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 Southern Auto Corridor News

January 6, 2009

Editorial

If it wasn't for Foreign Investments, the Southern Auto Corridor would be in Real Trouble

Another day and another domestic automotive industry plant closure. Another day and another foreign automotive investment being made in the South. Economic development in the South's automotive sector has not stopped during this recession, regardless of what you've heard or read. Sure, slow sales are currently affecting almost every automaker and parts manufacturer in the Southern Automotive Corridor. But if you look closely, you will find that foreign manufacturers in the South seem to already be preparing for a recovery in the automotive sector, while domestic automakers and parts suppliers are doing anything but preparing for a recovery. Call the foreign efforts proactive, while the domestics are being reactive right now in what is one of the worst automotive markets in memory.

Case in point: Ohio-based Cooper Tire & Rubber announced in December that it is closing its tire plant in Albany, Ga. Its other three U.S. plants in Texarkana, Ark., Tupelo, Miss., and Findlay, Ohio are not affected for now by the Albany plant closure.

Interestingly, when announcing the Georgia plant closure, Cooper officials cited a softening domestic demand for its tires and an increase in lower-priced imports flooding the U.S. from Asia and elsewhere.

We can certainly understand why Cooper officials cited low demand for tires in the U.S. as a reason to close its huge Albany plant. But pointing fingers at a flood of low-priced imported tires doesn't make sense to us. Why? In May of 2008, Kumho Tire, a Korean tire manufacturer, announced a new $225 million tire plant in Macon, Ga. The plant will house 450 workers. That deal has nothing to do with cheap tire imports. In contrast, the Kumho project is a foreign tire maker investing in the U.S. to manufacture tires in the U.S.

We don't think it is a coincidence that Kumho and other foreign tire makers announced new plants in Georgia shortly before Cooper decided to close its Georgia plant. In other words, we believe Cooper simply could not compete with three other foreign tire makers that have recently made significant investments in Georgia. 

Again, Kumho is not the only foreign tire manufacturer to announce expansion plans lately in the Southern Auto Corridor, specifically in Georgia. Pirelli Tire, which relocated its U.S. manufacturing and headquarter operations to Rome, Ga. a few years ago, announced another expansion in The Peach State in the fall 2008 quarter. And another foreign tire maker in Georgia saw its third expansion in August of 2008 when Japan-based Toyo Tire announced 400 new jobs and a $270 million investment at its plant in Bartow County, Ga.

U.S.-based tire manufacturers have expanded lately in the South, too. In 2008, Goodyear announced a $200 million expansion of its Danville, Va. plant. But clearly, foreign tire makers over the last few years have invested far and away more than their domestic competitors in the South. 

As for other auto parts suppliers, the foreign theme continues. Between September 1 and December 31, 2008, we reported 37 parts supplier plant expansions or startups in the Southern Auto Corridor that were not tire industry-related. Those 37 deals are about 50 percent of what is a normal five-month total in the South. But of those 37 parts company investments, 29 were made by foreign companies and interestingly, only seven were directly related to foreign assembly plants currently being built by Kia and VW in the South. Editor's note: Toyota suspended indefinitely the completion of its auto assembly plant in Tupelo, Miss.

As for the original equipment manufacturers, the landscape is changing as well. Foreign automakers with no current U.S. assembly operations are forging ahead with construction of huge plants. Germany-based Volkswagen is building its plant near Chattanooga, Tenn., and South Korea-based KIA is finishing off its large facility in West Point, Ga.

Meanwhile, Japanese automaker Toyota is beginning to mirror its U.S. counterparts' Ford, GM and Chrysler. Its sales are off almost as badly as the Big 3 and no more testament to that is the fact that mighty Toyota has put off the opening of its newest plant in Blue Springs, Miss. Construction on that facility is 90 percent complete, yet no auto assembly equipment has been installed at the plant. 

As of January 1, 2009, no full time workers have lost their jobs at any of the eight foreign auto plants operating in the South. That is certainly not the case at the 11 domestic auto plants that are located in the Southern Auto Corridor. It should be noted that in the last three years, domestic automakers have shed far less jobs at their plants in the South than anywhere else in the U.S. or Canada. So while the pain of the Big 3's contractions have been felt strongly in the South, the agony has been much more intense in the Midwest, Northeast and up in Canada.

While Toyota and the Big 3 suffer the most during this time, one thing caught our attention about the new Volkswagen plant going up in Tennessee. We believe it's a sure sign that some foreign automakers and parts suppliers in the South are already preparing for a recovery in the auto sector this year and in 2010.

While Volkswagen officials maintain the plant will produce 150,000 vehicles a year (the plant is expected to open in 2011), the company has already been approved for an air quality permit to produce over 500,000 vehicles annually at its Chattanooga facility. If that is not a sign that Volkswagen is already preparing for a recovery in the automotive sector, then what is it?

Yes, for many years now, the Southern Automotive Corridor has been the only place in North America where the automotive industry has grown. There is no question, though, that the industry contracted in the South in 2008 as it did everywhere last year. Yet, without foreign-owned automotive investments, 2008 would have been a disaster for the South, as it obviously was for the Midwest. But it wasn't. It was simply a bad year in the South, one that has several automakers and parts suppliers -- almost all of which are foreign-owned -- preparing and transitioning for the good times that are apparently ahead.

Michael C. Randle
mike@sb-d.com

Top Southern States for Automotive Assembly and Parts Jobs

Two-Thousand-Nine will be a critical year for the automotive industry in the U.S. as well as in the Southern Automotive Corridor. Unlike other regions of the country, significant layoffs by automakers in the South have not occurred as of the end of 2008. However, several automakers in the South have started 2009 with inactive assembly lines. Listed below are Southern states that are home to one or more major car and/or truck assembly plants and the number of jobs at those plants at the beginning of last year. The auto assembly jobs are followed by the number of auto parts jobs that supply plants in those states.

State                      Assembly Jobs                Parts Supplier Jobs

Kentucky                    13,664                                       37,621
Missouri                     11,122                                      17,935
Tennessee                10,636                                      42,415
Alabama                    10,519                                       20,189
Texas                           9,104                                        28,487
South Carolina           4,773                                       18,863
Mississippi                 3,640                                         7,288
Kansas                        2,984                                        4,922
Louisiana                    1,810                                        17,183
North Carolina           1,522                                        20,662
Virginia                        1,777                                         9,978
Georgia                       1,966                                        14,960

Source: Center for Automotive Research

Caterpillar Invests Again in the South

Peoria, Ill.-based Caterpillar announced on January 5, 2009 that it is investing $140 million in a new motor grader production plant in North Little Rock, Ark. The company is taking over the former Deluxe Video Service site. The deal precedes another major announcement made by Caterpillar in December. That deal consolidates plants in South Carolina and Illinois to Seguin, Tex., creating 1,400 jobs in the San Antonio MSA. The North Little Rock project will include the production of motor graders that are currently being built in Illinois. That assembly work will be relocated to Arkansas once the plant is completed in early 2010. About 600 jobs are expected to be created. 

Georgia Completes Kia Interchange on I-85

In December, the Georgia Department of Transportation completed an $80.7 million interchange in West Point that connects the new Kia Motors plant to Interstate 85. The interchange, which includes five miles of Interstate frontage and access roads, two bridges and improvements to connecting roadways, was completed 30 days ahead of schedule. Kia is expected to begin producing cars at its West Point, Ga. plant in the fall quarter of this year.

Continental Closing in Columbia, S.C., Expanding in Virginia

Auto parts manufacturer Continental AG announced in late December it will close its Columbia, S.C.-area plant in 2010. The plant houses over 440 workers. Continental makes diesel fuel injection parts at the Blythewood, S.C. facility. In a related announcement, Continental chose to expand its Newport News, Va. facility. The company will invest $190 million in Virginia as it transfers work currently being done in South Carolina to Newport News. About 300 new jobs will be created in Newport News after the expansion and consolidation is completed. The consolidation to Newport News will combine the diesel and gasoline fuel injector manufacturing as well as expand the existing gasoline fuel injector business line. Continental AG of Hanover, Germany, is the world's fourth-largest automotive supplier.

Caterpillar Consolidating Major Operations to Texas

In late December, Illinois-based Caterpillar announced it will move its global assembly, test and paint facilities to Seguin, Tex., which is located near San Antonio. The consolidation deal will relocate manufacturing facilities in South Carolina and Illinois to Seguin. About 1,400 jobs will be created and Caterpillar is expected to invest almost $200 million in a new one-million-square-foot facility.

Koyo Announces Expansion in South Carolina

Japan-based Koyo Corp., a supplier of bearings to automotive manufacturers, announced in early winter that it is investing $30 million at its facilities in the Columbia, S.C. area. The investment will be made in land, buildings and equipment at the company's Blythewood, S.C. plant. The expansion will enable Koyo to add two new production lines. The company, which has operated the plant since 1995, is a Tier 1 and Tier 2 supplier to Toyota, Honda, Ford, GM, Chrysler and BMW.

Cooper Tire Closing Georgia Plant

Ohio-based Cooper Tire & Rubber announced in early winter it will close its 1,355-employee Albany, Ga. plant by 2010. Its other Southern plants in Tupelo, Miss. and Texarkana, Ark. will remain open, company officials said. Officials estimate that the plant has an estimated annual economic effect in southwest Georgia of about $500 million. The company currently operates four U.S. plants with the other being in Findlay, Ohio.

Toyota Delays Mississippi Plant

In mid-December, Japanese automaker Toyota announced it is suspending work indefinitely on a new plant in Blue Springs, Miss. The move is being made as Toyota has experienced a dramatic drop is sales of its models. The plant is about 90 percent complete and the company said it will finish building the facility, but will not install equipment. Officials would not say when the plant would open. It was scheduled to begin producing the Prius model in late 2010. 

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