Abstract

Automobile assembly product life cycle and agglomeration

Why did US auto assemblers agglomerate in Detroit? We explore this question by examining contemporary accounts of the evolution of the industry and identify a key factor that has been overlooked in the discussion of this question. Contemporary accounts suggest that the industrial organization of the city played an important role inducing innovation in the auto industry and generated agglomeration forces. Particularly important for an assembly intensive industry like the early auto industry are the development of hand-to-mouth inventory systems (similar to just in time) and auto parts supplier’s credit that allowed a typical Detroit auto producer to use auto parts from diverse suppliers to assemble about 5 cars per day and receive 90 days credit from auto parts suppliers. Such a high level of inter-firm coordination at the turn of the 20th century could only be sustained by a relatively tight spatial and social network that facilitated physical movement of parts from one site to another and trust for credit to flow where most experimentation was needed at the time, in the assembly stage. Preliminary quantitative analysis suggests that indeed a measure of medium sized city, closer ethnic distance, auto industry diversity and supplier’s credit are correlated with a measure of agglomeration. In sum, we identity a new hypothesis explaining why medium sized cities with small manufacturing districts and tight physical and social networks helped to coordinate auto parts design, inter-firm flows and trade finance to facilitate experimentation where it was required most at the time, in the assembly stage. This explanation to agglomeration of the auto industry in Detroit complements others like those that emphasize fights within firms that generated spin-offs and preexistence of a local strong wagon industry (Klepper 2007; Cabral et al 2018)