees at motorcycle manufacturing plants in Chennai, including Eicher Motors and Japanese Yamaha Corporation, initiated a walkout to demand higher wages and permanent employment for those currently working as contract employees (Chauhan, 2016; Chawla et.al. 2019). More recently, in March 2019, employees from Asahi India Glass Limited, a joint venture between Asahi Glass Co Limited Japan and Maruti Suzuki India Limited, went on strike to protest against the unfair dismissal and suspension of employees and to seek a wage increase. One of the predominant causes of employment disputes over the years has been the absence of an effective communication channel, leading to the poor management of employer-employee relationships. This issue is often attributed to management’s preference for dealing with representatives appointed by the employees, who tend to advocate for the interests of only a segment of the workforce. Consequently, this situation fosters mistrust in the minds of employees toward management.

3.8. Investments and Initiatives in the Sector Automakers have made significant investments in the recent past in various segments of the industry to meet the growing demand. From April 2000 to September 2022, the automobile sector in India attracted a Foreign Direct Investment equity inflow totaling US$ 33.77 billion. Some investments include the following, according to IBEF (2023b) and other sources:

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•

• •

•

•

• •

•

•

•

•

•

In January 2023, MG Motor India invested US$ 100 million in order to expand its capacity, with a target of achieving a 70 percent growth rate in 2023. In December 2022, Mahindra & Mahindra invested US$ 1.2 billion to establish an electric vehicle manufacturing facility in Pune. In November 2022, Maruti Suzuki India revealed plans to allocate around US$ 865.12 million for various projects, including the construction of a new facility in Haryana and the launch of new vehicle models. In September 2022, Hero MotoCorp planned a US$60 million investment in California-based Zero Motorcycles to work on the development of electric motorcycles jointly. In August 2022, Skoda Auto Volkswagen India initiated a feasibility study as part of their future investment plans in India following the implementation of their India 2.0 strategic plan. In July 2022, TVS Motor announced plans to inject fresh investments totaling Rs 1,000 crore into its electric vehicle initiatives. In April 2022, Tata Motors revealed plans to inject US$3.08 billion into its passenger vehicle business over the course of the next five years. In March 2022, MG Motors revealed planned to raise between US$350 million to US$500 million in private equity funding within India to support its future endeavors, including expanding into the electric vehicle market. In March 2022, Hyundai announced a massive investment plan of US$79.2 billion that will be spread across the decade until 2030, primarily focusing on electric vehicles. In January 2022, Kinetic Green Energy revealed intentions to allocate approximately US$ 10-13 million for a two-wheeler electric vehicle project, in partnership with the prominent Chinese electric vehicle company Aima Technology Group. HOP Electric Mobility, a manufacturer of electric two-wheelers and a diversified business venture of Rays Power Infra is considering an investment of US$ 13.24 million over the next two years to expand its electric vehicle manufacturing capacity. As of September 15, 2022, investments in electric vehicle startups had attracted approximately US$ 673 million in funding, as reported by Fintrackr.

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In December 2021, Hyundai revealed plans to invest US$ 530.25 million in research and development in India, with the goal of introducing six electric vehicles by 2028. To achieve India’s electric vehicle aspirations, a total investment of Rs. 12.5 trillion (equivalent to US$ 180 billion) in vehicle production and charging infrastructure would be necessary by 2030.

The Government of India has been promoting foreign investment in the automobile sector, allowing 100% FDI under the automatic route. Some recent government initiatives include the following: •

•

•

•

•

•

•

•

In July 2022, the Gujarat government announced a semiconductor policy, with plans to establish Dholera Semicon City and offer incentives to attract investments in this sector. In July 2022, amendments to the National Policy on Biofuels advanced the target of achieving a 20% blending of ethanol in petrol and a 5% blending of biodiesel in diesel to 2025-26. As of July 15, 2022, under the FAME India Scheme I & II, oil companies under the Ministry of Petroleum and Natural Gas (MoPNG) installed a total of 532 EV charging stations. In February 2022, Mr. Nitin Gadkari, Minister of Road Transport and Highways, announced plans to launch Bharat NCAP, India’s vehicle safety assessment program. In February 2022, 20 automobile companies were selected to receive production-linked incentives, with a total proposed investment of around US$ 5.95 billion. The government introduced a battery-swapping policy designed to enable the exchange of depleted batteries with fully charged ones at designated charging stations. This policy aims to enhance the feasibility of electric vehicles for potential customers. As part of the Prime Minister’s Gati Shakti Plan, India’s National Highways are set to undergo a significant expansion of 25,000 kilometers during the fiscal year 2022-23. In November 2021, the Union Government incorporated over 100 advanced technologies into the Production-Linked Incentive scheme for automobiles. These technologies encompass alternate fuel systems, such as CNG, Bharat Stage VI-compliant flex-fuel engines,

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•

•

•

•

•

•

•

electronic control units for safety, advanced driver assistance systems, and e-quadricycles. In September 2021, Mr. Nitin Gadkari, revealed the government’s intentions to mandate car manufacturers to produce flex-fuel engines, subject to necessary permissions from the Supreme Court of India. In September 2021, the government issued a notification introducing a Production Linked Incentive (PLI) scheme dedicated to automobiles and auto components, with a total worth of US$ 3.49 billion. This scheme is anticipated to attract investments exceeding US$ 5.74 billion by 2026 and generate 7.5 lakh jobs in India. In August 2021, PM Narendra Modi launched the Vehicle Scrappage Policy, with the primary objective of phasing out old, polluting vehicles in an environmentally responsible manner. The Indian government has devised a revamped scheme offering US$ 3.5 billion in incentives over a five-year period until 2026 to stimulate the production and export of clean technology vehicles. In July 2021, India inaugurated NATRAX, which stands as Asia’s longest high-speed track and the fifth largest in the world, facilitating R&D in the automotive sector. As of June 2021, the FAME-II scheme utilized US$ 117 million. This initiative has supported 87,659 electric vehicles through incentives and sanctioned 6,265 electric buses for various state and city transportation projects. In May 2021, the Central Government sanctioned a PLI scheme aimed at manufacturing Advanced Chemistry Cells (ACC), with a budget allocation of US$ 2.33 billion. Subsequently, in March 2022, four companies were selected to receive these incentives.

3.9. A Look at the Future The automotive sector relies on several key factors, including the availability of cost-effective skilled labor, well-established R&D centers, and affordable steel production. This industry not only offers significant investment prospects but also generates both direct and indirect employment opportunities, catering to both skilled and unskilled workers. It is anticipated that the EV industry will generate 5 million jobs by 2030.

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In August 2022, the Indian government unveiled Mumbai’s inaugural double-decker electric bus, marking a pivotal step in its long-term vision. The government recognizes the necessity of revamping the nation’s transportation system and is actively working towards establishing an integrated EV mobility ecosystem characterized by low carbon emissions and high passenger capacity, particularly focusing on urban transportation reform. These strategic policies are aimed at fostering increased adoption of electric vehicles, aligning with the rising demand for cleaner transportation alternatives. The Government of India has high expectations for the automotive sector, anticipating investments of US$ 8-10 billion from both domestic and international sources by 2023. India envisions itself as a frontrunner in shared mobility by 2030, presenting ample opportunities for electric and autonomous vehicle development. The Indian automotive industry is poised for robust growth in the 202223 period, rebounding from the impact of the COVID-19 pandemic. Notably, the sale of electric vehicles, particularly two-wheelers, is expected to experience positive momentum in the upcoming fiscal year. This is quite an achievement in a context where most countries will still take a long time to return to pre-pandemic levels in terms of production volume, added value and general prosperity for the nations.

Chapter 4

Central and Eastern Europe There were 322 automobile assembly, engine, and battery production plants in Europe in 2022, up from 301 in 2021. From this number, 213 are in the European Union (EU), an increase from 194 in 2021. Moreover, 127 of these plants produce cars, 71 manufacture buses, 56 build trucks (heavy-duty vehicles), 46 make vans (light commercial vehicles), 71 build engines, and 42 make batteries. They are associated with the European Automobile Manufacturers’ Association (ACEA) and their members build cars, vans, trucks, buses, and engines in 17 EU member states. (ACEA, 2023a). Central and Eastern Europe became a key destination for the installation of new production plants, partially leaving developed European countries and migrating to this cheaper region, especially concerning labor costs. Several studies deal with geographic changes in the industry in Central and Eastern Europe, such as those by Frigant and Layan (2009); Pavlínek and Zenka (2010); Kwiatek-Sołtys et al. (2014); Wójtowicz and Rachwal (2014); Domański and Gwosdz (2018); Wiedermann (2018); Pavlínek (2020); and Claus and Szabolcs (2022) and they help us to better understand the process of changes in the geography of production in Europe, each contributing an aspect of the discussion. Pavlínek and Zenka (2010) argue that: “One of the important aspects of the globalization of the automotive industry in recent years has been the rapid increase in the assembly of automobiles and equipment for the production of automotive components and parts outside the traditional regions of automotive manufacturing.” (Pavlínek & Zenka, 2010).

Pavlínek later continues: “Large differences in labor costs and other production costs across the European Union explain the growth in the East European integrated periphery and simultaneous restructuring in both traditional core regions and old integrated peripheries in Western Europe. The empirical analysis also confirmed the increasing internationalization and the decreasing role

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Marcelo J. do Carmo, Mário S. Neto, Júlio C. Donadone et al. played by large domestic firms in the European automotive industry.” (Pavlínek, 2020)

The most accurate diagnosis of what happened to the automotive industry after the fall of the USSR was that of Domański and Gwosdz (2018), which we reiterate below: “Post-socialist transformation brought about fundamental changes in Central European manufacturing. State ownership was replaced by private enterprises and Eastern European markets largely by the Western European ones, which was accompanied by the reshaping of organisation, technology, productivity and employment. The dynamics and attributes of these processes differed among various sectors leading to significant changes in the sectoral structure of manufacturing.” (Domański and Gwosdz, 2018)

Geographical location patterns have been changing in Europe, and even within countries there have been profound changes in the geography of production. In Poland, for example, the capital Warsaw gave way to new production hubs, as Domański and Gwosdz (2018) observe. In this paper “it is shown that after the general stability of the spatial pattern of production in the first transformation phase of the 1990s, a major shift towards southwestern and western Poland together with the decline of the historically dominant region of Warsaw took place later” … “The rapid expansion of automotive industry in Upper Silesian Industrial District has contributed to its successful restructuring” (Domański and Gwosdz, 2018). Whether between regions or continents or within the same country, a spatial change has been occurring in global automotive production. In the case of auto parts suppliers, Frigant and Layan’s view (2009) is very enlightening: “For nearly a decade now, empirical analyses have highlighted the rapid internationalization of autoparts suppliers, ostensibly pursuing three different types of logic: follow sourcing, where suppliers match customers’ internationalization moves; diversification, where they try to expand their customer portfolio by moving into carmakers’ home countries; and delocalization, where they move into low-cost countries to cut production costs. The simultaneity of these trends explains how major suppliers have been able to weave globalized productive networks that operate on a worldwide basis, and why they have set up production

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and R&D units in an increasing number of countries.” (Frigant and Layan, 2009)

The analysis presented above encompasses the main trends that we point out in this book, which are concerns about lower costs and access to consumer and supplier markets that have been guiding decisions that imply geographic changes. There are other reasons to move to Central and Eastern European countries, as pointed out by Claus and Szabolcs (2022): •

•

•

•

•

Political and Economic Stability. With the end of the Soviet era, Central and Eastern European countries managed to achieve considerable political stability, and this has been one of the main factors in attracting investment to countries in the region. Moreover, in the case of the automotive industry, this has been the reality. Labor force. Eastern European countries managed to develop a cheaper workforce due to the lower cost of living in the region, but at the same time a very specialized workforce, which owed nothing to workers in Western Europe. Tax allowances. Tax policies that involved tax cuts and even exemptions for new companies to set up were factors that boosted the attraction of new investments in the automotive industry in Central and Eastern Europe. Research and development The ease of establishing R&D centers in this region was also important for the growth of the automotive industry, as some workers are fluent in English and other languages, and it is geographically close to Germany, France and Italy, etc. Setting up a company The ease of installing new plants in the region, considering the availability of labor and natural resources, also weighs on the decision to open factories and other facilities.

“Nowadays, it is relatively easy to set up a business in the region. Highqualified consultants enable the investors to make the right and wellfounded decisions and set-up a company in the most appropriate form in a few days. The economic development of the Central and Eastern

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Marcelo J. do Carmo, Mário S. Neto, Júlio C. Donadone et al. European region offers many opportunities for setting up new businesses. Direct foreign investment is encouraged and foreign entrepreneurs are treated the same as local ones, and fairly simple.” (Claus and Szabolcs, 2022)

There were many reasons for the existence of a transfer process between Western European countries and Central and Eastern European countries. However, the issue of total production costs played a major role in this happening, at a time in the history of the automotive industry in which China and India are becoming the new centers of global automotive production and put downward pressure on costs to become competitive and economically attractive. Hence, moving to the same continent at a lower cost was advantageous for European automakers. Table 4.1. European countries - units produced (including Russia) Country

2000

2018

2022

Variation 2000-2022 Germany 5,526,615 5,120,409 3,677,820 -34% France 3,348,361 2,270,000 1,383,173 -60% Spain 3,032,874 2,819,565 2,219,462 -30% United Kingdom 1,813,894 1,604,328 876,614 -55% Italy 1,738,315 1,060,068 796,394 -50% Russia 1,205,581 1,767,674 608,460 -46% Belgium 1,033,294 308,493 276,554 -70% Poland 504,972 659,646 483,840 -4% Czech Republic 455,492 1,345,041 1,224,456 +270% Turkey 430,947 1,550,150 1,352,648 +315% Sweden 301,343 226,000 (2017) n/a -25% Netherlands 267,319 157,280 (2017) n/a -41% Portugal 246,724 294,366 322,404 +30% Slovakia 181,783 1,090,000 1,000,000 +550% Austria 141,026 164,900 107,500 -25% Hungary 137,398 430,988 441,729 +320% Romania 78,165 476,769 509,465 +600% Uzbekistan 32,273 220,667 333,569 +1,000% Totals 20,476,376 21,566,344 15,614,088 -25% Source: OICA 2000; 2018; 2022. Available at: https://www.oica.net/production-statistics/.

Table 4.1 presents the main European countries responsible for automobile production in 2000, 2018 and 2022, according to OICA (International Organization of Motor Vehicle Manufacturers) data, establishing a comparative historical series that perfectly illustrates the

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hypotheses raised by our work: automotive production in Europe has been migrating from rich countries in the west to poorer countries or developing countries in the east, which offer much lower production costs than in developed nations. Table 4.1 shows the changes in the production location. The data in Table 4.1 above show the enormous change in the geography of production. Germany, France, Spain, the United Kingdom, Italy, and all Western countries (except for Portugal) significantly reduced their production volumes, experiencing drops ranging from 30% (in the case of Spain) to 60% (in the case of France), between 2000 and 2022, while the Central and Eastern European countries increased their production in even greater proportions to the retreats of rich countries. Uzbekistan, a former Soviet republic, went from producing 32,000 cars in 2000 to more than 330,000 in 2022, an increase of more than 1000% in two decades. Romania (600% increase), Slovakia (550%), Hungary (320%), Turkey (315%), and the Czech Republic (270%) were countries that increased their production volume exponentially, increasing their share of the European total production (OICA, 2022). According to Radosevic and Rozeik (2005), huge foreign direct investments were fundamental for this restructuring to take place in the automotive industry in Central and Eastern Europe. “The influx of automotive FDI in excess of 35 billion euros between 1990 and 2015 led to growth in output in Eastern Europe from 797 thousand cars in 1990 to 4.1 million in 2017” according to Pavlínek (2020, p. 517). However, this increase in production in Central and Eastern European countries does not alone explain the numerical decline in the volume of production in Europe, which produced 20.4 million cars, light and heavy, in 2000, grew to 21.5 million in 2018 and fell to 15.6 million cars produced in 2022 (OICA, 2022). Such a decrease can only be explained by the rise of China and India, where European automakers formed joint ventures, as seen previously, thus reducing local production in their original facilities. They began to operate in greater numbers in new places, mainly in these two large Asian countries, which can be considered the new axis of global automotive production and probably the new axis of manufacturing in general. Let us now take a closer look at some countries in Central and Eastern Europe, which have seen enormous growth in their automotive production.

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4.1. Czech Republic Automotive production represents the most important industrial and export segment in the Czech Republic, accounting for a share of more than 25% of total Czech exports (Liss, 2019). In 2019, 1.433 million cars were produced in the Czech Republic, making it a country with one of the highest car productions per capita in the world, after Slovakia (Liss, 2019; OICA, 2022). There are three main car manufacturers: Škoda Auto (64% share), Hyundai Motor Manufacturing Czech (22% share) and Toyota Peugeot Citroën Automobile (14% share). According to Piotr Liss “Although the automotive sector alone represents around 6% of GDP, due to the significant supply chains linked to the industry, the total share of the automotive sector for the Czech economy could represent around 9% of GDP. Thus, the importance of the segment is one of the greatest among countries in the region, with more than 90% of the cars produced being exported, mainly to Germany. As such, the dismantling of the German regime would be an important pro-growth factor for the industry.” (Liss, 2019)

The automotive industry represents 13.7% of the Czech Republic’s total manufacturing workforce (ACEA, 2023b), ranking fourth across Europe, just behind Slovakia (16% of the country’s industrial workforce), Romania (15.2%) and Sweden (13.8%). This is significantly higher than traditionally industrialized countries such as Spain (7.5%), France (7.2%), and Italy (4.6%), which may indicate a process of deindustrialization in these Western and wealthy nations, at least in the automotive sector.

4.2. Slovakia Having separated from the Czech Republic in 1993, in the so-called “velvet divorce” (CIAFACTBOOK, 2023), the disintegration of the former Czechoslovakia in the wake of the fall of the Soviet Union gave this small country the opportunity to establish democracy and join the market economy. The country went from a per capita income of US$3102 in 1993 to US$21,783 in 2021 (Macrotrends, 2023a), becoming a middle-income country in just over two decades.

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“Slovakia is the country with the highest share of cars produced per capita, with 1.1m cars produced last year (2018). There are four main carmakers in Slovakia with a relatively evenly distributed production share among the first three car-makers of around 350,000 cars per year: Volkswagen, KIA, and PSA. The fourth produced is Jaguar Land Rover. The share of automotive in industrial production is the highest in the region, around 13% of GDP, and almost 50% of industrial production. A similar share is held by the automotive industry in Slovakia’s total exports.” (Liss, 2019)

The automotive sector represents 16% of the workforce in Slovak industry, the highest proportion among all European countries, including Western, Central and Eastern nations (ACEA, 2023b). It was with the collaboration of the automotive sector that the small country of just over 5 million inhabitants achieved good social indicators, improving its performance in all segments. Moreover, it is thanks to the market economy, above all, that the country has been solving its problems and achieving better living conditions for its people.

4.3. Hungary Hungary is another Eastern European country that has been a destination for foreign direct investment, mainly in the automotive industry. With the fall of the Soviet regime, it also embraced the market economy and democracy, taking GDP per capita from US$3350 in 1990 to US$18,463 in 2022, almost six times higher in three decades (Macrotrends, 2024a). “The Hungarian automobile industry produces about 5% of GDP. It employs 4% of the total workers in the country. Most cars and car parts are produced by German companies (VW Group and Daimler), and 90% of the production is exported. While the relevance of the local automotive is around 5% GDP, including spill-overs, the automotive industry, might represent around 9% of GDP, although the share in gross value added is lower for the Hungarian automotive industry: it still heavily relies on the import of inputs. As such, it is likely that disruptions on global value chains and a significant fall in demand will hit Hungary at an above average level as the majority of the work done is assembly, without R&D or marketing” (Liss, 2019). This characteristic is the main problem of these Eastern countries, which, despite them having increased their wealth over time, end up being responsible

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only for assembling automobiles, whereby research and development and the production of other inputs are the responsibility of automakers in their countries of origin. Hence, the model responds to strict cost considerations as a decision for installation in some of these Eastern European countries.

4.4. Romania Romania also saw a dramatic increase in its per capita income, which went from US$1102 in 1992 to US$15,892 in 2022, a 15-fold increase in three decades (Macrotrends, 2024b). The automotive sector’s share of the country’s industrial workforce is 15.2%, the second highest in Europe (ACEA, 2023b). “Germany is the largest export partner for Romania with a 22.9% share of total exports. Around two-thirds of the total exports are automotiverelated. Hence, automotive-related exports to Germany account for about 15% of Romanian exports, representing roughly 10% of Romania’s GDP and employing approximately 90,000 people. Romania also belongs to the mostly exposed countries in terms of GDP share, which is around 10% and exports of the automotive consists of almost 50%, as in Slovakia.” (Liss, 2019)

If, on the one hand, the automotive industry has been the major driver of growth in the economies of Central and Eastern Europe, whose weight in the economy is enormous, on the other hand, it makes it very dependent on this sector. Hence, the more dependent on a single sector the economy becomes, the more exposed and very dependent on events related to this specific segment, absorbing its bonuses but also its burdens and crises.

4.5. Decline of Germany, France, Spain, UK, and Italy As we have been stating throughout this work, a geographic reconfiguration of production in the global automotive industry is underway. The changes do not only refer to continents, as many might think, from Europe and America to Asia, for example, but within the same continent, as is the case of Europe, significant changes have been occurring. We saw that the countries of Central and Eastern Europe have greatly benefited from foreign direct investments since 1990 (Radosevic & Rozeik; 2005; Pavlínek & Zenka, 2010; Pavlínek,

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2020; Claus & Szabolcs, 2022) and this factor has meant growth in the automotive industry and the economy as a whole, with a significant increase in per capita income in a relatively short space of time. For the countries of the Eastern region, this fact is undeniably positive, even considering the problems of dependence on a single industry sector and the lack of economic diversification, but what about the wealthy countries of Western Europe? What happened to them? We will address this matter next. As we saw in Table 4.1 at the beginning of this chapter, Germany went from an annual vehicle production in 2000 of 5,526,615 to 5,120,409 in 2018 and 3,677,820 in 2022, a 34% reduction in that twenty-two-year period. France fell even further, going from 3,348,361 cars, light and heavy in 2000 to 2,270,000 in 2018, falling sharply to 1,383,173 in 2022, a 60% reduction in its production level. Spain went from 3,032,874 cars in 2000 to 2,819,565 in 2018 and to 2,219,462 in 2022, a decrease of 30% from 2000 to 2022. The United Kingdom showed a significant drop, going from 1,813,894 cars in 2000, 1,604,328 in 2018 and dropping to 876,614 in 2022, a reduction of 55% in twenty-two years. Italy followed the trend and reduced its automobile production by 50%, going from 1,738,315 automobiles produced in 2000, to 1,060,068 in 2018 and falling to 796,394 in 2022 (OICA, 2022). All these examples help to illustrate the significant transfer of production within Europe, moving from wealthy countries with high production costs to poorer countries with lower costs. Joint ventures in China and India also help explain declines in local auto production in wealthy European countries.

4.6. Job Creation and Job Losses The decrease in production volume in the developed countries of Western Europe obviously had implications for the level of employment in these places, and the opposite is also true. In the developing countries of Central and Eastern Europe, where automobile production has increased, the number of jobs created in the automotive industry in these countries has also risen. According to Pavlínek (2020), between 2005 and 2016 there was a negative balance of 16,000 jobs in the European automotive industry, in all 27 countries of the European Union. This is because there was a drop in employment in Western countries and a rise in employment in Central and Eastern European countries.

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Poland had a net growth (admissions minus dismissals) of 52,882 jobs in the automotive industry from 2005 to 2016. The Czech Republic 43,847; Romania 67,187; Slovakia 45,305 net jobs in the same period; Hungary 16,454 vacancies and Bulgaria 15,440 new jobs. Meanwhile, over the same period, Germany lost 94,610 net jobs in the automotive sector; France fell by 61,232 jobs; the United Kingdom closed 22,232 net vacancies; Sweden cut 22,970 job vacancies; Italy eliminated 13,268 jobs; Spain cut 13,807 vacancies and Belgium slashed the equivalent of 14,715 jobs in the European automotive sector (Pavlínek, 2020, p.520). These numbers found in Pavlínek’s research confirm our initial suspicion that there was an almost perfect migration between Western Europe and Central and Eastern Europe in terms of job creation and loss in the automotive industry, and from 2005 to 2016 saw the creation of 462,398 jobs and the closure of 478,780 vacancies, resulting in a negative balance of 16,382 vacancies. Table 4.2 shows the number of total workers in the automotive industry in the European Union in 2021. If, on the one hand, there is a loss for all workers in Western Europe, who earned high salaries and represented a great cost for car manufacturers, on the other hand, there is a substantial gain for all workers in Central and Eastern Europe, where the Average income before automakers migrated was US$1,000 to US$3,000 in the 1990s, and today it reaches US$20,000 in some countries. We could say that, overall, probably the wage bill in the automotive industry decreased in Europe, having been beneficial for entrepreneurs, who were able to increase their profits. It was negative for Western workers and positive for Central and Eastern workers. In short, those who effectively lost in this process seem to be the workers at assembly plants located in the countries of rich and developed Western Europe. Table 4.2. Direct EU Automotive Manufacturing Employment by Country – 2021 Country Germany France Poland Italy Czech Republic Romania Spain Hungary Sweden

Number of workers 868,870 226,927 210,366 175,810 175,791 163,988 156,841 96,805 80,640

Central and Eastern Europe Country Slovakia Portugal Austria Bulgaria Belgium Netherlands Slovenia Finland Lithuania Denmark Estonia Ireland Croatia Latvia Greece Cyprus Luxembourg Malta Total 27 countries Source: Authors, based on ACEA, 2023b, p. 15.

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Number of workers 77,510 41,862 37,416 26,494 26,271 21,131 16,246 8,878 5,448 3,797 3,478 3,437 2,590 2,309 1,788 169 0 0 2,434,862

4.7. Salaries As we have already highlighted throughout the book, one of the fundamental reasons for the migration of investments and companies from one country to another is almost always the cost of operating the business. Moreover, salaries represent a substantial component of the total cost. When we see that thousands of jobs in the automotive industry were cut in Germany and France, for example, and thousands more were created in countries such as Slovakia, Slovenia, Hungary and the Czech Republic, we can see that salaries strongly influenced the decision to migrate. Table 4.3 shows the average salary in the automotive sector in six European countries; one in Germany in Western Europe, and five in Central and Eastern Europe. It is quite clear that the issue of wages is important in job migration from the West to Central and Eastern Europe. Although wages in the automotive sector in the poorest countries in Europe are much lower than those in the West, the fact is that they are much higher than those prevailing thirty years ago (represented by per capita incomes of US$1,000 to US$3,000 in 1990, as mentioned before), when there was practically no automotive industry.

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Table 4.3. Total average gross salary in the automotive industry in Euros – 2017 and 2023 Country Monthly Germany 4,847 (2023) Slovenia 1,545 (2017) Czech Republic 1,293 (2017) Slovakia 1,218 (2017) Hungary 1,209 (2017) Croatia 1,013 (2017) Source: Authors, based on Paylab.com and PayScale.com.

Yearly 58,172 (2023) 18,540 (2017) 15,516 (2017) 14,616 (2017) 14,508 (2017) 12,156 (2017)

The average annual salary in Germany of 58,000 euros is almost five times higher than in Croatia and almost four times higher than in the Czech Republic. Even if we use the purchasing power parity method to analyze two countries, the fact is that for the employer, which is a multinational car manufacturer, the outlay in terms of salaries is much smaller. If the German automotive industry closed 94 thousand vacancies between 2005 and 2016, at an approximate value of 50,000 euros per vacancy, it thus achieved savings of 4.7 billion euros, and was able to create the same 94 thousand vacancies in places that pay a quarter or a fifth of that value, logically pocketing this difference. This has been the keynote of the geographic changes that companies have been undertaking around the world at this current moment in the global economy.

Chapter 5

USA, Canada, Japan, Mexico and Brazil The cases in the United States and Japan are very similar in the context of geographical shifts in production in the global automotive industry and are similar in terms of the size of the decay. Since 2000, when both countries led global automotive production, until 2022, there has been a reduction of more than 20% in production in these two locations. Table 5.1 shows these data. Table 5.1. Units produced in selected countries Country

2000

2018

2022

United States 12,799,857 11,314,705 10,060,339 Japan 10,140,796 9,728,528 7,835,519 Canada 2,961,636 2,020,840 1,228,735 Mexico 1,935,527 4,100,525 3,509,072 Brazil 1,681,517 2,879,809 2,369,769 Source: https://www.oica.net/category/production-statistics/2022-statistics/.

Variation 2000-2022 -21% -22% -58% +81% +41%

Canada declined even further, from a production volume of approximately 3 million automobiles in 2000 to just over 1.2 million in 2022. A decline of 58% in this period. It is worth remembering that Canada produced more than China in 2000 (Canada’s 2.9 million cars versus China’s 2,069 million cars). It seems that Mexico was the biggest beneficiary in this process. As in Europe, which experienced a process of internal migration from the West to the Center and East, in North America the decrease in production in the USA and Canada favored Mexico. If we consider only between 2000 and 2018, we will see an increase of more than 100% in the production volume of the Mexican automotive industry. Due to the pandemic, when there was a drop in global production chains, including the automotive one, Mexico also retreated, but showed growth of 81% in its production volume between 2000 and 2022. In that same year, 2022, Mexico became the seventh largest car producer worldwide, surpassing Brazil, France, the United Kingdom, Italy and Spain, for example (OICA, 2022). In the case of migration between wealthy countries, we also see this happening. Some automakers reduced their production volume in their

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countries to establish new facilities in locations at lower costs, even in countries with high total production costs, such as the USA. Thus, this leads us to the issue of Japanese automakers, Toyota and Honda, which mostly migrated from Japan, not only to developing countries but to the south of the United States, to states such as Texas, Georgia and Alabama, for instance. “The Japanese transplants have strongly pressured state governments for lower taxes, low cost and sometimes free land, and other forms of favored treatment” (Lepadatu, 2018). Toyota paid less than US$ 30,000 to assemblers in the American state of Texas in 2019, which was considerably below the salaries in Japan, and even the salaries practiced in the USA (Glassdoor, 2019). The average salary for Automotive employees in the USA is US$74,133 in 2024 (PayScale, 2023).

5.1. Losses and Gains in Terms of Jobs and Wages Throughout this book, we have observed a job migration to China and India due to the joint venture processes discussed earlier. However, there has also been internal migration from wealthy nations in Europe, the United States, and Canada to Mexico, as well as within the United States itself.

5.1.1. United States The United States has already surpassed one million manufacturing workers in the automotive industry, but it lost almost 250 thousand workers in this industry alone in two decades, as can be seen in Graph 5.1 below. According to the US Bureau of Labor Statistics (2024), the country employed 1,319,500 workers in the automotive manufacturing industry in 1999. In 2000, this number fell to 1,286,700 people. From then on, it showed consecutive drops, with 1,040,700 workers in 2006 and reaching 653,300 workers in 2009, its lowest level in the entire recent history of the North American automotive industry. This drop, from 2006 to 2009, must certainly have had to do with the crisis that broke out in the North American real estate market, the subprime crisis, which negatively affected the entire North American economy and is not necessarily part of the process of reducing jobs in the United States automotive industry, via migration processes. So much so that from 2010 onwards, the country began to recover its previous levels and

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reached the mark of 925,900 employed workers in 2015, growing even more and reaching 2022 with the employment of 1,048,100 workers.

Source: US Bureau of Labor Statistics. Available at: https://www.bls.gov/iag/tgs/iagauto.htm#emp_national.

Graph 5.1. Evolution of employment in the automotive industry in the United States. 2000-2023. Manufacturing. Motor vehicles and parts manufacturing.

Source: US Bureau of Labor Statistics. Available at: https://www.bls.gov/iag/tgs/iagauto.htm#emp_national.

Graph 5.2. Evolution of employment in the automotive sector in the State of Michigan. 2000-2023. Motor Vehicle Manufacturing.

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What draws the most attention is not the stability or decrease in numbers at the national level, but the geographic changes within the country. Following our thesis that geographical changes in production in the global automotive industry have to do with cost savings of production and ease of finding new markets, in an already mature and cyclical industrial sector, and in a country where the motorization index is 860 vehicles for every 1000 inhabitants, the process of falling jobs in some states meant an increase in others. Graph 5.2 shows the evolution of automotive employment in the state of Michigan. The state of Michigan is one of the largest automobile producers in the United States and is the headquarters of the country’s three largest automakers, Ford, General Motors and Chrysler. The latter is now owned by Stellantis, the result of the merger of Fiat-Chrysler and PSA, Peugeot- Citroen. In 1990, the state of Michigan employed 89,400 workers in Motor Vehicle Manufacturing and 190,200 workers in Motor Vehicle Parts Manufacturing. Ten years later, that number increased to 90,400 workers in Motor Vehicle Manufacturing in 2000 and 229,500 workers in Motor Vehicle Parts Manufacturing. This means that the state was not strongly affected by Japanese competition, which had gained momentum from the 1980s onwards. The process of reducing jobs in the state of Michigan occurred in the 2000s when it went from 90,400 workers in 2000 to 50,400 in 2006 and to 26,400 workers in 2006, having recovered and increased to 38,800 workers in 2015 and reached 46,500 workers in Motor Vehicle Manufacturing in 2022. In the case of Motor Vehicle Parts Manufacturing, there was a decrease in job vacancies from 229,500 workers in 1999 to 224,600 in 2000 and reaching 90,800 workers in 2010, only partially recovering in 2022, when it reached the number of 124,500 auto parts workers. These are data that demonstrate the decline of more than 150,000 vacancies for workers in the automotive industry in just one state, Michigan, the birthplace of the automotive industry and home to the most iconic automakers. The migration was to states that pay lower wages, such as Texas, Alabama and Georgia, among other states in the southern United States. Graph 5.3 shows the employment growth in the state of Alabama. In the state of Alabama, there was a movement contrary to that observed in the state of Michigan. In just over two decades (22 years), the state created almost twenty thousand jobs, having grown almost ten times in that period. In 2000, there were 2,800 workers, increasing to 12,600 in 2006, 13,200 in 2015 and reaching 20,900 workers in 2022. Wages are lower and total production costs are lower, attracting new companies, mainly Japanese and Korean

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automakers such as Toyota and Hyundai. The same happens with the state of Texas, shown in Graph 5.4.

Source: US Bureau of Labor Statistics. Available at: https://www.bls.gov/iag/tgs/iagauto.htm#emp_national.

Graph 5.3. Evolution of employment in the automotive sector in the State of Alabama. 2000-2023. Motor Vehicle Manufacturing.

Source: US Bureau of Labor Statistics. Available at: https://www.bls.gov/iag/tgs/iagauto.htm#emp_national.

Graph 5.4. Evolution of employment in the automotive sector in the State of Texas. 2000-2023. Motor Vehicle Manufacturing.

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Texas is the third richest state in the United States, behind only California and New York. Its vocation is mining and oil exploration, in addition to having become an attractive state for several businesses, due to its more businessfriendly tax policy, with lower taxes than in other states. Hence the explanation for Toyota and Hyundai’s move to the Lone Star State. In 2000, the state of Texas employed just 5,900 workers in the automotive industry; in 2006, this number almost doubled to 10,300 workers, reaching 15,800 workers in vehicle manufacturing in 2022, an increase of almost 300% in two decades. The issue of salaries is fundamental, as seen previously. While General Motors paid US$84,872 in 2019 to an engineer in Warren and Detroit, both in the state of Michigan, it paid US$71,116 to the same engineer in Austin, Texas. Toyota paid US$86,994.00 in Torrance, California, to most engineers and paid less than US$ 30,000 to an assembler in Texas in 2019, below the average paid by Ford and GM.

5.1.1.1. Other States •

Indiana (increase) Motor Vehicle Manufacturing

The state of Indiana has also seen a significant increase of almost fifty percent in employment, going from 32,300 workers in 2000 to 50,000 workers in 2022. Salaries are lower than the national average, which is around US$74,000, as we have seen previously. With an annual average of US$63,000, the fact is that 58% of workers in the Indiana automotive industry earn up to US$58,000, with 13% of workers earning US$31,000 to US$38,000; 16% earn US$38,000 to US$44,000; 14% earn US$44,000 to US$51,000 and 15% of workers earn US$51,000 to US$58,000 annually, according to the salary website ZipRecruiter (2024a). The average generally hides the extremes and here we have a majority of almost 60% who receive well below the national average, which is an explanatory variable for the migration of jobs from one state to another. •

Kentucky (increase) Motor Vehicle Manufacturing

The state of Kentucky slightly increased its employment in the automotive industry. In 2000, there were 20,700 workers and in 2022, the state employed 24,200 workers, an increase of 20% in two decades.

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•

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Missouri (decrease) Motor Vehicle Manufacturing

The state of Missouri saw a drop in its workforce of approximately onethird. In 2000, it had 18,900 workers. This number fell drastically, reaching 2012 with 4,700 workers, having recovered in the following years and reaching 2022 with 12,200 workers. •

Ohio (decrease) Motor Vehicle Manufacturing

The state of Ohio has been decreasing its number of jobs in the automotive industry over the past two decades. In 2000, there were 39,700 workers in the state, falling by half in 2009, when it reached 18,200 workers. In 2022, there were 21,800 workers in motor vehicle manufacturing. •

Ohio (decrease) Motor Vehicle Parts Manufacturing

The same movement occurred in the manufacture of auto parts, with a drop of 30% in two decades. In 2000, the state employed 108,100 workers, in 2010, there were 56,400 workers and in 2022, there were 66,500 workers manufacturing parts for automakers. •

New York (decrease) Motor Vehicle Parts Manufacturing

The state of New York was never a major production location for the automotive industry, but it had its share of participation in the production of auto parts for automakers. Even so, there was a drop in production volume and employment. In 2000, it employed 26,500 workers, in 2010, this number dropped to 12,100 workers and in 2022, the number of workers fell to 9,400. This drop was not only due to the salary issue, whose average for the sector is US$73,436 (ZipRecruiter, 2024b), the highest of all North American states, but the issue of taxes must also have weighed in when deciding in which state the automakers would set up shop. Figure 5.1 shows job losses and job creation in the United States, by the main states.

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Source: Authors, using mapchart.net. Figure 5.1. Job losses and Job creation in the US automotive industry. 2000-2023.

5.1.2. Japan Japan fell from production of 10,140,796 in 2000 to 9,728,528 in 2018 and 7,835,519 in 2022, a 22% decrease in its annual automobile production volume in two decades (OICA, 2000; 2018; 2022). Japanese decline in the last five years is the result of contingency rather than structural reasons. If we analyze the period from 2000 to 2018, the decrease in production volume was insignificant, from 10.1 million units produced to 9.7 million. These two decades coincided with the growth of China and India, which we have already analyzed and shown how they went from seventh and fifteenth to the first and fifth largest car producers worldwide, respectively. Japan’s decline from 2018 to 2022 has more to do with the COVID-19 pandemic and disruptions in global production chains, as in 2019 the Asian country produced 9,684,298 automobiles. In 2020, this number fell to 8,067,557, a decline of 17%. In 2021, there was another 3% decline, with production falling to 7,846,955 cars, light and heavy. In 2022, Japan practically stopped and produced 7,835,519. In other words, the sharpest drops were in the years covered by the terrible health emergency that strongly altered the supply of raw materials and inputs, and thus altered sales and orders around the world. According to Kantaro Komiya (2023) “Japan’s factory output

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shrank at the fastest pace in eight months in January as declining overseas demand took a heavy toll on key industries such as auto and semiconductor equipment.” The author continues by quoting that “Weak export-bound production and a recovery in consumption continue to be the two main focuses of Japan’s economy,” a phrase uttered by Atsushi Takeda, chief economist at Itochu Economic Research Institute (Komiya, 2023). Apparently, it would be a contingency, momentary and non-structural problem. That is, although Japanese automakers have migrated to a considerable extent to China and India, in the form of joint ventures, the drop in recent years must apparently be attributed to the COVID-19 pandemic and the disorganization of production and supply chains and not solely to the process of migration from wealthy countries to poorer or developing countries, and this is a fact that we have observed throughout our book. It is clear that the joint ventures set up in China by Honda with GAC and Dongfeng, whose sales in 2017 were 1,405,021 cars; those of Toyota with FAW and GAC, whose sales were 1,131,616 vehicles; and Nissan’s joint ventures with Dongfeng, which allowed sales of 1,116,709 automobiles also in 2017, represented production by Japanese automakers outside Japan. These ventures also reflect the broader structural shifts in global automotive production, specifically the relocation of manufacturing to regions with lower overall production costs, including wages, raw materials, and access to vast markets, such as China and India. Therefore, the recent drop is not directly related to joint ventures abroad, but rather because of the pandemic. However, in the end, joint ventures abroad reduced the production of Japanese automakers in Japan, transferring part of this production mainly to China, but also India and other locations, such as Toyota going to the state of Texas, in the United States.

5.1.3. Mexico Mexico grew its production volume by more than 100% between 2000 and 2018, from 1,935,527 units of vehicles produced in 2000 to 4,100,525 in 2018. Due to the pandemic, it also suffered a negative impact on the quantity of production, falling to 3,509,072 automobiles produced, heavy and light in 2022. Even so, it showed a growth of 81% if we take into account the variation between 2000 and 2022. This volume placed Mexico in seventh place in terms of production level, passing Brazil, Canada, France and Italy, traditional countries in the production of the global automotive sector and which have significantly reduced their participation in world production.

Table 5.2. Average salary in automotive industry in Mexico – 2019 and 2023 Professional Salary (yearly in pesos) Salary (yearly in dollars) Supplier Quality Engineer 742,733 (2023) 43,511.01 (2023) Manufacturing Engineer 617,000 (2023) 36,145.28 (2023) Mechanical Engineer 490,000 (2023) 28,705.33 (2023) Design Engineer 434,483 (2023) 25,453.01 (2023) Design Engineer 364,611 (2019) 18,755.76 (2019) Toluca SAP Consultant 272,000 (2023) 15,934.38 (2023) Technician 130,907 (2019) 6,733.95 (2019) Puebla Technician 88,391 (2019) 4,546.91 (2019) León Technician 86,017 (2019) 4,424.76 (2019) Ramos Arizpe Production Worker 73,056 (2019) 3,758.03 (2019) San Luís Potosí Source: www.payscale.com; www.glassdoor.com; Carlier, 2023. The exchange rate between the Mexican peso and American dollar was 1 USD = 19.44 Mexican pesos on 9/16/2019 and 1 MXN = 0,0585597 USD and 1 USD = 17,0766 MXN on 01/22/2024.

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The arrival of foreign automakers to Mexico increased the average per capita income of Mexicans significantly, as this industry represents a great deal of added value to the country’s GDP. Mexican per capita income in 2003 was US$7,473.9 and in 2022 it reached US$11,496.5, that is, almost a 60% increase (The World Bank, 2024). While not comparable to Eastern Europe or Southeast Asia, with 15 to 20 times growth in per capita income over two decades, it contrasts with other poorer or developing countries, which are stuck in the low-income trap. As Mathilde Carlier highlighted “as of September 2023, among the surveyed jobs in the automotive manufacturing industry in Mexico, the position of Project Manager presented an average salary of around 610,000 Mexican pesos a year. Meanwhile, that year, design, mechanical, and process engineers earned on average less than 500,000 pesos a year” (Carlier, 2023). Moreover, 500,000 pesos per year is equivalent to US$29,286. This amount represents 40% of what is paid on average in North American. In other words, for the same engineering role, car manufacturers can save at least 60% of resources paid for labor. Table 5.2 shows various professions in the automotive industry in Mexico and their respective salaries. It is clear, through the data analysis presented, that the issue of factories migrating from the United States to Mexico (the direct cause of the reduction in North American production and increase in Mexican production) was because of the wage costs paid for huge labor that earns several times more than Mexican labor. Once more, even using purchasing power parity to explain different costs of living, multinationals based in the United States can save billions of dollars, previously paid through high salaries for their workers domestically, and now paying much less to Mexican labor. Paradoxically, this has led to improvements in poverty levels in some areas of Mexico, enabling the development of locations that were previously economically deprived. Engineers’ salaries are proof of this. Although much lower than those paid in the United States by the same automakers, these salaries are far above the national per capita income, which was US$11,496 in 2022, as already mentioned above based on data from The World Bank. Salaries ranging from US$18,000 to US$43,000 per year for an engineer demonstrate significant prosperity at least for a portion of the more educated and specialized population, which generally occurs when the automotive industry is established in any country in the world, as it is an industry with a high volume of invested capital. Only less educated workers with a lower degree of specialization, such as assembly technicians and assemblers in general, earn little and well below the national average per capita income of US$11,496 per

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year. In 2019, assembly workers earned between US$3,700 annually in São Luís Potosi, US$4,400 in Ramoz Arizpe and León and US$6,700 in Puebla, which are all economically disadvantaged areas in Mexico. Figure 5.2 shows the Mexican states where most carmakers produce both light and heavy vehicles.

Source: Authors, using https://www.mapchart.net/mexico.html. Figure 5.2. Carmakers in the Mexican States.

According to Tetakawi.com (2023) “In 2005, only six large car manufacturers operated in Mexico: Ford, GM, Honda, Nissan, Chrysler, and Volkswagen. By 2011, Fiat (now part of Stellantis) and Toyota had been added to the list. Today, Audi, BAIC Group, BMW, Kia, Hyundai, Mazda, and Mercedes Benz have cars made in Mexico. Combined with the numerous Tier 1, 2, and 3 suppliers that manufacture here, Mexico’s automotive industry employs more than one million people nationwide.” (Tetakawi.com, 2023)

The author further points out the importance of the automotive industry in Mexico “With virtually all of the major automotive OEMs now operating in some way in Mexico, the country’s automotive sector is more significant than ever. In fact, the automotive sector makes up 20 percent of the country’s

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overall manufacturing GDP. In 2020, cars were the country’s largest export at nearly 10 percent of total exports; vehicle parts made up an additional 6.4 percent. That makes for a combined value of US$68.7 billion in vehicles and related components and makes Mexico the fifth largest automobile exporter in the world” (Tetakawi.com, 2023)

The automotive industry in Mexico is neither new nor recent, whereby records of plants were installed as early as 1964 by Ford in Cuautitlan, in the State of Mexico; in 1965 by General Motors, in the Toluca Complex, and Volkswagen, in Puebla. Nissan entered in 1966 in Cuernavaca, in the state of Morelos and then in Aguascalientes in 1982. In 1968, Fiat opened two factories, an assembly plant and a stamping plant in Toluca. In other words, throughout the following period, factories were opened by multinational automakers. However, of the thirty factories opened in Mexico, from 1964 to 2020, thirteen occurred from 1964 to 2000, a space of 36 years, while seventeen factories were created between 2000 and 2020, in just twenty years. In summary, the process of expansion of the automotive industry in Mexico has been underway since the 2000s, with the influx of foreign capital and investments by foreign automakers on Mexican soil. Below we will see where the automakers have set up shop in Mexico and what types of products they are delivering. Baja California Toyota (2004) - Tijuana Tacoma and Truck Beds. Sonora Ford (1986) – Hermosillo Stamping and Assembler Plant Ford Fusion, Fusion Hybrid, Lincoln MKZ, MKZ Hybrid & MKZ Black Label. Ford Transit Connect (2021) and Ford Escape. Jalisco Honda (1995) – El Salto HR-V Guanajuato General Motors (1995) – Silao Complex

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Chevrolet Cheyenne, Chevrolet Silverado and GMC Sierra, Regular and Crew Cab; 4.8L, 5.3L, 6.0L and 6.2L Engines, 6L45, 6L80, 8L45 and 8L90 Transmissions. Honda (2014) – Celaya Complex Fit, HR-V and CVT Transmissions. Mazda (2014) – MMVO Salamanca Mazda 2 e Mazda 3. Toyota (2020) – TMM Apaseo El Grande Tacoma. Volkswagen (2013) – Silao EA 888 2.0L TSI, Hitech engines. Estado de Mexico Ford (1964-2010) – Cuautitlan Stamping and Assembling Plant Ford Fiesta (2019), Eletric Crossover (2020). Aguascalientes Nissan (1982) - Aguascalientes A1 Kicks, March, Versa, Sentra, Note and 4 Cylinder Engine. Nissan (2013) - Aguascalientes A2 Sentra. Nissan (2017) – Cooperation Manufacturing Plants Aguascalientes (COMPAS) InfinitiQX50 and Mercedes-Benz. Coahuila FCA (1981) – Saltillo Engines Plant 5.7L V-8 HEMI, 6.4L V-8, 6.2L V-8 HEMI Engines, 2.4L Hellcat and Tigershark 2.4L Engines. FCA (1995) – Saltillo Complex RAM 1500, RAM 2500 and RAM 4000 Crew Cab.

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FCA (2010) – Saltillo South Engine Plant Pentastar 3.6L Engines FCA (2013) – Saltillo Van Assembly Plant Ram ProMaster General Motors (1981) – Ramos Arizpe Complex Chevrolet Blazer, Chevrolet Equinox, HFV6 3.0L and HFV6 3.6L Engines, Gen V Versions. Hidalgo JAC (2017) – Giant Motors Sahagun SUV´s SEI 2 and SEI 3, Assembly Line. Morelos Nissan (1966) – Cuernavaca – CIVAX NP 300, NV 200, NY Taxi and NV 200 Cargo. Chihuahua Ford (1983-2009) – Chihuahua Engine Plant CHEP and CHEP I4 Diesel Power Stroke 6.7L V8 and Diesel 4.4L V8 Engine, Twin-Turbo Engines & 2.0 and 2.5 I4 Duratec Engines. Ford (2017) – Chihuahua Engine Plant CHEP III New Gasoline Engines. San Luís Potosí General Motors (2008) - San Luís Potosí Complex GMC Terrain and Chevrolet Trax; FWD and AWD (GF-6) Transmissions. BMW (2019) – San Luís Potosí BMW 3 Series (Next Gen). Nuevo León Kia (2016) – Pesqueira Forte, Río and Accent. Veracruz BAIC (2017) – AT Motors Veracruz

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D20 and X25 Assembly Line. Puebla Volkswagen (1965) – Puebla Tiguan, Golf, Golf Variant, Jetta, Beetle and Beetle Cabrio. Audi (2016) – San José Chiapa Audi Q5. After this extensive geographical description of automotive production in Mexico, we can conclude that the process of expanding factories and production volume, mainly from 2000, greatly developed this industry in the country of the Aztecs. The High Road and Low Road phenomenon, described by Pardi (2017) in the introduction to this book, aptly illustrates the dual trajectory that the automotive sector has also developed in Mexico. Some workers, typically engineers and managers with higher qualifications, enjoy better salaries that exceed the national per capita income, along with stable employment and additional privileges (High Road). On the other hand, the Low Road trajectory describes a mass of less-educated workers, helpers, technicians, and assemblers who earn salaries below the country’s average per capita income. They often have part-time or unstable employment and lack additional privileges. Nevertheless, we acknowledge that there has been a significant improvement in the lives of people in these previously job-deprived areas. Factories in these impoverished regions of Mexico, employing an average of 2,000 workers and requiring at least US$1 billion to establish and begin production, have undoubtedly contributed to raising the standard of living in these communities. While the impact may not have been drastic, it has been tangible. For instance, from an average per capita income of US$7,400 in Mexico in 2003, it rose to US$11,400 by 2022, marking a 60% increase. While this has not completely eradicated poverty in these states, it has certainly helped mitigate the effects of underdevelopment.

5.1.4. Brazil Brazil’s trajectory in global automotive production has ups and downs, and in this South American country, the cyclical and dependent nature of public policies guided by the State that the automotive sector presents, causes there to be an oscillation in production levels over time. In addition, of course, to

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there are also global crises that regularly hit countries, such as the one in 20082009 and the coronavirus pandemic in 2020-2021. All of these factors mean that Brazil currently occupies a less prominent position than Mexico, which we analyzed in the previous topic. According to Wójtowicz (2019), Brazil and Mexico are countries considered developing or emerging, located on the periphery of global automotive production, but they have achieved a standard of excellence in the sector that has placed them among the first places in the ranking of global automobile production. “It is argued that, although the two countries occupy different positions in the Global Value Chains of the automotive industry, both have experienced a profound transition in its spatial distribution. There are countries’ political and economic factors and the international determinants which triggered the relocation processes in this industry.” (…) “since the mid-1980s, it has been shifting from an isolated national industry, established within a strategy of import-substituting industrialization (ISI), to an integrated global industry. The resultant transformation in the two countries came in the form of both the modernization of some factories and closure of the least profitable and technologically antiquated ones, replaced by new plants in previously weakly industrialized areas. The restructuring of this sector in both countries was successful, as shown by the increased employment and car production, and in Mexico also by a sharp growth in export. The visible aspects of the transformation also include changes in its spatial distribution in the two countries (Wójtowicz, 2019).

This article was published in 2019 and did not reflect the Brazilian decline, contrary to the Mexican success, in global automotive production mainly during and after the new coronavirus pandemic. In 2009, Brazil was ahead of Mexico in production volume, which resulted in 3,182,923 cars produced in Brazil and 1,561,052 produced in Mexico, that is, more than double. Brazil was ahead of Mexico until 2013 when it produced 3,712,380 cars and Mexico manufactured 3,054,849 cars, both light and heavy. As of 2014, Mexico surpassed Brazil in production volume, moving from the eleventh-largest producing country in 2003-2004 to the seventh-largest producer in 2022. Brazil remained stagnant, falling one or two positions over the years, and in 2022 its production in quantitative terms was the same as in 2004, producing just over 2.3 million cars. In 2022, Mexico manufactured

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3,509,072 cars while Brazil produced just 2,369,769 cars, almost a third less (OICA, 2024). One of the possible explanations for the increase in production in Mexico and the decrease in Brazil may be the process of integrating Mexico into the USA, through NAFTA, the North American Free Trade Agreement, which developed a high degree of synergy between Mexico and the USA, as we have seen previously in the case of both countries. The opening of factories in Mexico and the closure in the USA is a symptom of this joint work. Brazil did not participate in this process. Furthermore, throughout the 2000s and 2010s, Mexico implemented more market-friendly policies than Brazil, much more interventionist in the economic area and much more hostile to the free market. In fact, the statist mentality in Brazil seems not to have been overcome, as political and business elites are always concerned about state financing to ensure the viability of their enterprises. This support often comes through state development banks, such as BNDES, the National Bank for Economic and Social Development, which uses funds from support programs and contributions from workers, to provide billions of dollars every year to businesses aligned with those in power. These subsidies are ultimately funded by the entire population. It turns out that even this was not enough to increase the level of production in the Brazilian automotive sector. The incentive plans for the sector, such as Inovar Auto and the recent Route 2030, continue along similar lines: subsidies for automakers to maintain employability and not leave the country, which did not prevent Ford, for example, from closing its doors in Brazil in 2021 after more than 60 years. Another explanation for the role reversal between Brazil and Mexico in global automotive production is the high taxes in Brazil, which are lower in Mexico, among other regulations that drove away investments in Brazil and, on the contrary, attracted them to Mexico. In short, these are some possible explanations for the differences in production between Brazil and Mexico in recent years. We do not intend to be exhaustive or definitive, but rather we have merely attempted to elucidate what has been happening in some countries in terms of volume and geographic changes in the global automotive production landscape.

Chapter 6

Conclusion As we have seen in this book, significant changes are taking place in the automotive sector. From issues of new mobilities, electric vehicles, respect for the environment, financialization of the sector to changes in the geography of production, there are several dimensions to this transformation process. We tried to emphasize this last dimension to verify how the spatial distribution of production in the world automotive industry is found. Emerging markets are considered attractive due to the following factors: rapid growth in the vehicle market, production units in locations with lower costs, rapid growth in motorization rates (Lung, 2000) and privileged fields for new organizational and labor experiments (Humphrey, Lecler & Salerno, 2000). Various forums on the sector have discussed the prospect that emerging markets will be the focus of the greatest growth in the global automotive industry. Humphrey, Lecler and Salerno (2000) point out that there are three aspects that lead the automotive industry to different forms of configuration in emerging markets: the continued protection of domestic markets; the release of automotive agreements (inter-regional trade); and finally, the growth of trade liberalization for vehicles and auto parts between countries and regions. The vulnerability of these markets requires automakers to adopt adaptive strategies to reach both domestic and export markets, enabling economies of scale and scope (Lung, 2001). To do this, automakers simplify products, reduce the number of platforms, adhere to new forms of labor relations and, above all, reduce costs through partnerships with suppliers. We attempted to discover how much and where the automakers produce and whether alone or through joint ventures; what the situation is in which new actors such as India and China find themselves; how to explain the decline of traditional producers such as the US, Japan and Western Europe; and how these changes in the geography of production affected the automotive sector, mainly concerning the issue of workers’ wages. What we found was a substantial change in the order of producing countries and automakers. From the 50 assemblers registered by the OICA (International Organization of Motor Vehicle Manufacturers) and presented in Table 1, we saw that the vast majority increased their production volume,

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except for only six assemblers, which decreased between 2000 and 2017. Then, we analyzed how the countries were and we saw that the top four, the USA, Japan, Germany and France were overtaken by China, which moved from eighth place to first, and India, which was in fifteenth place in the ranking of largest producers to fourth place, surpassing the main previously leading countries such as France, Italy, the United Kingdom and Spain. “China has remained the world’s largest automotive manufacturing country and automotive market since 2009. Annual vehicle production in China accounted for more than 32 percent of worldwide vehicle production, which exceeds that of the European Union or that of the United States and Japan combined” (Thomala, 2024). With production increasing substantially between 2000 and 2018 and the reduction in the volume produced in wealthy and developed countries, which previously dominated the bulk of production, we can deduce that there was a migration of production from these richer production regions to the poorer ones or under development, mainly due to cost savings related to the wage issue. We then detected that there has been a restructuring of mature assemblers and structuring of new assemblers in new production locations, also demonstrated by Pardi (2017). This reorganization gave rise to the signing of joint venture agreements between traditional assemblers and new assemblers, which made it possible to reach 50% of the production volume, in China, for example, through this business model. In India, at least 50% of the market is dominated by the joint venture between Maruti and Suzuki. If the geographic changes have to do with the search for better conditions for automakers to produce, in a context of financialization and a drop in production profitability, they have been very successful, considering changing the roles in the international scenario, the rise of China, India, Eastern Europe and Latin America (mainly Mexico), as substitutes for the USA, Japan and Western Europe, which started to decline. However, this has important impacts on the situation of the automotive sector, especially on the situation of workers and the level of their wages. It is true that for some time we have been debating the new forms of work organization and the productive restructuring that industry has been undergoing in general and more specifically the automotive industry, but now, at least 30 years after the Toyotist revolution, lean production and all the changes that have taken place in this important sector, we can clearly see the real impacts on the wage issue. What we saw in this regard was the confirmation in real numbers of the previous concerns of many authors (Wartzman, 2017, Pardi, 2017) regarding the precariousness of work and the low wages paid in what was once the elite

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of the world industry. If General Motors pays US$30,000 for the same automotive service technician in the United States and only US$ 4,000 in Mexico, it is obvious that the trend will increasingly be for plants to close in the US and to open plants in Mexico, directly related to the cost of the workforce. The same applies to Western Europe, where it is better for Volkswagen to leave Germany and produce in Hungary or the Czech Republic, paying around three times less than at the German headquarters and thereby increasing its profitability, even at the expense of the workers. These data make us reflect on whether it is possible to implement the socalled ethical globalization, which seeks to “reconcile the trend towards globalization with the impact it will have on societies” (Slack et al., 2009, p. 655). Apparently, the poorest societies that have been blessed with new employment opportunities and local development seem to be satisfied, following the maxim that a job and a salary are better than no job and no salary. However, on a global scale, there has been a decrease in the overall wage bill worldwide. Wages have been reduced and working conditions have become more precarious compared to previous times in this sector, which historically represented the elite of global industry. Nevertheless, the situation is more complex than appearances suggest. In the same way that there is a change in the structure of production from wealthy to poorer countries, there are also changes within countries, as we saw in the case of the United States. There were geographical changes from the northern states to the southern states, which were also chosen by Japanese automakers, for example. Hence, several dynamics were found in these geographic changes. If, on the one hand, there was a drop in wages for workers in the northern United States and Western Europe, on the other, there was an increase for the poorest workers in developing countries, which is no small feat. As we have seen, the automotive industry represents important shares of countries’ GDP and a significant part of their workforce. When the industry is established in a country, years later we can detect the fruits that this process reaped, through massive increases in per capita income and improvements in other social indicators. It was a similar story in China, where in just two decades, GDP per capita increased 12 times and it was also similar in Eastern Europe, where in the same period of two decades, the average income per capita increased more than ten times. That is, there was an influx of capital that generated employment and income for thousands of people who had previously found themselves without prospects. This is not a minor fact, since most of humanity’s economic problems currently refer to generating income,

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creating jobs and opportunities, reducing poverty, social inequalities and income gaps. We cannot forget, however, that such growth in prosperity, at least in China, which is the biggest player and the most authoritarian country for automobile producers, as Acemoglu and Robinson (2012) have already pointed out, happens through extractive political institutions, where only an elite in power reaps the fruits of development. The fact that there is no “creative destruction” in China, where there are no civil liberties to decide and the State is gigantic and interferes in all aspects of social life, should cost China in the coming years due to the slowdown in production, including in the automotive sector. Furthermore, China is known for not respecting patents, carrying out reverse engineering and copying its competitors without contemplation, practicing work similar to slavery in various industries, such as smartphones, for example, and this does not seem to be part of a situation that creates prosperity for all. In fact, this prosperity achieved by China today comes thanks precisely to the extractive nature of its economic institutions, where only the State can say what and how much to produce, and at what price. News of arrests and even executions of businesspeople who dare to start an economic venture outside the dictates of the Chinese communist party and its development agencies are increasingly numerous. They point to a crossroads, which is resolving the issue of being a country that has adhered to capitalism, albeit in an artificial and centrally planned way, but that maintains an intact political dictatorship that is unbearable for anyone who actually wants to start a company, invent, create and provide what Schumpeter defended as “creative destruction”. In Eastern European countries there is an opposite movement to that seen in China. There has been a process of liberalization in countries that were previously under the umbrella of the USSR and centrally planned economies. Hungary, Poland, Czech Republic, among other countries from the former Iron Curtain, after the fall of the USSR and the disintegration of the socialist bloc, converted to capitalism body and soul, carrying out profound marketfriendly reforms and reaping the fruits of these decisions. In these countries, there appears to be a path towards creating relative prosperity, with an increase in GDP per capita, a rise in jobs and wages, political stability, and a favorable environment for foreign direct investment. The evolution of GDP per capita in recent decades draws attention, as shown in Table 6.1 below.

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Table 6.1. GDP per capita in selected countries Country

Per capita income Per capita income 1990 (US$) 2000 (US$) Slovenia 10,730 (1995) 10,201 Czech Republic 3,941 6,029 Slovakia 2,405 5,426 Poland 1,731 4,501 Croatia 4,930 (1995) 4,952 Hungary 3,350 (1991) 4,624 Source: Authors, based on data from The World Bank.

Per capita income 2022 (US$) 28,439 27,226 21,256 18,688 18,570 18,390

As we can see in Table 6.1, the per capita income of central and eastern European countries grew in some cases by a thousand percent, ten times the growth, as is the case of Poland, which had a per capita income of US$ 1,731 in 1990 and grew to US$18,688 in 2022 (The World Bank, 2024a). Slovenia and Czech Republic, for example, with per capita incomes of US$ 28,439 and US$ 27,226, respectively, in 2022, have already surpassed several European countries, such as Portugal, which had a per capita income in 2022 of US$ 24,515 and has been stagnant since 2008; Greece, which fell from US$32,128 in 2008 to US$20,867 in 2022; and almost reached Spain’s per capita income, which reached US$29,674 in 2022, also in decline since 2007 (The World Bank, 2024h, 2024i, 2024j). In the same way, but through different institutional frameworks, India, China and Mexico have also increased their per capita income over the last thirty years, however, even with all the speed of such growth, they still remain far below the income of countries in Eastern Europe, as can be seen in Table 6.2. Table 6.2. GDP per capita in selected countries Country

Per capita income Per capita income 1990 (US$) 2000 (US$) India 347 442 China 347 959 Mexico 3,196 7,581 Source: Authors, based on data from The World Bank.

Per capita income 2022 (US$) 2,410 12,720 11,496

Perhaps the remnants of extractive economic institutions in force in these three countries, each in its own way, explain the “success” and relative prosperity found and portrayed by our numbers. These per capita income data can help confirm Acemoglu and Robinson’s (2012) thesis about the limits of

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growth in countries with extractive and poorly inclusive institutions, as is mainly the case in China. These cases highlight the growth in per capita income in Eastern European countries, which have embraced more inclusive institutions and have a much higher per capita income than China, India and Mexico.

6.1. The role of the State in the Automotive Industry The relationship between the State and automotive companies is not very different from the State’s relationship with other sectors of the economy. According to Fligstein (2001), depending on the dominant groups in society there will be a type of economic intervention. The most dominant groups in society, for the author, would be the State as a rent seeker, capitalists, workers, and their possible coalitions (Fligstein, 2001, p.46). In the case of the automotive sector, there is a situation of impasse between capitalists and workers, where policies respond to who is dominant. The State acts as a broker and the strongest groups obtain favorable policies. This is exactly what has been happening with the automotive sector on a global level. According to Peter Dicken (2015), the State has always played an essential role in the existence of the automotive industry. The author cites at least two situations in which the State interferes in the economy and determines the fate of the automotive industry: 1) in the degree of access that the industry will have to the domestic market of a given country 2) supporting local industry and encouraging or restricting the entry of foreign automakers into countries. These two situations will determine the degree of participation that these multinational companies will have in a country’s economy. “The specific geographical configuration of the automobile industry is influenced not just by the level of tariffs or quotas, but also by frequently used differential tariffs and quotas between assembled vehicles and components. States may levy high tariffs on imported vehicles but lower tariffs on imported components in order to stimulate local production, especially where there is an insufficiently well-developed local components sector” (Dicken, 2015, p. 599).

This happens because the automotive industry is seen as very important for industrial development around the world and in this case, State intervention would be justified. Although this is an extremely globalized industry, it is also

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true that it is concentrated in clusters within countries and in just over 40 countries, less than twenty percent of the nations on the planet. The idea of being too big to fail is quite true in the automotive sector; just look from a comparative perspective at what each country has been doing to sustain its automotive industry. In Brazil, for example, the automotive industry has been receiving incentives of billions of dollars every year for decades. Tax exemptions, land concessions for the construction of factories, cheap credits, among other measures, were the keynote of relations between the State and the automotive sector in Brazil. In the USA, everyone remembers the help given by the government Barack Obama to bail out General Motors in 2009, when the government bought part of the company’s shares and then sold them in 2013 when the company had recovered. In India, subsidies are very common and joint ventures are supported and instigated by the governments in charge. In China, only with the consent of the Chinese Communist Party, which dominates the State, can automakers exist. In Germany, the State has a stake in the property rights of automakers such as Volkswagen, as in the case of the state of Lower Saxony, which holds around 17% of the German automaker. All over the world, the automotive industry has received help and intervention from the State to develop its activities, in the context of financialization of production and submission of productive activities to the dictates of financial markets.

6.2. Financialization in the Automotive Industry The process of financialization in the automotive sector has been widely debated by several authors. In a recent study (Carmo et al. 2021), we demonstrated how financial activities such as credit sales, leasing, credit cards, among others, have been increasingly used as a profit-making strategy. Profits from productive activities are increasingly smaller in percentage terms, while profits produced by financial activities are much greater. In some automakers, such as Ford, for example, there were several years in which production activities made losses, and these were only offset by profits from financial activities. In conjunction with this fact is the strategy of distributing resources in the form of dividend payments and stock repurchases, prioritizing large shareholders. This strategy has represented an enormous strengthening of the financial pole and a weakening of its productive pole, with layoffs and factory closures in developed countries and the opening of factories and hiring in developing countries, meaning enormous savings in production costs due to

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the payment of lower salaries, as previously seen throughout this book. At the same time, there is the payment of million-dollar compensation to automaker executives, while the average wages of workers have remained stagnant and below the average salary for all ethnic groups in several countries. In terms of employment, we have the flagrant case of Ford Motor Company. The company, which employed more than 350,000 workers in 2001, reached 2023 with 177,000 workers, that is, half of the workforce was reduced in just over two decades. General Motors performed even worse in terms of employment, going from 775,000 workers in 1989 (Carmo et al., 2021, p. 94) to 163,000 in 2023, falling almost five times the number of workers that it employed three decades ago. In other words, the current situation in the automotive industry is one of intense transformations, whether in the field of electrification, new issues of mobility, environment, employment, work and income, in a framework of financialization, presenting heterogeneous results, but consistent with a process that has lasted for at least three decades. With this work, we hope to strengthen the production of knowledge about the global automotive industry and, raise more awareness of the situation, propose improvements for all stakeholders, that is, for all those who are somehow affected by the business (Slack et al., 2009, p. 486).

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About the Authors

Marcelo José do Carmo Affiliation: Federal University of São Carlos, UFSCar, São Carlos, São Paulo, Brazil Education: Doctor in Production Engineering Business Address: Avenida Pedro de Toledo, 670, Centro, José Bonifácio, São Paulo, Brazil Research and Professional Experience: Marcelo José do Carmo has a PhD in Production Engineering at the Federal University of São Carlos, São Paulo, Brazil (2020). He holds a Bachelor’s degree in Social Sciences, majoring in Political Science from the Federal University of São Carlos (1999) and a Master’s degree in Production Engineering (2017) from the same institution. He was a visiting researcher at PMO Alliance Manchester Business School, under the supervision of Prof. Dr Ismail Erturk (2020). His interests lie in politics, sociology and economy, particularly economic sociology, financialization, organizations, shareholders, executives, employees and employment. Publications from the Last 3 Years: Books Carmo, Marcelo José do, Sacomano Neto, Mário and Julio Cesar Donadone. 2023. Corporate Financialization: An Economic Sociology Perspective (1st ed.). New York and London: Routledge. Available at: https://www.routledge.com/Corporate-Financialization-An-EconomicSociology-Perspective/do-Carmo-Donadone-SacomanoNeto/p/book/9781032313955.

114

About the Authors

Carmo, Marcelo José do, Sacomano Neto, Mário and Julio Cesar Donadone. 2021. Financialization in the Automotive Industry: Capital and Labour in Contemporary Society. London: Routledge. Available at: https://www.routledge.com/Financialisation-in-the-AutomotiveIndustry-Capital-and-Labour-in-Contemporary/Carmo-NetoDonadone/p/book/9780367751395 Chapter Carmo, Marcelo José do, Sacomano Neto, Mário and Julio Cesar Donadone. 2021. The Financialization Process at a Crossroads: Searching the Industrial Welfare. In: Albert Tavidze (Ed) Progress in Economics Research vol.47, pp.149-197, New York: Nova Science Publishers, Inc. Available at: https://novapublishers.com/shop/progress-in-economicsresearch-volume-47/. Peer-Review Journals Carmo, M. J., Sacomano Neto, M. and Donadone, J.C. 2020. Multiple dynamics of financialization in the automotive sector: Ford and Hyundai cases. Gestão & Produção. https://www.scielo.br/scielo.php? script=sci_arttext&pid=S0104-530X2020000400211&tlng=en. Sacomano Neto, M., Carmo, M. J., Ribeiro, E. M. S. and Cruz, W. V. G. 2020. Corporate ownership network in the automobile industry: Owners, shareholders, and passive investment funds. Research in Globalization. https://www.sciencedirect.com/science/article/pii/S2590051X20300058? via%3Dihub. Carmo, Marcelo do, Sacomano Neto, Mário and Donadone, Julio Cesar. 2019. Financialization in the Automotive Industry: Shareholders, Managers, and Salaries. Journal of Economic Issues , v. 53 (3), 841-862. https://www.tandfonline.com/eprint/9BBHQFXIPKSEVSA2FBB4/full?t arget=10.1080/00213624.2019.1646609. Carmo, M. J., Sacomano Neto, M. and Donadone, J.C. 2018. Análise da financeirização no setor automotivo: o caso da Ford Motor Company. Nova Economia (UFMG), v. 28, 549-577. https://www.scielo.br/ scielo.php?script=sci_arttext&pid=S0103-63512018000200549& lng=pt&tlng=pt.

About the Authors

115

Mário Sacomano Neto Affiliation: Federal University of São Carlos, UFSCar, São Carlos, São Paulo, Brazil Education: Ph.D. in Industrial Engineering Business Address: Rodovia Washington Luís, Km 235, São Carlos, São Paulo, Brazil Research and Professional Experience: Mário Sacomano Neto is an Associate Professor of Organizational Theory at the Federal University of São Carlos, UFSCar, Brazil. He holds a Bachelor’s degree in Business and Management from the Pontifical Catholic University, a Ph.D. in Industrial Engineering from the Federal University of São Carlos, and a Master’s degree in Industrial Engineering from the University of São Paulo (USP). He was a Visiting Scholar in the Department of Sociology at the University of California, Berkeley, under the supervision of Neil Fligstein. He was a Visiting Scholar in the Department of Political Science at the University of Chicago, under the supervision of Professor Gary Herrigel and John Padgett. Researcher at the Center for Studies in Economic Sociology and Finance (NESEFI) and the Center for Organizational Studies (NEO). His current research project “Subordinate finance of the Brazilian economy: impacts on financial innovations and corporate control” is funded by the Brazilian National Research Agency (CNPq). Areas of interest: organization studies; economic sociology; network analysis; social fields; corporate control; governance and institutions. Professional Appointments: Associate Professor of Organizational Theory at Federal University of São Carlos, UFSCar. Publications from the Last 3 Years: Books Carmo, Marcelo José do, Sacomano Neto, Mário and Julio Cesar Donadone. 2023. Corporate Financialization: An Economic Sociology Perspective (1st ed.). New York and London: Routledge. Available at: https://www.routledge.com/Corporate-Financialization-An-Economic-

116

About the Authors

Sociology-Perspective/do-Carmo-Donadone-SacomanoNeto/p/book/9781032313955. Carmo, Marcelo José do, Sacomano Neto, Mário and Julio Cesar Donadone. (2021). Financialization in the Automotive Industry: Capital and Labour in contemporary society. London: Routledge. Available at: https://www. routledge.com/Financialisation-in-the-Automotive-Industry-Capital-andLabour-in-Contemporary/Carmo-Neto-Donadone/p/book/ 9780367751395. Peer-Review Journals Andrade, R. A., Sacomano Neto, M., Candido, S. E. A. Implementing community-based forest management in the Brazilian Amazon Rainforest: a strategic action fields perspective. Environmental Politics, v. 1, p. 1-23, 2021. Candido, S. E. A., Sacomano Neto, M., Côrtes, M. R. How Social Inequalities Shape Markets: Lessons From the Configuration of PET Recycling Practices in Brazil. Business & Society, v. 21, p. 000765032198906, 2021. Cruz, W. V. G. Da; Sacomano Neto, M.; Ribeiro, E. M. S. Corporate ownership network: the hierarchical capitalism in the brazilian context. RAE. Revista de Administração de Empresas, v. 63, p. 1-15, 2023. Dourado F., C., Sacomano Neto, Mário, Moralles, H. F., Antunes, L. G. R. Technology-based business incubators: the impacts on resources of startups in Brazil. International Journal of Emerging Markets (Print), v. 1, p. 1-20, 2022. Ferratti, G. M., Sacomano Neto, M., Candido, S. E. A. Controversies in an information technology startup: A critical actor-network analysis of the entrepreneurial process. Technology in Society, v. 66, p. 101623, 2021. Ferreira, A. S., Sacomano Neto, M., Candido, S. E. A., Ferratti, G. M. Network Centrality and Performance: Effects in the Automotive Industry. RBGNRevista Brasileira de Gestão de Negócios, v. 23, p. 1, 2021. Fogaça, D., Grijalvo, M., Sacomano Neto, M. An institutional perspective in the industry 4.0 scenario: A systematic literature review. Journal of Industrial Engineering and Management, v. 15, p. 309, 2022. Polloni-Silva, E., Da Costa, N., Moralles, H. F., Sacomano Neto, M. Does Financial Inclusion Diminish Poverty and Inequality? A Panel Data Analysis for Latin American Countries. Social Indicators Research, v. 1, p. 1, 2021.

About the Authors

117

Silva, E. M., Paiva, E. L., Sacomano Neto, M., Freitas, K. A. Developing operational capabilities in the collaborative practice-adoption process through different triadic structures. Brazilian Administration Review, v. 18, p. 1, 2021. Somenzari, M. S.; Sacomano Neto, M.; Ganga, G. M. D.; Lizarelli, F. L. The Effects of Leadership on the Organizational Culture: The Case of the National Institute of Social Security. Administração Pública e Gestão Social, v. 15, p. 1-15, 2023. Vila, M., Candido, S. E. A., Ferratti, G. M., Sacomano Neto, M. The configuration of the largest Brazilian banks’ board of directors: trajectories and capitals of Latin America’s financial elite. International Journal of Emerging Markets (Print), v. 1, p. 1-25, 2023.

Julio Cesar Donadone Affiliation: Federal University of São Carlos, UFSCar Education: Doctor in Production Engineering Business Address: Rodovia Washington Luís, Km 235, São Carlos, São Paulo, Brazil Research and Professional Experience: Julio Cesar Donadone is currently Full Professor at the Federal University of São Carlos, Brazil, and coordinator of the Center of Studies on Economic Sociology and Finance NESEFI -UFSCar. He was a visiting researcher at the University of California, Berkeley, USA (1998 and 2018) and EHESS - École des Hautes Études en Sciences Sociales – Paris, France (2005). He has experience in sociology, especially in economic sociology, working mainly on the following topics: intermediaries, financialization, and dynamics of fields. Professional Appointments: Full Professor at the Federal University of São Carlos, Brazil Publications from the Last 3 Years:

118

About the Authors

Books Carmo, Marcelo José do, Sacomano Neto, Mário and Julio Cesar Donadone. 2023. Corporate Financialization: An Economic Sociology Perspective (1st ed.). New York and London: Routledge. Available at: https://www.routledge.com/Corporate-Financialization-An-EconomicSociology-Perspective/do-Carmo-Donadone-SacomanoNeto/p/book/9781032313955. Carmo, M. J., Sacomano Neto, M., & Donadone, J.C. 2021. Financialization in the Automotive Industry: Capital and Labour in contemporary society. London: Routledge. Available at: https://www.routledge.com/ Financialisation-in-the-Automotive-Industry-Capital-and-Labour-inContemporary/Carmo-Neto-Donadone/p/book/9780367751395 Chapter Carmo, Marcelo José do, Sacomano Neto, Mário and Julio Cesar Donadone. 2021. The Financialization Process at a Crossroads: Searching the Industrial Welfare. In: Albert Tavidze (Ed) Progress in Economics Research vol.47, pp.149-197, New York: Nova Science Publishers, Inc. Available at: https://novapublishers.com/shop/progress-in-economicsresearch-volume-47/. Peer-Review Journals Busnelo, Homero Cremm and Donadone, Julio Cesar. 2021. Organizational secrecy as viewed by the agents of a multinational corporation: A Case Study. Gestão & Produção, vol 28, n.1. https://doi.org/10.1590/18069649-2020v28e5700. Carmo, M. J., Sacomano Neto, M. and Donadone, J.C. 2020. Multiple dynamics of financialization in the automotive sector: Ford and Hyundai cases. Gestão & Produção. https://www.scielo.br/scielo.php? script=sci_arttext&pid=S0104-530X2020000400211&tlng=en. Carmo, Marcelo do, Sacomano Neto, Mário and Donadone, Julio Cesar. 2019. Financialization in the Automotive Industry: Shareholders, Managers, and Salaries. Journal of Economic Issues , v. 53 (3), 841-862. https://www.tandfonline.com/eprint/9BBHQFXIPKSEVSA2FBB4/full?t arget=10.1080/00213624.2019.1646609.

About the Authors

119

Carmo, M. J., Sacomano Neto, M. and Donadone, J.C. 2018. Análise da financeirização no setor automotivo: o caso da Ford Motor Company. Nova Economia (UFMG), v. 28, 549-577. https://www. scielo.br/scielo.php?script=sci_arttext&pid=S010363512018000200549&lng=pt&tlng=pt. Matsuda, Patrícia Mari and Donadone, Julio Cesar. 2018. The reconstruction of leader’s career after the change of the corporate control: A case study in São Paulo electricity sector. 2018. Corporate Governance and Organizational Behavior Review, Vol 2, issue 2. https://doi.org/ 10.22495/cgobr_v2_i2_p4.

Aditya Kuthar Affiliation: Indian Institute of Technology Kharagpur, India Education: Integrated Master of Science in Economics Business Address: Nehru Hall of Residence, PAN Loop, IIT Kharagpur, Kharagpur, 721302, West Bengal, India Research and Professional Experience: Aditya Kuthar is an undergraduate student at the Indian Institute of Technology (IIT) Kharagpur, currently pursuing an Integrated MSc. in Economics (expected graduation in 2025). He holds a strong academic record and has completed diverse coursework in areas ranging from Corporate Finance to Public Policy. Aditya’s research interests primarily focus on finance and behavioral economics, and he aspires to pursue a career in portfolio management. He is also an incoming intern at Morgan Stanley’s Fixed Income Division.

Shreya Gupta Affiliation: Indian Institute of Technology Kharagpur, India Education: Integrated MSc in Economics Business Address: SNIG Hall of Residence, Indian Institute of Technology Kharagpur, Kharagpur, 721302, West Bengal, India

120

About the Authors

Research and Professional Experience: Shreya Gupta is currently an undergraduate student at the Indian Institute of Technology Kharagpur, India, pursuing her Integrated MSc Degree in the field of Economics. With her diverse coursework and previous research internships in institutes such as the University of São Paulo, Brazil and ISB Hyderabad, India, she has gained an interest in the fields of finance and public policy. She is an upcoming Business Analyst Intern at McKinsey & Company.

Index

A

D

affordable cars, 14 against its own people, 40 aggressions in the workplace, 7 Aima Technology Group, 58 Anhui, 10, 28 anti-Fordist dynamic, 6, 7 Apple, 40 Arrizo, 31 automotive sector, vii, viii, xi, xii, 1, 3, 4, 7, 8, 11, 18, 20, 22, 26, 27, 37, 50, 52, 53, 60, 61, 68, 69, 70, 72, 73, 77, 79, 83, 86, 90, 92, 93, 94, 96, 98, 99

Daron Acemoglu and James Robinson (2012), 8 Deng Xiaoping, 37 differentiated salaries, 8 digitalization of production, 1 domestic demand, 7 dominating the business, 31 dozens of domestic automakers, 31

B battery factory, 33 Berkshire Hathaway, 33 BlackRock, 33 bonuses, 8, 70 both light and heavy vehicle production, 30 Brand Finance’s Top 10 Most Valuable Auto Portfolio Brands 2022, 29 Build Your Dreams, 33

C China South Industries Group Corporation, 28 Chinese growth model, 7 concerns about the future of work, 8 contemporary automotive sector, 3 core of urban wage earners, 7 corporate internationalization strategies, 8 cost-effective production, 6

E economic sociology, xi, xii, 2 E-HS9 luxury SUV, 32 Emerging Regional Markets (ERMs), 3 engine factory, 29 environmental product responsibility, 1 established automakers, 14, 31, 41

F financial globalization, 2 first private automaker in China, 29 Fordism strategy, 8 foreign direct investments, 8, 67, 70 full-time jobs, 8

G geographical aspect, 8 gigantic Asian market, 37 gigantic domestic market, 7 growing migration of production, 11 Guangxi, 32, 35 Guangzhou, Guangdong, 34

122

H Heilongjiang, 28, 32, 35 High Road development model, 18 homogeneous process, 4 Hong Kong Stock Exchange, 29, 33 Hongqi L5, 32 hybrid ecosystem, 29

I impacts on workers, 2 industrial policy, viii, 6 Industry 4.0, 5 industry of local content, 6 Integrated Peripheral Markets (IPMs), 3 international division of labor, ix, 1, 3

J Jetour, 31 Jiefang trucks, 32 Jilin province, 32 job opportunities, 51, 53, 54 job roles, 44 joint ventures, xi, xii, 2, 3, 5, 9, 11, 12, 13, 14, 25, 27, 28, 29, 31, 32, 33, 34, 37, 57, 67, 76, 83, 93, 94, 99

K key destination, 63 key factors, 56, 60 key manufacturers in China, 32 Kia India, 47

L labor costs higher, 7 lack of benefits, 8 low-cost cars, 6 lower production costs, 4, 31, 67

M Macau, 34

Index Mao Zedong, 37, 40 mass of middle-class consumers, 5 mature automakers, 2, 4, 12, 25 migrant and precarious workers, 7 Mongolia, 35

N national champions, 6 new industrialized countries, 2 new mobility, 1 new production plants, 8, 63 nine largest Chinese automakers, 26, 27

O origins of power, poverty and prosperity, 8 other benefits, 8 outside the traditional regions, 8, 63 outsourcing practices, 8 over 40 manufacturing and assembly plants, 29 overseas sales, 30

P partnership between Maruti and Suzuki, 7 part-time work, 8 Pegatron, 40 production region, xii, 2, 11, 19, 20, 94 Protected Autonomous Markets (PAMs), 3 Proton, 11, 29

Q Qinchuan Automobile, 33 quest for efficiency, 6

R R&D centers, 29, 60, 65 regional clusters, 43 regional diversification, 1 regional heterogenization, 1 regional markets, 3, 30

Index

123

S

Volvo Car Corporation, 29

several challenges, 1 Shenzhen Stock Exchange, 34 spatial changes in production, 8 state-owned automakers, 12, 25 subcontracting pyramid, 7

W

T Tang SUV, 33 The Big 9 from China, 26 third-tier component suppliers, 7 Tianjin municipality, 32 Tibet Autonomous Region, 34 two sets of employees, 7

U under joint ventures, 30 undermine labor relations, 8

Wang Chuanfu, 33 Why Nations Fail, 8 wildcat strikes, 7 worsening working and employment conditions, 7 worst year of the pandemic, 32 Wuling Hongguang Mini EV, 30

X Xinjiang, 35

Y Yamaha Motor India, 49 Youngy Investment, 33 yuan, 32, 37, 38 Yunnan province, 32

V value chain, ix, 7, 69 vehicles under its own brands, 30 violent strikes, 7

Z Zhejiang Geely Holding Group, 29