Dean Barber

The Auto Industry is Spending and Hiring Again

In Uncategorized on July 17, 2011 at 8:42 am

Despite a touch and go economy, automakers in North America are doing something rather extraordinary – they are investing billions of dollars on upgrades and plant expansions and actually hiring people.

And the list of foreign-owned automakers with assembly plants may grow. Earlier, this week, I received a telephone call from a producer from CNBC in London who, for reasons not absolutely clear to me, wanted to get my take on the prospect of Audi building a plant in North America.

I told her that I did not have inside knowledge about Audi’s plans, but that it was hard for me to get excited about an Audi project that has been rumored to be on again and off again since the mid 1990s.

Recent remarks by Audi’s CEO would suggest that he wants to take the plunge. “It is totally clear that we need new production capacity in the U.S.,” Rupert Stadler is quoted as telling Automotive News Europe. “The question only is when.” He said a decision is unlikely before 2013.

Audi sold 1.1 million vehicles worldwide in 2010, 101,629 in the United States. It has a plan to sell 150,000 by 2015 and 200,000 a year by 2018. If Audi does build a plant in North America, again it will come at a time when other automakers are making substantial capital improvements and bracing for a future with increased sales.

A Frenzy of Spending

Just 30 minutes from my home, General Motors will spend $331 million to expand and modernize its Arlington, Texas, plant, which turns out sport utility vehicles. The Arlington plant is one of 17 GM facilities where the company will pump in an estimated $2 billion.

Ford, which has seen sales rise 12 percent through the first six months of 2011, will spend $600 million upgrading its Louisville, Ky., assembly plant to house the next generation Ford Escape. This move will add 1,800 jobs to the 1,100 person plant, which is capable of making five other vehicles, according to Bloomberg. As of July 12, 12,500 people had sought applications at the Louisville plant.

Earlier this month, Toyota announced that it will invest $545 million to expand two Ontario plants. The Government of Canada and the provincial government of Ontario have each pledged nearly C$71 million to sweeten the deal. Combined, the plants in Cambridge, Ont. and Woodstock currently employ around 6,500 people.

Farther south, Toyota Corollas will be coming off the assembly line in the fall at the company’s yet-to-be-completed plant in Blue Springs, Miss. The factory now employs 840 people, but will employ about 2,000 workers at full capacity when it can produce 150,000 vehicles a year. Suppliers will employ an additional 2,000 workers. Toyota restarted work on the $1.3 billion plant last year after suspending construction during the recession.

Nissan has been preparing a $1.6 billion production complex in Smyrna, Tennessee, to begin rolling out EVs in the masses by late 2012. The plan is to have the plant assemble about 200,000 battery modules and as many as 150,000 Leafs each year. Nissan has gained market share on both Toyota and Honda, both of which were more deeply effected by the March 11 tsunami and earthquake.

Watch the Koreans

But I would advise that you watch the Koreans. Hyundai-Kia Automotive Group’s share of the U.S. auto market exceeded 10 percent in May for the first time since it entered the market in 1986. The Korean automaker has already beaten Japanese rivals in China, India and Europe and in South America. The only market left is North America, and they’re making progress.

Hyundai North America set an all-time monthly sales record in June, selling 59,209 vehicles. The June sales were a 16-percent increase from the same period a year ago. Overall, sales are up 26 percent from last year. The Hyundai plant in Montgomery, Ala., plant has been running at full capacity to keep up with consumer demand, turning out Elantras and Sonatas. Year-to-date, production is up 13.2 percent from 2010. Based on projections, the Alabama plant will likely produce 330,000 units by the end of the year.

In May, Hyundai said Tuesday it would spend $173 million to double production capacity at its engine plant in Alabama.

Prediction: While Audi is currently getting speculative headlines, Hyundai, which sells as many vehicles in the U.S. in two months as Audi does in 12, just might pull the trigger first to build yet another plant in North America.

I told that to the CNBC producer. She didn’t seem overly impressed. To prove to her that I knew something at all, I said the Audi project, if it were to happen, would likely go to the Southeast or Ontario. There are reasons why both areas have been successful for automotive investment.

The influx of foreign auto manufacturers started in 1982 when Honda built a plant in Marysville, Ohio. Since then, most of the German, Japanese and Korean transplants have located assembly plants in the Southeast, which is comprised of right-to-work states. In a right-to-work state, an individual worker is not forced to a join a union, even if a majority on the shop floor votes in favor of union representation.

To date, the United Auto Workers has yet to win the hearts and minds of nonunion workers in the southern transplant auto plants. Probably most of those workers count their lucky stars for even having a decent-paying job. It is also noteworthy that the tax and regulatory climate in the Southeast is also generally more business friendly than other parts of the country, although there certainly are exceptions to this broad-brush statement.

Options for Audi

If Audi looks in the Southeast, it has a number of options. There is room for a second plant to be built on the same 1,340-acre site in Chattanooga where parent company VW is now turning out Passats. Another possibility is a site near Huntsville, Ala., which was the runner up to the Chattanooga site.

Some Volkswagen officials told Alabama economic developers they liked the Huntsville site better, but in the end Alabama did not match Tennessee’s $577.4 million incentives package.

Whether Audi co-locates in Chattanooga with VW or in nearby Huntsville, either location would permit the sharing of existing suppliers, a cost savings measure to be sure. Workforce availability may be the key here. Just as Kia located Georgia in relative proximity to the Hyundai plant in Montgomery, the two Korean plants do not compete for the same labor base. The Germans may take the same tact, which may or may not give the edge to Huntsville.

Other possibilities include the two remaining TVA mega-sites. One is a 2,100-acre site adjacent to Interstate 24 at Hopkinsville, Ky, about an hour west of the Nashville airport. The other is a 1,720-acre site next to Interstate 40 in West Tennessee about 30 minutes east of Memphis. Both sites are served by CSX.

Don’t Forget Canada

Audi may also consider Ontario, which has had its own success at attracting automotive transplants. The big cost advantage there is that health care costs, a continued burden for U.S. industry, are largely picked up by Canadian government. Also, Ontario is noted for its skilled workforce and an automotive tradition, with Ford, GM, Chrysler, Toyota, and Honda operating plants there.

The Toronto Globe and Mail reported on Thursday that Ford has approached Ottawa and Ontario for financial assistance to retool the Oakville plant to broaden the types of vehicles it can manufacture. The paper said the project could cost between C$500 million ($521 million) and C$1 billion. As evidenced by the recent Toyota announcements, the Canadians are willing to deal.

And so is the UAW. Recent agreements allow managers to assign workers to various jobs to keep the line running. New hires are paid about half what veteran union workers get, giving a new factory the chance to pay lower wages. The UAW’s new flexibility has incentivized Ford, GM and Chrysler to make future investments.

Is Audi coming? Heck if I know. I’ve been down that road a few times before. What I do know is that the existing automotive manufacturers in North  America are now spending and hiring. And that is good news.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm in Red Oak, Texas — www.barberadvisors.com  You can reach him at dbarber@barberadvisors.com or at 972-890-3733.

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  1. Hello Dean,

    Always interesting to read your posts. Here’s another spot for you to maybe consider, a little closer to DFW: McAllen. http://www.mcallenedc.org/auto-assembly-plant.php

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