Foreign automakers have transformed not only the manufacturing landscape of the southern United States, but the U.S. automobile industry as well.
What began with Nissan’s decision a quarter-century ago to site a manufacturing plant in Smyrna, Tenn., and continued with Mercedes-Benz’s decision to build a manufacturing plant in Tuscaloosa County, Ala., and BMW’s decision to build a plant in Spartanburg, S.C., has spawned a trend that continues to grow. Not only have the Nissan, Mercedes-Benz and BMW plants expanded, but Toyota, Honda, Nissan, Hyundai and Kia have all sited, or are siting, large manufacturing complexes in the southern United States.
“This has had a significant impact on manufacturing in the South and the automobile industry in the United States,” said Buzz Canup, president of Canup and Associates Inc.
The latest announcement occurred earlier this year when Toyota revealed its intention to build a $1.3 billion manufacturing plant near Tupelo, Miss., where the Highlander crossover utility vehicle will be produced when production begins in 2010.
“When Toyota and Nissan first landed, the incentives they received seemed pretty minimal compared with the incentives that are offered today. As other states began to see the economic impact of these plants, and the fact that you can get an ROI on your incentive package within five to 10 years, they realized it was a good deal.”
— Claude R. “Buzz” Canup, President, Canup & Associates
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The reason for Toyota’s second major U.S. manufacturing plant expansion this decade (along with its facility in San Antonio, Texas) is clear: It is an attempt to keep up with the growing U.S. demand for Toyota vehicles. Sales of Toyota vehicles rose by 12 percent in the United States in 2006, a year that saw overall new vehicle demand in the U.S. decrease by 2.5 percent compared with 2005.
That’s the reason why all foreign automakers have decided to expand in the United States. They have seen their share of the U.S. market increase in recent years, while sales of vehicles produced by Detroit-based automakers have gone in the opposite direction.
Foreign-based automakers operate 13 vehicle assembly plants in the United States. Most of the plants are located in the South.
Originally, these automakers chose the South because states there had right-to-work laws and there was a better possibility of keeping employees from unionizing. Later, they found a highly trained work force and states willing to invest hundreds of millions of dollars in incentives to land these facilities.
“Incentives became a part of the equation,” Canup said. “When Toyota and Nissan first landed, the incentives they received seemed pretty minimal compared with the incentives that are offered today. As other states began to see the economic impact of these plants, and the fact that you can get an ROI on your incentive package within five to 10 years, they realized it was a good deal.”
And thanks to the way these automakers operate, with just-in-time (JIT) manufacturing processes, suppliers need to be located in proximity to these plants. That just adds to the economic impact that the automobile industry is having on the southern United States.
Toyota’s Major Expansions
Toyota’s announced in February that it will build a manufacturing plant in Blue Springs Miss., near Tupelo — its eighth assembly plant in North America. Site preparations began in May.
The plant will produce the Toyota Highlander SUV and annual vehicle capacity will be 150,000 units. Once production begins in Mississippi, Toyota will have the capacity to produce about 2.2 million cars and trucks annually in North America.
Operations at the plant will include stamping, body weld, plastics, paint and assembly.
Ray Tanguay, an executive vice president for Toyota, said several factors led to Toyota’s site location decision.
“On my visits to Northern Mississippi, I talked with area companies and observed their work force,” he said. “What I observed were people who are educated, ethical and friendly with a strong work ethic.”
He added that the area’s existing companies had high praise for the work force.
“They were definitely the best sales people,” Tanguay pointed out.
““The partnership of all of these groups was instrumental in our decision, including the creation of a new rail district to provide competitive rail access for the plant.”
— Ray Tanguay, Executive Vice President, Toyota
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Tanguay also cited the effort by state and local officials to bring the project to fruition.
“The partnership of all of these groups was instrumental in our decision, including the creation of a new rail district to provide competitive rail access for the plant,” he noted.
Toyota’s facility in San Antonio began operations nearly a year ago and reached full production earlier this year. The facility has the capacity to produce 200,000 Tundra full-size pickup trucks annually.
The plant’s investment was originally estimated at $800 million, but grew to nearly $1.3 billion because of a capacity expansion for 50,000 more trucks; rising material costs, especially for steel; and additional infrastructure needed for on-site suppliers.
“The full-size pickup truck market is, by far, the largest opportunity for Toyota’s future growth plans in the U.S.,” said Don Esmond, senior vice president of automotive operations for Toyota Motor Sales, U.S.A. Inc. “Thanks to this highly efficient plant and [our employees], we plan to take full advantage of that opportunity. Our production and sales goals are ambitious, yet realistic, and reflect our confidence in the product.”
Direct and Indirect Jobs
Landing an automobile manufacturing plant is a boon in itself. But what really has the potential to make such a project an economic juggernaut is the supplier base that needs to be near the original equipment manufacturer (OEM).
Under the JIT system, component parts are scheduled for delivery to the assembly line right before they are needed. This allows OEMs to save significant amounts of money in storage and personnel costs, and warehouse space.
“There are certain tier-one suppliers that have to be within certain defined distances because [OEMs] are using JIT and minimizing in-house storage,” said Canup, who helped the state of Mississippi land the Nissan project in Canton, Miss., and has worked with states pursuing projects by Toyota, Hyundai and Kia. “It is not uncommon for an auto plant to have four hours or less of parts and components inside the plant. It’s a complex and hectic logistical system.”
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In many cases, the cumulative effect of suppliers locating their facilities near these plants is to double or even triple the work force of the automaker itself. Estimates are that three to six indirect jobs are created for every direct job within an vehicle assembly plant.
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In many cases, the cumulative effect of suppliers locating their facilities near these plants is to double or even triple the work force of the automaker itself. Estimates are that three to six indirect jobs are created for every direct job within an vehicle assembly plant, according to Canup.
In Mississippi, Toyota expects to employ 2,000 workers when its new plant is at full production, and it expects numerous suppliers to create 4,900 additional jobs within five years of the plant’s opening.
Toyota’s San Antonio complex is home to 21 on-site suppliers that have a combined investment of more than $300 million and a work force of about 2,100, while the automaker’s plant in Georgetown, Ky., is home to nearly 6,700 employees and about 90 suppliers.
Through this supplier network, nearly 35,000 jobs have been created across the state, according to Toyota.
Kentucky, in fact, has become the location of choice for many vehicle suppliers. One of the most recent expansions is Bruss North America, a subsidiary of Germany-based Bruss, which broke ground in August for a $24 million expansion of the company’s industrial facility in Russell Springs.
Bruss, a which specializes in sealing systems for transmissions and engines, currently has a work force of 165 and is expected to grow that by an additional 150 employees because of the expansion.
The $24 million expansion will add 71,400 square feet of manufacturing space and 54,000 square feet of warehousing space to the plant in the Russell County Business Park. The Kentucky Economic Development Finance Authority approved an incentive package worth $2.5 million to assist in the expansion.
Other vehicle manufacturing operations reflect how the supplier base helps grow a project’s work force.
By 2010, Nissan expects that more than 26,000 jobs will be created by itself, its supply network and support operations. Kia expects to create 2,800 jobs when its $1.2 billion assembly plant in West Point, Ga., begins operations and at least five suppliers will initially site facilities nearby, adding 2,000 jobs to the region.
Thirty-five suppliers have added more than 4,500 jobs to Hyundai’s work force of 3,200 at the automaker’s complex in Montgomery, Ala. BMW has invested $3.3 billion in its Spartanburg facility since 1993 and suppliers have contributed an additional $2.1 million in investments.
A Shrinking Landscape
Canup said one concern for future facility expansions in the Southeast is that the pool of potential sites is shrinking. He pointed out that one of the first tasks of a search for an automaker is to draw a 60-mile radius around competitors’ facilities to avoid being too close.
“These plants want their own autonomy and own recognition,” he noted. “There is also minimization to exchanging and recruiting employees from each other.”
Currently, there are few locations that fit outside that radius, are on a flat tract of land and are near a population center with the density to support a work force possibly numbering in the tens of thousands (for direct and indirect jobs), Canup said.
Two locations that do meet that criteria include Meridian, Miss., and Marion, Ark., which has been a finalist for the Toyota plants that eventually went to San Antonio and Mississippi. There are other potential sites, including in the Columbia, S.C., metro area and Virginia, most notably in the Roanoke Valley, according to Canup.
There is the possibility that an OEM could do away with the 60-mile radius rule if it feels it has the right tract of land, deal and logistics, and the potential work force, Canup said.
