The automotive industry has been growing steadily since the automotive industry crisis of 2008-2010, and the worldwide outlook is one of continued growth. IHS Markit notes that the industry is stable, and predicts growth rates above 3% over the coming year.

And growth means expansion. In recent years, almost every major automaker has planned significant site expansions, adding hundreds or thousands of jobs wherever they choose to build new plants: a new plant for VW in Tennessee, an auto supplier facility in Detroit, a Mazda-Toyota plant in Alabama.

Above all else, expansion means the need for trained, affordable labor pools. In terms of overall economic growth, unemployment rates are down—in the U.S., unemployment is below 4%, and the UK’s average unemployment rate of 4.1% is the lowest it’s been in almost 20 years.

That’s good news for workers. For businesses, however, it means finding labor is harder than it’s ever been, especially in market sectors like the automotive industry, which require a variety of skilled workers. A recent survey reported that talent shortage is at a record high worldwide; 45% of 40,000 employers surveyed expressed difficulty filling roles for skilled workers.

As automotive manufacturers and suppliers manage growth, evaluating local labor markets must be a key criterion in the site selection process.

Criteria for Site Selection in the Automotive Sector

Of course, labor is not the sole focus when selecting new sites. Comprehensive market evaluations provide automotive companies the big picture when selecting new sites for expansion.

When we look at site selection for automotive clients, we start by asking, “Where are the customers?” and “What is the most efficient cost model overall?” These two questions are interconnected; automobile manufacturers can cut costs as they build their domestic supplier infrastructure and become familiar with the needs of local markets. A sophisticated manufacturing system incorporates both domestic and globally supplied components in an effort to achieve the lowest manufacturing costs.

Site placement is a complex calculation that involves synthesizing many factors. Businesses should strive to optimize location so they can maintain the lowest overall manufacturing and transportation costs without interfering with the business’s desired service level.

Of course, these factors vary on a case-by-case basis. At Colliers, we evaluate over 16 variables to help employers reach optimal savings. But the key criteria tend to be similar internationally. Automotive companies must review land and construction opportunities, in addition to costs and quality of life. They must evaluate energy and raw material needs and consider the distance to customers and suppliers. Automotive companies tend to work with a select group of suppliers, who need to be in close enough proximity for supplying parts to be practical while far enough away from each plant so as not to draw from the same labor pool.

And most importantly, automotive companies must evaluate available local labor pools.

Case studies for site selection in two very different areas of the world, India and the U.S.-Mexico border—and with one completed well before the ’08 financial crisis—both point to the labor climate as a key consideration in site selection. Every automotive client we’ve served has realized, due to the extremely competitive labor market, that labor is the primary consideration to solve for in the site selection process.

A full labor analysis is necessary to navigate the complexities of finding a competent workforce. This includes evaluating the availability of skilled labor in the market, the specific job roles toward which the market is oriented, the presence of local employers and the presence of local schools and technical training facilities. Businesses must also assess whether a market is capable of drawing new workers to fill positions by evaluating the quality of life and income levels, and balance that with the costs of a specific location to the employer.

Automotive companies require highly skilled tech workers and engineers; employees who can speak more than one language and communicate across global divides; those with specific experience with plastics, metallurgy, fabrics, electronics and so on.

Skilled labor isn’t always easy to find or easily replaceable and comes in limited supply. Choosing a market with favorable labor conditions is essential—without labor, there is no business.

Moving Forward with Innovative Solutions for Growth

In the face of what a recent Deloitte report calls a talent shortage that’s reaching a “critical level,” how do employers move forward? Of course, they can continue to raise skilled workers’ salaries, but at a certain point, that’s a no-win solution for employers.

There are a number of creative ways automotive employers can develop lower-cost labor pools. One option is to group non-essential functions into jobs that can be fulfilled by less-skilled, lower-paid workers. Another option is to move toward automation on the less-skilled end of the spectrum. Automating low-level jobs can free up a labor force to fill the need for skilled labor by providing adequate training.

But many jobs—the most important ones—can’t be automated, leaving employers with the same talent shortage crisis they began with. If there aren’t enough skilled workers to fill highly specific jobs, automotive employers and suppliers should consider partnering with local technical training providers, creating a more highly paid workforce and increasing economic opportunity, while giving employers more hiring options.

Automotive companies may also need to consider rethinking their strategy. A PwC projection of trends in the automotive industry notes, “In this complex environment, auto companies can no longer hope to be everything to everyone.” The report recommends companies align their strategy with their unique capabilities. This will be especially important as automotive companies must navigate new technological trends and consumer demands. By aligning with in-demand market niches, employers can specialize their workforce.

But most importantly, automotive employers must approach site selection prudently and carefully, with an eye to a long-term solution when evaluating potential locations. This means not relying on small pockets of labor or cannibalizing the pre-existing labor market, but instead, looking for criteria—high quality life, a labor market that isn’t totally saturated, local schools and training options—that will be most favorable to a strong, sustainable labor pool.

Patrich Jett is an established the automotive expert and Chair of the Colliers International Global Automotive Desk. After completing numerous substantial transactions related to the automotive industry, he has become one of the “go to” subject matter experts at Colliers International for global automotive real estate solutions as demonstrated on his expertise and client roster.