For more than two decades now, SB&D and SouthernAutoCorridor.com. Southern Auto Corridor

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1 The Southern Auto Corridor The past, present and future of the Center of North America s Automotive Universe By MIKE RANDLE For more than two decades now, SB&D and SouthernAutoCorridor.com have hailed major automotive assembly plants as the Big Kahuna in more than 100 different articles. Why? There is no job generating project of any kind that comes close to the return on investment that a major automotive assembly plant provides. We estimate that over the 50-year lifespan of an auto works, the ROI is about 60 to 1, or more specifically, a $60 billion economic impact for a $1 billion total investment. In addition, the supply chain of an assembly plant can positively affect the economies of communities over 200 miles away. With reports of more Big Kahunas lurking than ever before, it s a critical time for the South s largest industry. The automotive sector, depending on who you talk to, is about to break out, taking the Southern Auto Corridor (SAC) to heights in production never before seen. Some folks are predicting anywhere from five to 10 new assembly plants built in North America in the next four years. Don t be surprised to see Mercedes, BMW, VW, Honda, Hyundai and Toyota all build new plants in the next 24 to 48 months, said veteran site consultant Buzz Canup of Greenville, S.C. Add to that the potential for Nissan, Renault and Fiat, and for Tata out of India and a Chinese backed plant...there should be plenty of activity. Canup s bold prediction is supported by others. In a press release dated June 13, 2013, the Michigan-based Automotive Industry Action Group (AIAG) wrote, Industry forecasts show that automotive production in the South is expected to grow by as much as 85 percent over the next three years. Eightyfive percent in 36 months? Without new Kahunas, the existing OEMs (original equipment manufacturers) in the Southern Auto Corridor cannot possibly increase production by 85 percent. CONTINUED 8 SOUTHERN AUTO CORRIDOR Southern Business & Development

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3 Major Car and Truck Assembly Plants in the Southern Auto Corridor Alabama 1. Mercedes-Benz (Vance) 2. Honda (Lincoln) 3. Hyundai (Montgomery) 4. North American Bus (Anniston) Arkansas 5. IC Bus (Conway) Georgia 6. Kia (West Point) 7. BlueBird (Macon) Kentucky 8. Toyota (Georgetown) 9. Ford (Louisville) 10. Ford Truck (Louisville) 11. GM (Bowling Green) Mississippi 12. Nissan (Canton) 13. Toyota (Blue Springs) Missouri 14. Ford (Kansas City) 15. GM (Wentzville) North Carolina 16. Freightliner-Daimler Trucks (Mount Holly) 17. Freightliner-Daimler Trucks (Cleveland) Oklahoma 18. International Truck and Bus (Tulsa) South Carolina 19. BMW (Greer) 20. Daimler Vans (Ladson) 21. Daimler Trucks (Fort Mill) Tennessee 22. Nissan (Smyrna) 23. Volkswagen (Chattanooga) 24. GM (Spring Hill) Texas 25. GM (Arlington) 26. Toyota (San Antonio) 27. Peterbilt (Denton) Virginia 28. Volvo Trucks (Dublin) West Virginia 29. Hino Truck (Williamstown) 10 SOUTHERN AUTO CORRIDOR Southern Business & Development

4 Major Car and Truck Assembly Plants in Mexico Toyota (Tijuana) 2. Ford (Hermosillo) 3. Ford (Chihuahua) 4. Chrysler (Ramos Arizpe) 5. Chrysler (Saltillo) 6. Fiat (Saltillo) 7. GM (Ramos Arizpe) 8. Nissan (Aguascalientes) 9. Nissan (Aguascalientes) 10. Honda (El Salto) 11. GM (San Luis Potosi) 12. Nissan (Morelos) 13. VW (Puebla) 14. Audi (San Jose Chiapa ) 15. Mazda (Salamanca) 16. Honda (Celaya ) 17. VW (Motores) 18. Chrysler (Toluca) 19. Fiat (Toluca) 20. GM (Toluca) 21. Ford (Cuatitlan) 22. Hino (Tecate) 23. Kenworth (Mexicali) 24. Isuzu (Aguascalientes) 25. Volvo (Tultitlan) 26. Mercedes-Benz (Santiago) Southern Business & Development SOUTHERN AUTO CORRIDOR 11

5 What is the Southern Automotive Corridor? Southern Business & Development magazine, owner of SouthernAutoCorridor. com, first published the phrase not long after Mercedes-Benz announced its intentions in 1993 to build its first U.S. plant in Vance, Ala. Back then the use of the word corridor was very popular I-85 Corridor, Telecom Corridor, I-4 Technology Corridor, etc. so we simply joined the bandwagon to give the South and its growing automotive industry a catchy name. There is a corridor, or rather a spine, that runs right through the most highly concentrated region of the South s auto industry and that would be Interstate 65. Twelve of the South s 19 major car and small truck assembly plants are located within 100 miles east or west of I-65. Five plants are located directly on the northsouth Interstate that runs from Mobile, Ala., to Chicago. While I-65 is generally considered the spine of the modern day Southern Auto Corridor, I-75 was the major artery back in Detroit s heyday. Interstate 75 is still referred to as Auto Alley, as major facilities remain located on and around that thoroughfare that runs from Detroit to Atlanta, even though many of them have closed. Generally speaking though, the Southern Auto Corridor (SAC) describes all that is the transportation equipment manufacturing industry in the region, including Toyota s plant out west in San Antonio to BMW s facility in Greer, S.C., the furthest plant to the east, to GM s plant in St. Louis to Hyundai s plant to the south in Montgomery, Ala. There are also heavy truck and bus assembly plants from Oklahoma to Virginia. Ford s robotic laser technology gives us a degree of precision like never before, said Ron Ketelhut, chief engineer, Body Construction Engineering. The vision technologies verify the dimensions of interfaces on the vehicle s body in a highly accurate way, to a tenth of a millimeter. Since the South has captured the majority of light vehicle plants built on the continent in the past three decades, the chances are good the Southern Auto Corridor will land several new operations. In fact, this next wave of Big Kahunas should include new assembly facilities landing in at least one or two Southern states that are void of one, such as Arkansas, Louisiana, North Carolina or Virginia to name a few. Even parts of Florida, given the highly successful restructuring of its state economic development agency, may not be out of the Big Kahuna picture. And of the states that currently have OEMs, there s room for more. I ve told many officials in Southern states that this is the best chance for them to land an assembly plant, said Canup. Others, though, point to Mexico s emergence as the Southern Auto Corridor s biggest threat ever. The fact that Audi officials chose Mexico over the South in 2012 to build a luxury SUV was the ultimate slap in the face to the SAC. Mike Mullis, the well-known Memphis-based site consultant, has successfully sited several manufacturing facilities in Mexico. We have seen the last three or four North American assembly plants go to Mexico, Mullis said. Mexico has a much larger and younger workforce that backfills constantly. Six to eight of the 31 states in Mexico can easily accommodate one or more assembly plants. Mullis continued by saying, The real test is how many more locations do we have in the South that not only have the existing labor shed for an assembly plant, but also have the backfill capability to maintain a 3,000-employee operation. There are not that many. But I do see good opportunities for growth in the auto sector in both the South and Mexico in the near future and I think Canada now is out of the picture, Mullis said, citing where that country s automotive cluster is located and the difficulty to export from that location. With the South and Mexico winning the vast majority of reshored projects over the past five years, it makes sense that the two old rivals would butt heads for future automotive production. Reshoring is the biggest opportunity the South has seen in decades and there are two players in the reshoring game in North America; Mexico and the American South. And there is no industry that is being reshored faster inshored, build it where you sell it, whatever you want to call it than automotive. Yes, today, it looks as if there are only two left standing on this continent in the battle for future assembly facilities coming from the world s largest industry. I am sure officials in the Midwest and Canada would disagree with that statement, but the fact is there hasn t been a new assembly plant built in North America except in Mexico and the 12 SOUTHERN AUTO CORRIDOR Southern Business & Development

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7 South since Indeed, the Southern Auto Corridor is at a major crossroads as automakers seek to step up production in the region both for North American consumption and the export of quality models globally. The following article is intended to give executives in the automotive industry a clear picture of the Southern Auto Corridor s past, present and future. It also offers up comparisons between the SAC and Mexico, including pros and cons of locating in what today amounts to the only two places left in North America where huge profits are available for auto assembly and parts production. The Southern Auto Corridor s Past: Domestic automotive production Ford, GM and Chrysler have been making vehicles in the Southern Auto Corridor for decades, but most of those older plants are long gone. Model Ts rolled off the line at Ford plants in Louisville and Norfolk, but those facilities are just memories now, although today Ford employs about 9,000 workers at two other plants in Louisville. Just a sampling of large facilities closed by domestic automakers in the South over the years includes those in Atlanta, Oklahoma City, St. Louis, New Orleans, Norfolk and Shreveport. Chrysler no longer operates a plant in the SAC, but GM has thriving facilities in Arlington, Texas; Kansas City; Wentzville, Mo.; Bowling Green, Ky.; and Spring Hill, Tenn. Ford s visibility is also strong in the Southern Auto Corridor, operating plants in Claycomo, Mo., and the two in Louisville. The history of the domestic automotive industry is long and rich in the South, but of course, not nearly as rich as the Midwest s. Detroit, as the Midwest s automotive industry is commonly called, remains the home of the Big 3. And while Detroit s automotive cluster has contracted over time, it still rivals any in the world. If you studied a map of light vehicle assembly plants in the U.S. in 1980, you would discover that virtually all of the nation s automotive production came from plants in the Midwest and the Northeast. Today, not a single one of those domestic plants that were operating in Northeastern states such as New Major Light Vehicle Assembly Plants in the History of the Southern Auto Corridor Automaker Site Status 1. BMW Greer, S.C. Open 2. Chrysler Fenton, Mo. Closed (2009) 3. Chrysler Fenton, Mo. Closed (2008) 4. Ford Claycomo, Mo. Open 5. Ford Louisville, Ky. Open 6. Ford Truck Louisville, Ky. Open 7. Ford Hapeville, Ga. Closed (2006) 8. Ford Atlanta, Ga. Closed (1942) 9. Ford Kansas City, Mo. Closed (1957) 10. Ford New Orleans, La. Closed (1933) 11. Ford Norfolk, Va. Closed (2007) 12. Ford Hazelwood, Mo. Closed (2006) 13. GM Arlington, TX Open 14. GM Kansas City, Kan. Open 14. GM Spring Hill, Tenn. Open 15. GM Bowling Green, Ky. Open 16. GM Wentzville, Mo. Open 18. GM Doraville, Ga. Closed (2008) 19. GM Lakewood, Ga. Closed (1990) 19. GM Kansas City, Mo. Closed (1988) 20. GM Oklahoma City, Okla. Closed (2006) 21. GM Shreveport, La. Closed (2012) 22. Honda Lincoln, Ala. Open 23. Hyundai Montgomery, Ala. Open 24. Kia West Point, Ga. Open 25. Mercedes-Benz Vance, Ala. Open 26. Nissan Canton, Miss. Open 27. Nissan Smyrna, Tenn. Open 22. Toyota Georgetown, Ky. Open 28. Toyota San Antonio, Texas Open 29. Toyota Tupelo, Miss. Open 30. Volkswagen Chattanooga, Tenn. Open Jersey, Maryland, Delaware, New York and Massachusetts, are operating today. Automotive production in the Northeast has vanished, probably forever. In 1980, Ford, Chrysler and GM operated plants in Kentucky, Missouri, Texas, Georgia and Virginia, for a total of 10 U.S.-owned facilities operating in the South. It should be noted that in 1980, there were 55 major assembly plants in the U.S., all owned and operated by GM, Ford or Chrysler except for one; Volkswagen s Pennsylvania-based plant that closed in GM would expand in the South in the 1980s with new facilities in Bowling Green, Ky., Shreveport, La., and Wentzville, Mo. GM s Saturn plant in Spring Hill, Tenn., began production in Source: SB&D But since 1990, there have been no new domestic assembly plants in the Southern Auto Corridor. Foreign-owned operations define the SAC Other than old line industries such as textiles and apparel, we can t think of any U.S. industry that has been transformed more so than the automotive sector since As mentioned, in 1980, there were 54 operating domestic automotive assembly plants in the U.S. and one foreign-owned plant, Volkswagen s facility in New Stanton, Pa. Jump forward 33 years and today there are only 26 Big 3 assembly plants operating in the U.S. Of those, eight are located in the Southern Auto Corridor. 14 SOUTHERN AUTO CORRIDOR Southern Business & Development

8 An additional five domestic plants are located in Canada and seven are in Mexico, meaning there are just 38 domestic assembly plants operating today in North America compared to 69 in During the decade of the 1980s, the landscape of the automotive industry in the U.S. began to change. Foreign-owned automakers launched new facilities, beginning with Honda in Ohio in Honda s facility was followed by Nissan (1983, Smyrna, Tenn.), Toyota (1986, Georgetown, Ky.), Honda (1989, East Liberty, Ohio), and Subaru (1989, Lafayette, Ind.). By 1990, Volkswagen s plant in Pennsylvania had closed and the total number of operating foreign plants in the U.S. was five; three in the Midwest and two in the South. In 1990, no one could imagine what would occur later since there was no clear regional preference in the U.S. by foreign-owned automakers. The prevailing thought in the media and among experts in the automotive field in 1990 was that the Midwest would be the region of choice for foreign-owned automakers. After all, in the late 1980s, the U.S. was overtaken for the first time in history by Japan as the world s largest producer of vehicles and exports to the U.S. were skyrocketing. The Big 3 were contracting as the nation entered recession, producing just 9.7 million vehicle units in 1990 compared to 11.6 million in Detroit was ripe for the taking by the transplants. Experts assumed that foreign automakers would set up shop in the Midwest, taking advantage of the region s experienced automotive-related labor. In addition to the available skilled labor, setting up shop in the Midwest would give the foreign-owned transplants easy access to Ford, GM and Chrysler s research and development cluster, including generations of top-flight engineering talent. Those experts were wrong. The 1990s would begin with a blockbuster deal. No, it wasn t a foreignowned assembly plant announcement. It was the opening of Saturn s plant in 1990 in Spring Hill, Tenn., Detroit s shot across the bow to the prospects of more transplants coming to the U.S. and the growing Asian export business. In short, GM s Saturn line was an effort to face down the burgeoning sales of Japanese cars and light trucks in the U.S. Ford Motor Company began manufacturing Model T cars in Louisville in The first Saturn with, from left, Robert C. Stempel, Owen Bieber, Roger B. Smith and Skip LeFauve, in 1990 in Spring Hill, Tenn. If you were watching the evening news on July 30, 1985, you found out at the same time the people of Spring Hill, Tenn., did that GM was locating its newest plant in the tiny Tennessee town. In an article written in 1986 in the magazine Southern Changes, the Saturn facility would be the world s most expensive manufacturing plant. GM s Saturn plant had been the object of a seven-month industrial recruiting contest involving a thousand sites in 36 states, a parade of governors bearing gifts, and impassioned pleas from chambers of commerce, local citizens and school children. But Saturn didn t go to New York, Southern Business & Development SOUTHERN AUTO CORRIDOR 15

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11 Canadian Auto Workers marched in Toronto s 2011 Labour Day Parade. The next spring, Dennis DesRosiers, Toronto-based auto industry analyst, was quoted as saying that the CAW s national automotive policy would force Canada s auto industry to go by the way of the Dodo Bird. As a result of the financial crisis and an influenza health alert, the first four months of 2009 saw Mexico s auto industry hit its lowest production levels in a decade. The German carmaker announced a three-day halt to production at their plant in Puebla. which offered the billion-dollar bargain of one hundred megawatts of free electricity for 20 years, or to Minnesota, which pledged tax concessions and other prizes worth $1.3 billion, or even to Kentucky, which legislated a $306 million educational aid package after word got out that GM considered the Bluegrass State s school system inadequate. Instead, the magazine article continued, Saturn came to a sleepy town off I-65 thirty miles south of Nashville. At the moment Spring Hill Mayor George Jones watched GM s announcement on his television set, Spring Hill had not even a single full-time police officer, fireman or physician. The announcement, said Jones, was like something falling from the sky. So the decade of the 90s began with the world s largest automaker at the time opening its most important plant in decades, in the rural South no less, and in the shadow of Japanese automaker Nissan s growing facility in Smyrna, Tenn. GM s site selection process did not go unnoticed by the foreign transplants, who in 1990 still operated the two plants in the South and the three in the Midwest. The formation of the Southern Automotive Corridor in the 1990s In Saturn s second year of production, another bombshell in the South had tongues wagging worldwide. In June of 1992, German luxury automaker BMW chose a rural site between Greenville and Spartanburg, S.C., for its first North American plant. The announcement also represented only the second European automaker to invest in the U.S., four years after Volkswagen closed its union operation in Pennsylvania. BMW was followed by its biggest competitor, Mercedes-Benz, the very next year, when that German automaker picked a rural site between Tuscaloosa and Birmingham, Ala., for its first North American plant. Landing BMW and Mercedes in back-to-back years was the ultimate economic development achievement and the South was the envy of the entire continent. More than that, the entire world was watching to see if the two big German investments would actually pan out. With the opening of large, worldclass plants by Nissan, Toyota, Saturn, BMW and Mercedes-Benz in rural South locales, the automotive industry in the U.S. in just 10 short years had undergone a massive reconfiguration. In fact, some called it a revolution of not only the U.S. s but the world s automotive industry. Non-union facilities lead the revolution The new foreign plants in the 1990s were non-union operations, located in small Southern towns with no history of auto making. Those criteria became the blueprint for billion dollar investments from the world s largest industry. After Volkswagen s failed experiment in Pennsylvania, foreign automakers preferred to establish themselves in the U.S. using a blank slate with labor. They also made conscious decisions to locate far away from union strongholds in the Midwest and Northeast. After BMW and Mercedes, a gap of six years went by with no major motor vehicle assembly plant announcements in the South. During that time, the national media was questioning whether or not the Southern Auto Corridor was a player or just a flash in the pan. Some media properties attacked the South s workforce as woefully unskilled and in some cases described workers in the region as just plain lazy and stupid. With no new facilities announced in the South in the mid-1990s to follow up BMW and Mercedes, the hammering got ugly. The New York Times even published an op-ed cartoon featuring a pickup truck on blocks, with the stereotypical bird dog sitting in the truck bed. The iconic Mercedes-Benz hood ornament 18 SOUTHERN AUTO CORRIDOR Southern Business & Development

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13 stood out on the hood and as a couple walked by one said, Must be one of those new Mercedes built in Alabama. It wouldn t be too long, though, before all hell broke loose in the Southern Auto Corridor. All communication channels light up in 1998 Prior to 1997, the Internet was something of an unused tool for most folks. The vast majority still were not communicating through , instead using the USPS, phone and fax for communication. In 1998, SB&D launched its first website and all of us in the office established accounts. It was a good time to get wired. Inquiries from all over the world were lighting up our fax machines, phones and our new accounts. Our business reply cards that were inserted in each edition of Southern Business & Development magazine were coming in by stacks to our post office box. Almost all of those inquiries were automotive related and they were arriving through all modes of communication. Something was up. That was when we got wind that Honda and other Kahunas were site searching. We went on record by writing that the Honda project would go to Alabama. Honda announced in 1999 it would do just that, starting another wave of new plants in the Southern Auto Corridor that to this day is unprecedented. Following Honda s Alabama deal in 1999, were major assembly plant announcements by Nissan (2000, Canton, Miss.), Hyundai (2002, Montgomery, Ala.), and Toyota (2003, San Antonio). There had never been a time in the South s history when four assembly plants had been launched in five years. By 2003, the Southern Auto Corridor s reputation was solidified as the new center of North America s automotive universe. Three more assembly plants would be announced in the Southern Auto Corridor prior to the height of the Great Recession. Those were Kia (2006, West Point, Ga.), Toyota (2007, Blue Springs, Miss.) and Volkswagen (2008, Chattanooga, Tenn.). So, from 1999 to today, there were seven new assembly plants built in the Southern Auto Corridor by six foreignowned automakers; Honda, Nissan, Hyundai, Toyota, Kia and Volkswagen. In those 14 years, there would be just two new foreign plants announced outside of the SAC in the U.S. and Canada. Those were Toyota (2005, Woodstock, Ontario) and Honda (2006, Greensburg, Ind.). Mitsubishi did take over a former Chrysler plant in Normal, Ill., in In 1992 it was not clear where in the U.S. and Canada the majority of foreignowned plants would cluster. Today, it s very clear that the Southern Automotive Corridor is the region of choice for the vast majority of foreign-owned plants. Currently, there are six foreign-owned automotive assembly plants in the Midwest and Canada and 11 foreign plants in the SAC. So let s add them up to date. In Canada, the total number of major assembly plants is seven. In the Midwest there are 25 assembly plants. In the Southern Auto Corridor there are SOUTHERN AUTO CORRIDOR Southern Business & Development

14 A few competitive skirmishes worth mentioning along the way Since the early 1990s, the Southern Auto Corridor has matured into a global center for automotive assembly. Its supply chain has also matured, as thousands of parts suppliers operate in the region in every Southern state. But it wasn t until this last batch of plants Kia in Georgia, Toyota in Mississippi and Volkswagen in Tennessee that media and experts in the field became convinced that the South was indeed the region of choice for the fastest growing sector of the continent s automotive industry; foreign automakers. When Toyota announced in June of 2005 that it had picked Woodstock, Ontario for its newest plant, there was some partisan gloating that was interesting to watch. Shortly after the Toyota announcement, Gerry Fedchun, former president of the Toronto-based Automotive Parts Manufacturers Association, said publicly, The educational level and skill level of the people down there (the South) is so much lower than it is in Ontario. The level of the workforce in general is so high (in Ontario) that the training program you need for people, even for people who have not worked in a Toyota plant before, is relatively minimal compared to what you have to go through in the Southeastern U.S. Fedchun s enthusiasm then crossed the line, claiming that training costs in Canada were much lower than in the South and that in Alabama and Mississippi, automakers had resorted to using pictorials to teach some of the illiterate plant workers how to use high-tech plant equipment. For the cover story we did in the summer 2005 edition of SB&D on the skirmish between Ontario and the South, I called up Dennis Cuneo, who was the principal in siting Toyota plants in Alabama, Mississippi, West Virginia and Texas over the years. He also was the primary site selector for the Ontario plant in 2005 that Fedchun was gloating about. Cuneo said, Mike, I can tell you without equivocations that our Alabama (Toyota s Mississippi plant had yet to be established) workforce is literate, welltrained and productive. Not only do we have an educated workforce in Alabama, we also have the added advantage of the state s training program, which was ranked No. 1 in the U.S. Dennis statements also made the SB&D cover story titled Battle Brewing between Ontario and the South. Toyota s choice of Ontario and Fedchun s comments in 2005 swayed one of the nation s most respected journalists to predict a northward movement of auto jobs. Yes, The New York Times Paul Krugman wrote just that in an article dated July 27, 2005, basing his theory on Canada s free healthcare as a determining factor in a new wave of northern bound auto plants. Like others who have bet against the SAC over the years, Krugman was very wrong. Since Toyota announced its Ontario plant in 2005, there have been no new plants announced in Canada. But there have been several closures, including the Ford plant in Talbotville, Ontario and GM s Oshawa facility. Since Fedchun s comments and Krugman s erroneous prediction, Canada s automotive industry has been on a downward spiral that experts all around believe will continue. In an article titled So long to Canada s auto industry? written in April of Southern Business & Development SOUTHERN AUTO CORRIDOR 21

15 about 278,000 of those in the South and contributes approximately $355 billion to the gross domestic product. The decision by Audi to build in Mexico doesn t add up to the German profile, said Longgrear. There is an active volcano called Popo, or the Sleeping Dragon, by Mexicans looming over Volkswagen s plant in Puebla. German executives are known to take every risk out of each equation and the presence of the volcano near Volkswagen s Puebla plant is in stark contrast to that business model for Toronto-based CTV News, author Jeremy Cato wrote, The cold, hard truth is Canada is not the destination of choice for cost-conscious car makers. For a long list of reasons, Mexico and the U.S. South are less expensive places to build cars within North America. The Southern Auto Corridor s Present: A massive economic impact As mentioned, today, there are 19 major auto assembly plants in the SAC 11 foreign and eight domestic that each average around $1.2 million in payroll every day of the week. That s right, according to GM officials, they pay their 2,400 workers at the company s Arlington, Texas assembly plant about $1 million a day. And with several plants operating three shifts a day, housing over 6,000 workers, payroll at some of the larger facilities can exceed $10 million a week. That is an enormous amount of new money going back into a state or community every week of the year. So let s try and ballpark the total amount of wages paid at the 19 assembly facilities not counting truck, bus and other transportation equipment assembly plants, other facilities, like engine and transmission plants and the 70 or so supplier facilities supporting each plant in the South last year. We figure at an average of a little over $300 million in wages per year per plant, the figure is about $5.8 billion (that s with a B ) a year in wages paid just at the 19 assembly plants located in the SAC. Of the 15 states in the Southern Auto Corridor, only eight are home to at least one major assembly plant. Those are: Alabama has three (Honda, Hyundai, Mercedes); Georgia has one (Kia); Kentucky has four (two Ford, GM, Toyota); Mississippi has two (Nissan, Toyota); Missouri has three (Ford and GM one is located in Kansas City, Kan.); South Carolina has one (BMW); Tennessee has three (GM, Nissan, Volkswagen); and Texas has two (GM and Toyota). While there are only eight states that are home to at least one assembly plant, those mother ship factories have created an enormous supply chain in every Southern state, including highly advanced engine and transmission production facilities. A recent study by the Motor & Equipment Manufacturers Association in conjunction with IHA, ranked the top 15 states for direct employment in the auto parts industry and eight of the 15 are in the Southern Auto Corridor. The parts supplier industry employs more than 734,000 workers in the U.S. with Top States for Motor Vehicle Parts Manufacturing State Employment 1. Michigan 102, Ohio Indiana 79, Tennessee 48, Kentucky 41, Illinois 37, Alabama 30, Texas 29, North Carolina 25, South Carolina 24, California 22, Pennsylvania 21, New York 19, Missouri 16, Georgia 16,287 Other states in the SAC Arkansas 10,212 Virginia 9,729 Oklahoma 8,086 Mississippi 6,888 Florida 5,843 West Virginia 2,327 Louisiana 2,277 Source: MEMA and IHA Maxed out capacity It was less than five years ago that the automotive industry was the No. 1 casualty of the Great Recession. A Reuters report that examined data from bankruptcy and restructuring professionals done in December of 2008, showed that the automotive industry led housing and retail sectors as the most distressed industry in the U.S. Part of the report read, As the nation slides into recession, auto and auto parts makers have been slammed by dropping sales, pushing industry stalwarts such as General Motors and their suppliers to the brink of bankruptcy, Reuters reported. It added, Homebuilding was named the most troubled industry for 2008, but fell to third for the coming year. A New York Times article published December 29, 2008, took an interesting historical angle regarding the hammering of the Big 3 at the height of the recession. Since millions of African-Americans began leaving Southern farms for 22 SOUTHERN AUTO CORRIDOR Southern Business & Development

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17 tomaker on the sales end, but it stretches the limits of workers and equipment. In an AP story published in July, Hyundai s U.S. CEO John Krafcik said that both of the company s U.S. plants are on the maximum three shifts with workers topping out their overtimes, yet they still can t keep up with demand. We have tapped everything at this point, Krafcik said. There s nothing left. On July 29, 2011, Hyundai Motor Manufacturing Alabama marked its one millionth Alabama-built Sonata as team members at the Montgomery assembly cheered. This July, the Kia plant in West Point, Ga., celebrated their one millionth vehicle. Northern factories nearly a century ago in what is still known as the Great Migration, the destinies of many of them have been entwined with the auto industry s. Now with Detroit reeling, many blacks find their economic well-being threatened, the article read. The situation was devastating for Detroit and for many African-Americans living there. From December of 2008 to December of 2009, over 20,000 African- American auto workers lost their jobs in the Midwest. Everyone knows the rest of the story as the Obama administration bailed out the domestic auto industry. But what happened next is what is so surreal. Quite frankly, said Buzz Canup, I didn t think the auto industry would come back like it did. I don t think anyone did. Sales near pre-recession peak The collapse of the world s largest industry was felt in every corner of North America. Yet, in just three short years the automotive industry has recovered and today strong demand for cars, trucks and SUVs has lifted the current annualized sales rate to 15.3 million vehicles according to researcher Autodata Corp. June represented the fourth consecutive month that sales have exceeded a 15-million-vehicle pace. How much of a comeback is that? Here s a clue: In 2009, Americans purchased just 10 million cars and light trucks. Today, almost all assembly plants in the Southern Auto Corridor are at peak production. Three shifts, seven days a week are the norm, with many factories still unable to meet demand. It s a good situation in a way, certainly better than when production went dark for long periods during the recession. But peak production is not sustainable. All of these plants are designed for two shifts of manufacturing, five days per week, said Canup. They can handle some increase in production for short periods of time to get through sales spikes, but that is not a long term strategy. Here is the best example we can find that another round of new assembly plants are inevitable in the SAC. Korean automaker Hyundai s U.S. sales are only up 1.9 percent for the first half of this year, while the overall market s growth rate is 8.4 percent, according to Autodata Corp. There is a reason for that. Hyundai s plant in Montgomery, Ala., and its sister company Kia s plant in nearby West Point, Ga., are both beyond capacity. More than that, the company s plants in Korea are at capacity as well. The situation is good for the Korean au- The Southern Auto Corridor s Future: It now boils down to the South vs. Mexico As written, the Southern Auto Corridor hasn t landed a greenfield assembly plant since Volkswagen s deal in Its Chattanooga plant is now churning out the Passat sedan model, but VW s site has room to build another operation that mirrors the current one. In 2012, that s exactly what the people of Chattanooga expected Volkswagen would do when it was learned that Audi, a subsidiary of VW, planned to make vehicles in North America for the first time. But Audi chose a site in San Jose Chiapa, a city in the state of Puebla, Mexico, about 40 miles from Volkswagen s largest North American plant, to build its new facility that will begin assembly of the luxury Q5 SUV model in The decision was not only a blow to Chattanooga, but to the entire Southern Auto Corridor. Historically, Mexico s automotive industry has been a producer of small, cheap cars and trucks for the North American market, more than half of which were made for Mexican consumption. The reason being that for years Mexican law required that all vehicles sold in the country must be assembled locally. But those days are over as Mexico exports approximately 80 percent of the cars and trucks it assembles, primarily to the U.S. The fact that Mexico will soon be making luxury automobiles for global markets, much like BMW, Nissan, Toyota and Mercedes produce in the South, raises the bar between the two competitors. We are all puzzled by it, said Dara Longgrear, executive director of the Tuscaloosa County Industrial Development Authority, when asked about Audi s decision to build in Mexico. Longgrear was a key player in landing fellow German 24 SOUTHERN AUTO CORRIDOR Southern Business & Development

18 automaker Mercedes-Benz in Tuscaloosa County, Ala., in The decision by Audi to build in Mexico doesn t add up to the German profile, said Longgrear. He cited the fact that there is an active volcano called Popo, or the Sleeping Dragon, by Mexicans in the shadow of Volkswagen s plant in Puebla. German executives are known to take every risk out of each equation and the presence of a volcano near Volkswagen s Puebla plant is in stark contrast to that business model. One executive who has managed two plants at different times in Mexico and who asked not to be named in this article, took Longgrear s comments further. You can find all of the labor you want in Mexico for $3.50 an hour, the executive said. That s not a problem. What was a problem for both plants that I ran was we couldn t find enough skilled leaders in Mexico. We couldn t find plant managers. So we had to bring in teams from the U.S. to manage the plants and their families naturally moved there, too. You can live like a king in Mexico because of the low cost of living, but it comes at a price. My family lived in a walled compound and we discovered immediately that made us a target. The personal safety issues in Mexico are real and after six months of living there, my wife and kids wanted out. Memphis-based site consultant Mike Mullis doesn t necessarily agree. I don t buy the position that you can t find plant management in Mexico, he said. I can name dozens of companies that put their people in Mexico for a time and then passed management over to Mexican executives and plant managers. Just as Japanese and German companies have put in management in the states, eventually those positions are taken by Americans. But in some cases, you do have to permanently place some of the highest level technicians in those Mexican plants. As for the personal security issues, Mullis said, You definitely have a situation of heightened awareness for Americans that are based in Mexico, particularly for their families. Regarding the quality and availability of labor in Mexico, Mullis lights up. The average age of workers in those assembly plants in Mexico is 21 or 22 years Carlos Ghosn, Chairman and CEO of Japan-based Nissan and Paris-based Renault, is particularly fond of the Southern Auto Corridor and its low-cost business environment. Ghosn moved Nissan s North American headquarters from Southern California to the Nashville metro to cut costs and he continues to expand current Nissan facilities in Tennessee and Mississippi. old. Those kids come out of school and all they want is a job. The work ethic among Mexican workers is outstanding, Mullis said. Buzz Canup agreed with Mullis. I have been terrifically impressed with inland Mexican cities. Plants that I have visited there are clean, orderly and workers are cordial and in uniform. But it does require in most cases that the employer provide transportation, meals and lodging for the workforce, said Canup. Mexico s recent success in automotive production should increase output in that country by 38 percent in 2016 when Nissan, Mazda and Audi s new plants come on line. According to IHS Automotive, by 2020 automotive production in North America will reach nearly 18 million units. Of those 18 million vehicles built, almost 12 million will come from the U.S., a little over 4 million from Mexico and about 1.9 million from Canada. Currently, Mexico s vehicle output is approximately 3 million units and Canada is producing about 2.5 million units. Bobby Hitt, Commerce Secretary of the South Carolina Department of Commerce and the former spokesperson for BMW s plant in Greer, S.C., said that the Southern Auto Corridor vs. Mexico situation has some interesting attributes. I don t think it s an all or nothing competition, Hitt said. You are going to see new plants on both sides of the border. Asked about the labor cost advantage Mexico has over the South, Hitt took an interesting angle. The debate is does a higher cost labor force produce more than a lower cost labor force? Productivity is very high at plants in the South such as BMW s facility here in the Upstate. Furthermore, labor costs are a transitory cost. Low cost labor, such as what you have in Mexico, can work for a time, but it must be recalculated later as those costs rise, Hitt said. Part of Hitt s argument is sound. Research has shown that workers in the U.S. are as much as eight times more productive as those in China, just one of many reasons why reshoring is so prevalent. A more productive workforce must be factored into any site search comparing Mexico with the South. Worker productivity may be a check on the South s side of the ledger, but what isn t must be addressed by Washington. Mexico has free trade agreements with 44 nations and the U.S. has 19 such agreements. Audi officials cited that advantage Mexico has over the U.S. and the Southern Auto Corridor as one of its chief reasons in choosing that country for its first North American facility. CONTINUED Southern Business & Development SOUTHERN AUTO CORRIDOR 25

19 Clues that Big Kahunas are on their way Have you noticed the increase in steel and tire plants being built in the Southern Auto Corridor of late? We can t remember a time in the last 20 years when so many billions have been invested in the region in those two sectors. Yokohama, Michelin, Continental, Bridgestone and others are ramping up new production in the South simultaneously. On the steel side, projects by Nucor, Benteler, Carpenter Technologies and Big River Steel are just a few examples of the massive amount of new capacity currently being added in the region. New developments in the tire industry and the new steel plants being built are more evidence, Buzz Canup said, that new auto assembly facilities will follow. Not much room at the inn If you look at a map of current facilities, you will see that there s not much room at the inn in states such as Alabama, Kentucky, Mississippi and Tennessee, home to 12 of the South s 19 assembly plants. Can new auto works be built in the heart of the SAC where the supply chain is concentrated? There s no question in our minds more OEMs can locate in those four states, yet, some experts believe states outside the core of the SAC will capture the next Big Kahuna. As for automakers, no doubt they are weighing the possibilities of cohabitating new assembly operations near existing Kahunas. At the same time, automakers are also weighing the possibility of opening plants on greenfield sites in states such as North Carolina, Virginia, Arkansas and Louisiana, the four states closest to the two spines of the SAC. Maybe the best chance ever for a Kahuna in Southern states outside the spine We re all in, said Secretary Stephen Moret of Louisiana Economic Development, regarding his state s efforts at attracting a new assembly plant. One of our top three targets is the automotive industry. It s a major priority for the department, Moret said. According to Moret, Louisiana s weaknesses five years ago are now the state s strengths when it comes to landing auto assembly. He cited workforce training, taxation, business climate, permitting and other issues that may have been impediments for Louisiana in the past, but not today. And our electric power costs pre-shale weren t that competitive, but today they are some of the lowest in the country. Sites in Louisiana have not historically been a strength for the state either. Franklin Farm (in Northeast Louisiana) is still our best site now that we have true dual rail there and have added two other interstate frontage sites of 400 acres each in addition to the original 1,400-acre site. But we are cultivating more sites for automakers, Moret said. There are also new incentives designed for automakers in Louisiana, including a 15 percent annual cash rebate on all new payroll over the course of 10 years of operation. We have looked at the whole suite of things we didn t have five years ago for an automaker, and now we have gone from not being particularly competitive to being very competitive. Moret added, Louisiana really 26 SOUTHERN AUTO CORRIDOR Southern Business & Development

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21 Southern Business & Development owner Mike Randle stands next to the first vehicle built at Toyota Motor Manufacturing Kentucky s plant in Georgetown. The 1988 Toyota Camry model only has 60 miles on the odometer. The Georgetown plant is Toyota s largest outside of Japan, with more than 7,000 team members rolling out about 2,000 vehicles a day. The plant will also assemble its first Lexus model soon. missed out in the 1980s and 1990s when the Southern Auto Corridor was in its formative years. We were not in a position to be competitive then for that industry. For us, this is an opportunity for a second chance, Moret said. Arkansas has definitely flirted with a Kahuna, probably more than one over the years. Southern Auto Corridor history clearly shows that a bridesmaid eventually becomes a bride in the Big Kahuna site search love fest. That has been the case with almost every Kahuna landed, from Mercedes-Benz in Alabama to Volkswagen in Chattanooga. The Mercedes site, for example, made the short list for Saturn years before. The Volkswagen site was a finalist for two plants, including Toyota s facility that went to Mississippi. A site in Marion, Ark., located directly across the Mississippi River from Memphis, also made the short list for Toyota s greenfield factory that ended up in Tupelo. It was a crushing defeat for Arkansas, but the loss became a great gain. Toyota cited their concerns about the Arkansas Delta region s capacity to supply and maintain the facility with a high-quality labor force, said Dr. Glen Fenter, President of West Memphis-based Mid-South Community College, in a feature article we wrote last year. We used the loss of that opportunity as a wakeup call, a road map of what we wanted our future to look like. Since we published that article last year, we have gotten to know Dr. Fenter. He is certainly one of Arkansas most effective economic development ambassadors. Clearly, this region of eastern Arkansas is much better prepared today to provide the workforce needs of any company and any size project. That will be the case in the future, Fenter said. In other words, eastern Arkansas, commonly called the Delta, used the Toyota disappointment to ensure our region will never let that happen again. And then you have the longest running bridesmaid of them all. North Carolina has flirted with automakers for over 30 years, particularly in the Piedmont Triad region of the state. Sites located east and southeast of Greensboro have been walked by site consultants representing automakers on a regular basis. SB&D has actually on two occasions, six years apart received secret photographs from a landowner of site consultants, politicos and economic developers walking a site near Liberty, N.C. Now a new megasite has emerged near Greensboro in Chatham County that we believe may provide North Carolina its best chance at landing a Big Kahuna. Toyota and Nissan have a history of establishing plants in states void of other OEMs, such as Virginia, North Carolina, Louisiana and Arkansas. One Toyota exec told me years ago that picking a state in the South that has no history of automotive assembly gives us two more senators in Washington supporting our sales here in the U.S. Site availability is not a problem in the heart of the SAC as there are several suitable tracts in all states that are home to OEMs. Rather it s the labor shed that might determine whether or not the four Southern states outside of Texas that have landed multiple assembly plants over the years can accommodate an additional facility. More specifically, it might be the labor shed as viewed by current OEMs in those states that becomes the determining factor. So, if there is not much room at the Inn, and there are as many as conservatively four new assembly plants announced in the South over the next four or five years, which states in the region would automakers turn to for new facilities? The first states that come to mind are Georgia and South Carolina. With just one plant in each of those two states, there is room for another and a supply chain base is already established. We believe one of the next two greenfield plants will end up in one of those two states. Where will new Big Kahunas land in the South? Through much study, including walking dozens of megasites over the years, Southern Business & Development has picked correctly and published those picks the exact location of every assembly plant announced in the Southern Auto Corridor from BMW in 1992 to Kia in Some of those picks were made as many as nine months prior to the official announcement. We will admit, however, that we picked the wrong sites for the latest Toyota project that went to Mississippi and the Volkswagen deal that went to Tennessee. But, now that the talk on the street is that new Big Kahunas are on the horizon, it s time that we gave it another shot. Using our past experience and fac- 28 SOUTHERN AUTO CORRIDOR Southern Business & Development

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23 toring in all kinds of things, such as available workforce, location and suitable sites, we have broken down our list of the best markets for future Kahunas in the Southern Auto Corridor as well as the best available megasites. Since labor quality and availability is at a premium, we believe this next round of Big Kahunas will have a much more metropolitan flavor and those metros with outstanding sites are at the top of our lists. As you can see, the Greensboro, N.C., region really the entire Piedmont Triad region is our No. 1 spot in the Southern Auto Corridor that we believe can support a new assembly plant based on labor availability and quality, its location and its history of just missing with Big Kahunas. Even though there are no rumors to base our pick, we believe that one of the next two automakers announcing greenfield plants in the Southern Auto Corridor will pick a site in the Piedmont Triad region of North Carolina. Our second pick may come as a big surprise and maybe a reach, but we don t think so. Factoring the importance of exporting vehicles made in the Southern Auto Corridor by foreign automakers into the equation, port access is not only important today, it will be incredibly important in the future. In other words, access to deep water ports is critical, so don t be surprised if a Big Kahuna shows up in the Houston region. Moving along with our port theme, the Savannah region is ripe for a major automotive plant. The Pooler site is still available last we heard, and it is perfectly situated for delivery of vehicles worldwide as well as for U.S. consumption. There are other sites on Interstate 16 in east Georgia as well. There is still a site available near Huntsville, Ala., which has been in the running for a couple of Big Kahunas over the years, and so have sites in and around Memphis. The Memphis Regional Megasite near Jackson, Tenn., is one of the premier sites available for an automaker. But don t forget there are other sites in the Memphis region, including one in Marion, Ark., and Tunica, Miss., if an automaker can get around air quality attainment in parts of that region. You may never have heard of Emporia, Va., but it is home to an incredible site right on I-95 that is located only 80 miles from the Port of Virginia in Norfolk. Sites available in and around Florence and Columbia, S.C., are numerous, including the Central South Carolina Megasite that is one of the best we have seen. Another site near Florence called the White Hawk Commerce Park is a candidate for a Big Kahuna, as is the I-95 Megasite in Dillon County, S.C., and another I-95 Megasite in Clarendon County, S.C. And the site in Chesterfield, S.C., near Charlotte that Nissan checked out years ago remains available. Markets located in the heart of the Southern Auto Corridor that also have attractive sites include Elizabethtown, Bardstown and Hopkinsville in Kentucky, and Guin, Ala. The site in Elizabethtown, we believe, is the most qualified megasite in the Southern Auto Corridor. TOP SITES IN THE SOUTH FOR AUTO ASSEMBLY 1. Glendale Megasite - Elizabethtown, Ky. 2. Mid-Atlantic Manufacturing Center - Emporia, Va. 3. Chatham-Randolph Co. Megasite - Siler City, N.C. 4. Memphis Regional Megasite - Haywood Co., Tenn. 5. Central South Carolina Megasite - Kershaw Co., S.C. 6. Sewell Site - Huntsville, Ala. 7. White Hawk Commerce Park - Florence, S.C. 8. I-95 Megasite - Clarendon County, S.C. 9. Carolinas I-95 Megasite - Dillon County, S.C. 10. I-77 Megasite - Chester County, S.C. 11. I-24 Megasite - Hopkinsville, Ky. 12. I-22 Industrial Site - Guin, Ala. 13. Franklin Farm Megasite - Holly Ridge, La. 14. Crawford Diamond Megasite - Nassau Co., Fla. 15. West Kentucky Megasite - Graves Co., Ky. 16. Jafza Magna Park - Orangeburg County, S.C. 17. Savannah Megasite - Pooler, Ga. 18. Tunica Megasite - Tunica, Miss. 19. South Alabama Megasite - Baldwin Co., Ala. 20. Bridgeport Site - Coweta County, Ga. *TOP MARKETS IN THE SOUTH FOR AUTO ASSEMBLY 1. Piedmont Triad, N.C. 2. Houston, Texas 3. Savannah, Ga. 4. Emporia, Va. 5. Elizabethtown, Ky. 6. Huntsville, Ala. 7. Memphis, Tenn. 8. Little Rock, Ark. 9. Jackson, Tenn. 10. Florence, S.C. 11. Columbia, S.C. 12. Charlotte, N.C. 13. Monroe, La. 14. Bardstown, Ky. 15. Tri-Cities, Tenn. 16. Hopkinsville, Ky. 17. Sumter-Clarendon County, S.C. 18. Orangeburg, S.C. 19. Jacksonville, Fla. 20. Montgomery, Ala. Conclusion It s another busy time in the Southern Auto Corridor. Growth in the form of future Big Kahunas is inevitable and apparently just around the corner. In just three decades, the South s automotive sector has matured from a domestic industry afterthought to the leading region in North America for the production of the world s finest brand vehicles designed and manufactured by the world s best automakers. In a report recently published by Business Facilities magazine, Tennessee was named the strongest automotive manufacturing state in the U.S., closely followed by Alabama and Kentucky. Automotive Manufacturing Strength was not based on overall production, but took into account industry trends, growth potential and current production strength. Look for that automotive manufacturing strength to continue throughout the region as automakers particularly foreign nameplates lift the Southern Auto Corridor to heights never before seen. The new activity in these next few years is going to be exciting to watch. n 30 SOUTHERN AUTO CORRIDOR Southern Business & Development