Latest Location Decisions by Toyota and DaimlerChrysler a Rural South Development Dream Come True

It's Official: The South's Automotive Industry is Ruling the Region's Economy

By Mike Randle

In this edition of SB&D you'll find an incredible statistic. Yet, you won't find it unless we point it out to you. Each quarter for more than 10 years we have printed virtually every significant corporate expansion, relocation or startup announced in the South in our Relocations & Expansions section. We define significant in that the deal must account for an investment of $3 million or more and/or creates at least 50 jobs or more. Of course, those are the guidelines for significance in the economy of 2002-2003. Significant deals in the 1990s lifted thresholds much higher. Whereas a $3 million, 50-job deal is significant today, those figures were nothing more than chump-change for much of the 1990s. In fact, there was an edition in 1996 when all of the deals profiled in the Relocations & Expansions section were announced projects of 100 jobs or more.

But back to our incredible statistic: In the 10 years or so this magazine has published the Relocations & Expansions section, we have never had an individual industry sector rack up 20 deals or more in a single quarter. No, even in the early years of this magazine, textiles nor apparel chalked up enough deals on the board to total 20 in a quarter. Electronics, agribusiness (remember all of those chicken plants in the early 1990s?), financial services, the government, plastics, aerospace, dot-coms, wood products, call centers, none of them could muster 20 notable deals in any quarter over the last 11 years.

Of the 100 deals featured in this issue's R&E section, exactly 25 come from the automotive industry. If you are really an astute reader of SB&D, you'll recall that 17 automotive deals found their way to our pages in the summer edition of 2002. To date, that was the largest number coming from one industry. And we saw 13 call centers make the Relocations & Expansions section in a 1997 edition. However, in nearly 11 years of publishing Southern corporate announcements, those two challenges are the only two that can even remotely stand beside this quarter's collection of 25 automotive announcements.

And never before has the South seen a quarter when two automakers made decisions to locate assembly plants in the region. Toyota and DaimlerChrysler's decisions in the winter quarter to locate assembly plants in San Antonio and Savannah, Ga., respectively, will have a profound, positive effect on the economies of the South. For one, the decisions widened the Southern Automotive Corridor by hundreds of miles. Secondly, the two foreign automakers picked two Southern states that had not turned an assembly plant deal in decades. That means new communities that were not in the automotive supplier recruitment game are now in it because their state has a foreign automaker building a plant within its borders for the first time.

The 25 significant automotive-related announcements made in the South in the last three months are even more important to the South's rural regions. Of those 25 new deals or expansions, 13 were made in a rural South location.

But, was this last quarter an anomaly? Is the automotive industry dominating economics in general and job making in particular in the South? More importantly for this section's purposes, how is the automotive industry affecting the Rural American South?

The answer to all of those questions can be found in the Relocations & Expansions sections that have been published over the last year or so in Southern Business & Development. Of the 395 significant relocations, expansions or startups that have announced in the South since the winter of 2001/2002, 90 have been automotive related, or 24 percent of all significant deals in the region over the last year.

As for the automotive industry's role in jumpstarting the rural South's economy, of the 90 notable auto deals that have occurred in the South over the last year, 55 landed in a rural location and 35 announced a metro location. That means -- if you use the last year as a rule of thumb, a year when more significant automotive deals occurred in the South than any year in the last 10 years -- that 61 percent of the time, automotive suppliers or assemblers are going to pick a rural site over a metro site in the South. Interesting, huh?

So let's look at this past year (actually 14 months and one week, or five editions of SB&D) when automotive ruled the South like no other year. The following chart shows which states garnered significant automotive deals and how many of those deals landed in a rural setting. We define rural as a county with no more than 100,000 residents.

Significant Automotive Deals in the South
(12/1/01 - 2/7/03)

By studying the chart, you'll find some states with large numbers of automotive deals and some with very few. Remember, the automotive announcements found in the chart are projects announced in the last 14 months. Georgia turned an impressive amount of auto supplier projects in 2001 as did Mississippi that aren't included in this chart.

Our prediction is that 2003 and each year beyond until further notice will be even more active years for automotive deals in the South, unless there is some type of catastrophic economic event. Why? Look at what has occurred at automotive assembly plants in the South from late 2001 and throughout 2002. These projects center on assembly plants only and do not include automotive suppliers. Engine plants are not included as well.

Automotive Assembly Plant Activity in the South 11/01/01 to 2/14/03

* Fall 2001: Ford announces it's investing $375M to expand Norfolk, Va. plant.

* Fall 2001: As part of a $1 billion expansion, Nissan announces it is moving its Maxima line from Japan to its existing plant in Smyrna, Tenn.

* November 2001: Honda begins production at new plant in Lincoln, Ala.

* December 2001: Honda announces it is expanding its Lincoln plant one month after opening it, adding 800 new jobs.

* April 1, 2002: Korean automaker Hyundai announces it will build a new $1 billion, 2000-employee plant south of Montgomery, Ala.

* July 1, 2002: Carlos Ghosn, president of Nissan, announces the company is investing an additional $500 million to expand its unfinished facility in Canton, Miss. The expansion will result in 1,300 additional jobs.

* July 9, 2002: Honda announces it is doubling production at its Lincoln, Ala. plant, investing an additional $400 million and adding 2,000 new jobs.

* September 26, 2002: BMW announces a $500 million upgrade of its assembly plant in Greer, S.C. that will add 400 new jobs.

* October 2002: GM announces it is investing $500 million to retool its Kansas City, Kan. facility to build Malibus.

* November 2002: The company doesn't announce it, but Georgia officials claim DaimlerChrysler will build a $750 million van plant near Savannah.

* December 2002: Ford Motor announces it is spending $50 million to expand its Louisville truck plant.

* December 2002: Ford announces it will retool its Kansas City-area plant in Claymoco, Mo. in order to build multiple models.

* January 2003: Rumored to close, GM pumps $150 million into its Doraville, Ga. plant to build minivans.

* Jan 13, 2003: DaimlerChrysler officials confirm Savannah is site of a new $750 million van plant.

* Feb 5, 2003: Toyota Chooses San Antonio area for $800 million pickup truck plant.

This tremendous amount of automotive assembly plant activity -- not suppliers, mind you -- occurred in the South in just 15 months. In 2000 and 2001, several other expansions were announced, including GM in Shreveport and Oklahoma City and Saturn and Nissan in Tennessee.

Now let's look at how much domestic or foreign-owned automotive assembly plant activity occurred outside the South during the same period.

Automotive Assembly Plant Activity outside the South 11/01/01 to 2/14/03

* August 2002: Ford and Mazda announce a $644 million, 1,400 job expansion of its Flat Rock, Mich. facility to produce Mazda6 sport sedans.

* August 14, 2002: GM invests $500 million to expand its Lordstown, Ohio plant.

* October 3, 2002: GM announces $300 million expansion of its Orion, Mich. plant to build the Pontiac Grand Am

* October 5, 2002: DaimlerChrysler adding 1,000 jobs and spending $35 million at Detroit pickup truck facility.

* Jan. 8, 2003: Toyota announces it is adding 400 workers at its Gibson County, Ind. facility that makes Sequoia and Tundra trucks. The facility recently went through an $800 million expansion.

* Feb. 11, 2003: Ford announces another $644 million expansion of its Flat Rock, Mich. facility to build Mustangs.

As you can see, there has been more assembly plant activity in the South in the last 15 months than what's been seen in all regions of the country combined. But the last 15 months do not tell the whole story outside the South. Like other assembly plants in the South that expanded in the months of 2001 not covered by our study, Ford expanded its Dearborn, Mich. plant by the tune of $2 billion (that's with a "b") and invested $400 million in its Chicago facility.

But even with those two additional expansions that occurred in 2001, the score is in and it favors the South in a big way. Outside the South: Eight assembly plants expanded since Jan. 1, 2001 with no new assembly plants announced. The South: Three new plant announcements and 16 plant expansions since Jan. 1, 2001. That's a 19 to eight score, or a blowout in automotive industry terms.

Besides the comparisons, here's what we do know about the nation's automotive industry. According to Site Selection magazine, a well known trade book that covers not only the U.S. but the world's economic development scene, 2002 is the fourth year-in-a-row that facilities devoted to automotive manufacturing claimed the No. 1 spot in new and expanded plants. It could be argued that with such increased assembly plant activity -- more in 2001 and 2002 than the Midwest, which remains the automotive center of the universe -- the South at some point in time will unseat the Midwest as the nation's No. 1 producer of automobiles. It's SB&D's view that is not only a possibility, it is inevitable. That possibility or fact, whichever way you believe, bodes well for the Rural American South.

More than any Industry in History, Automotive is the Rural American South's White Knight

Over the years many Southern state governments have gone to great lengths to improve the economies of their rural regions. Hundreds of millions of dollars in increased incentives, advertising grants, improved infrastructure, worker training and public relations work have gone into building the Rural American South. These efforts have helped, but have not yet gotten the rural South over the hump.

What may eventually get the rural South over the hump is an industry rather than an effort. If the Southern Automotive Corridor is indeed a permanent, sustainable region, then automotive-related investments and job generation could have a greater impact on the rural South than any industry since the textile surge experienced throughout much of the early and mid-20th century. Of course, much of that business no longer exists in the rural South.

In an article published in Industry Week in February, Albert W. Niemi, dean of Southern Methodist University's Cox School of Business, said the South's rise in automotive manufacturing is "irreversible" now. That sounds like a ringing endorsement for a sustainable industry for decades to come.

Further supporting the notion that automotive is a sustainable industry is Garel Rhys, director for the Centre for Automotive Industry Research at Cardiff University in Wales. Mr. Rhys predicts that in the next 20 years there will be a need for 150 to 200 new automotive assembly plants worldwide. That's an additional 45 million vehicles units, an incredible number.

We asked Lindsay Chappell, the Mid-South Bureau Chief for Automotive News if the South's automotive industry alone can transform the rural South's economy in coming years. "Yes," Chappell said. "In fact, it's already happening. Automotive companies will continue to look to smaller markets for land and available work forces in the South."

The Southern Automotive Corridor is Far From Complete

Yes, there will be other automotive assembly plants locating in the American South. Already there are 24 major facilities built or planned, nine of which are foreign-owned. The next one will probably be Mitsubishi.

But where future plants locate in the South will mean a great deal to the region's overall rural economic health. For example, the latest round of plant announcements -- Toyota in San Antonio and DaimlerChrysler in Savannah -- will do more for the rural South as a whole than if those two deals landed in the center of the Southern Automotive Corridor, which is now Alabama and Tennessee. Those two locations will force Toyota and DaimlerChrysler to create a new automotive supplier network, which certainly will have a positive economic effect on rural regions of east and south Texas as well as the Carolinas, south and central Georgia and north Florida. Currently, no automotive supplier networks exist in any of those regions except for the Carolinas and central and west Georgia.

By looking at the map included in this story, you'll find the only Southern states void of major automotive assembly plants are Arkansas, Florida, North Carolina and West Virginia. North Carolina does feature an extensive automotive supplier base as does West Virginia. Also, Toyota operates a large engine plant in West Virginia.

So, in an ideal Rural American South world, the next plants coming down the pike must locate in Arkansas, North Carolina, Florida and West Virginia. While that's not likely, Arkansas, since it made the short list for Toyota and North Carolina are no-brainer locations for future assembly plants. Jacksonville, it should be noted, made the short list for DaimlerChrysler and Toyota officials have been pleased with their engine plant operations in West Virginia.

At the beginning of this year, nearly 60,000 workers are employed at automotive assembly plants in the American South. Expect that figure to grow in coming years. We estimate that spin-off jobs from automotive suppliers locating or expanding in the South have created around 24,000 jobs in the last 14 months. Expect that figure to grow this year as well.

Regardless of where future assembly operations choose to operate in the South, therefore defining regions where automotive suppliers will set up shop, it's clear that the industry is ruling the region's economy. And it's also clear to us that if any industry can improve the rural South's economy, automotive is it.

You may contact Mike Randle regarding this story at mike@sb-d.com.