Abstract

"Why did US auto assemblers agglomerate in Detroit? The role of industrial organization of the city and mass production"

Xavier Duran, Universidad de los Andes (xh.duran21@uniandes.edu.co)

Paper co-authored with Ramana Nanda, HBS and Olav Sorenson, UCLA
Why did US auto assemblers agglomerate in Detroit? We explore this question by examining contemporary accounts of the evolution of the industry and identify key factors overlooked in the discussion of this question. The narrative explores the role of two different forces on the agglomeration of the US auto industry in Detroit. First, we explore the role that the industrial organization of the city played in inducing innovation in the auto industry and generating agglomeration forces. Particularly important for assembly intensive manufacturing like that of the early auto industry is inter-firm coordination. Our narrative highlights the development of hand-to-mouth inventory systems (similar to just in time) and the prevalence of auto parts supplier’s credit. At the turn of the 20th century only a relatively tight spatial and social network facilitated physical movement of parts from one site to another and trust for credit to flow where most experimentation was needed: auto product development. Second, we explore the influence of mass production on agglomeration. Once the uncertainty of auto (product) design and the financial constraints to experimentation were reduced (at least to some firms), integration within a single firm of production of many auto parts and coordination of workers and specialized machines led to new assembly methods and even tighter spatial agglomeration of auto production. In sum, industrial organization of the city facilitated inter-firm coordination of auto assembly in an initial stage of the industry while mass production contributed to within firm coordination in the following stage. Both led to tighter levels of spatial agglomeration of production. 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).