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 Southern Auto Corridor News

June 26, 2009

What to do with a Vacant GM Plant?

With GM in bankruptcy and the future cloudy for the automotive titan, we can only speculate on what will happen to the six General Motors plants that are still in operation in the Southern Automotive Corridor. Those plants, located in Kansas City, Kan., Wentzville, Mo., Bowling Green, Ky., Spring Hill, Tenn., Shreveport, La., and Arlington, Tex., could end up like another GM plant that closed in the South three years ago; Vacant. And in an economy like this, there's not much of a market for multi-million-square-foot former automotive factories. Or is there?

In 2006, GM closed its 3.8 million-square-foot Oklahoma City assembly plant leaving local and state officials wondering what to do with the monster facility that sits on 430 acres. But they didn't wonder for long.

Through the leadership of the Greater Oklahoma City Chamber of Commerce, the city, county and state rallied to purchase the plant and repurpose it to support the community's thriving aerospace industry, or more specifically for use by the Tinker Air Force Base. Tinker is the Air Force's largest base due to its emphasis on maintenance, repair and overhaul of military aircraft and engines. The base employs 26,000 workers.

Now called the Tinker Aerospace Complex, the former GM plant could end up housing thousands of new workers. Oklahoma City Mayor Mick Cornett said, "The officials at Tinker are enthused, the Pentagon is impressed and it helps solidify our relationship with the most important economic driver we have."

Shortly after GM's announcement to close the plant, Oklahoma City voters approved a $55 million bond issue to buy the property and lease it back to the Air Force for $1 a year in exchange for retrofitting the plant and using it to replace aging maintenance buildings at Tinker.

New Car Assembly Plant Announced in Louisiana

In June, V-Vehicle Company (VVC) announced it will build its first car at a former automotive parts facility located in Monroe, La. The San Diego-based startup company will produce what is expected to be a high-mileage, gas-powered car specifically for the U.S. market. In the spring quarter we speculated that California-based venture capital firm KPCB (Kleiner Perkins Caufield and Byers) was the company centered on rumors of a new assembly plant coming to the Southern Automotive Corridor. KPCB, along with other investors including oil magnate T. Boone Pickens, are investing in the new car venture. KPCB is also an investor in California-based Fisker Automotive, which is working to produce a green, EV sports car model. VVC's northeast Louisiana plant will house 1,400 workers and represents an investment of $248 million.

GM Seeks Highest Bidder for Proposed Plant

In June, officials representing states bidding for GM's first assembly plant post bankruptcy were surprised to learn that up-front cash incentives to the automaker apparently are the No. 1 factor in the site search. In fact, up front cash may be the only factor. Currently, GM is looking at existing facilities in Orion, Mich., Janesville, Wis. and Spring Hill, Tenn. to build a new small car. In a story published in the Chicago Tribune, Tennessee Gov. Phil Bredesen said that GM is looking for a large cash payment from the Volunteer State to pick Spring Hill over Orion or Janesville. Bredesen said he doubted his state could afford what amounted to hundreds of millions in cash to help the Michigan automaker build the plant. What's interesting about that is in the last two years GM spent more than $600 million on the Spring Hill facility to move from producing Saturns to Chevrolets.

If not GM, Some Automaker will continue Power Train and Stamping Operations in Tennessee

It really doesn't make much sense but it is what it is. In the last 18 months General Motors has spent more than $600 million gutting and then retooling its plant (the former Saturn facility) in Spring Hill, Tenn. The company has been assembling the Chevy Traverse model for less than a year at the facility. Now, GM says the plant is closing and it looks like the company may walk away from the tremendous investment it has in Spring Hill. Even if the plant does close, GM or some other automaker will continue to operate at least part of the plant. Located in the plant is the largest stamping operation in the U.S. While it might not have plans for Spring Hill for auto assembly, it would be unlikely that GM will walk away from the significant stamping and power train operations that are located in the facility.

First Tier 1 VW Supplier Announces Plant at Enterprise South

Michigan-based Gestamp Corp. announced on June 25 that it is investing $90 million to establish a new automotive parts stamping operation at Enterprise South, the site of the Volkswagen assembly plant that is now under construction near Chattanooga. Gestamp has secured a contract to supply structural components for the production of the new mid-sized sedan that VW has designed specifically for the U.S. market. Gestamp is a subsidiary of Gestamp Automocion, a privately-held company based in Madrid, Spain.

Nissan to Hire 1,300 in Tennessee for Production of Zero-Emission Vehicle

In late June, Nissan accepted a $1.6 billion loan from the U.S. Energy Department to make batteries and retool its factory in Smyrna, Tenn. in advance of the assembly of its first zero-emission car. Nissan expects to begin production of the electric vehicle in 2012. The Japanese automaker plans to assemble 100,000 electric cars in the first year at its Smyrna facility. About 1,300 jobs will be created in the project.

Volkswagen Shooting for 85% N.A. Parts Content

In June, Volkswagen officials announced that it plans to use North American suppliers for 85 percent of the parts and components that will be used in the assembly of its new sedan it plans to build at its Chattanooga plant that is now under construction. The news is good for areas around Chattanooga as it indicates a large supply chain will be developed in the area. VW has set up a 75-member purchasing group in Chattanooga to find suppliers to the plant. The group is operating independently from the one VW oversees in Puebla, Mexico, which is the only other place in North America where Volkswagen assembles vehicles. The big question we would like answered is where are the engines and drive trains for the new VW sedan going to come from? VW has a large engine plant in Mexico, but that facility is hard-pressed to produce enough engines for the Puebla assembly plant. If Volkswagen has plans for 85 percent of the parts to come from North America and the company's engine plant in Mexico has no more capacity, well, the German automaker has to find engines somewhere. The Chattanooga site is large enough to accommodate a separate engine plant, but no announcement has been made as of yet.

Volkswagen Expects Six Figure Application Total

To date VW has received about 20,000 applications for jobs at its plant in Chattanooga, which will begin producing cars in 2011. In an article published in the Chattanooga Times Free Press recently, VW officials expect that total to reach six figures, or over 100,000 applicants for jobs at the plant.

Volkswagen Opening Distribution Center

In June Volkswagen president and CEO Stefan Jacoby attended the opening of the company's new 240,000-square-foot, $30 million distribution center in Jacksonville, Fla. The new center, which will serve 115 VW and Audi dealerships in the Southeast, houses 40 workers. The center is part of VW's efforts to triple car sales in the U.S. by 2018. The Jacksonville project, the company's new assembly plant in Tennessee and its relocation of its North American headquarters to Virginia two years ago are all part of that effort.

Silver Eagle Bus Relocating to Tennessee

Tour bus manufacturer Silver Eagle Bus announced in late June it plans to move from Brownsville, Tex. to Gallatin, Tenn. The deal is expected to result in 100 new jobs once production begins later this year.

GM Discontinues Funding for Nationwide and Truck NASCAR Series

As part of its reorganization under bankruptcy protection, GM announced in the summer quarter that it is discontinuing its sponsorship and support for the Nationwide and Truck motor racing series this season. GM officials said that support for the NASCAR Sprint Cup level will continue this year. 

Seven-Hundred Kia Workers Hired in Georgia

The Southern Automotive Corridor's newest automotive assembly plant is scheduled to go into full production in December. Korean automaker Kia has already hired about 700 workers for its new plant in West Point, Ga., located near LaGrange. When production begins the plant is expected to house about 1,200 workers and if all goes well, as many as 2,500 could be working at the facility by the end of 2010. The new generation Sorento model will be the first vehicle produced at the plant.

Tennessee's Rural Loan Fund Earns National Award

The Tennessee Rural Opportunity Fund has won the 2009 Multi-Community Program Award for populations over 100,000. The recognition has come from Bismarck, N.D.-based Business Retention and Expansion International. The rural development fund, considered the first of its kind in the South, is a $10 million revolving loan fund that is a partnership between the Tennessee Bankers Association, the Southeast Community Capital Corp. and the State of Tennessee. For more information on economic development in the rural South go to www.SmallTownSouth.com.

Johnson Controls Announces Plan to Locate New Facility in South Carolina

Wisconsin-based Johnson Controls announced in June that it plans to build a new battery recycling facility in Florence, S.C. The facility represents a capital investment of move than $100 million and the creation of 250 new jobs.

Kansas Enacts Business-Friendly Legislation

Kansas lawmakers have passed a bill that enables companies that create 100 new jobs or more within five years to retain 95 percent of state payroll withholding taxes for seven to 10 years. The number of years that withholding can be retained depends on the amount by which the wages paid exceed the average wage in the county where the project is located.  

Georgia Governor Signs Pro-Business Tax Bills

In the spring quarter, Georgia Gov. Sonny Perdue signed two bills that will give significant tax breaks to Georgia-based business. One of the two bills will base tax credits on wages a company plans to provide rather than on its in-state sales. The legislation will reward companies that bring high-paying jobs to The Peach State with tax credits even if the majority of their sales are made in other states or countries. The other bill, which will require a constitutional amendment subject to a statewide voter referendum, will eliminate the state tax on business inventories. There were opponents in Georgia against the bills, citing speculation that the state cannot afford any tax cuts for business during a recession.

China Companies Acquiring Brands

In June, China's Sichuan Tengzhong Heavy Industrial Machinery Co. announced that it is bidding to purchase the Hummer brand from GM, even though many hurdles remain before a deal can be struck. GM has halted production of the larger Hummer model, however the Michigan-based automaker continues to produce the smaller Hummer 3 at its plant in Shreveport, La. 

As of the end of June, Sichuan Tengzhong had not filed an application with the Chinese central government or with the Chinese Ministry of Commerce, both of which would have to approve the company's bid. Sichuan Province, where Tengzhong is headquartered, is backing the company's efforts to purchase the Hummer brand.

Also in June Chinese automaker Geely Automobile Holdings said it has reached a preliminary agreement with Ford Motor Co. to purchase its Volvo unit. If the deal is done, Geely officials said the company would produce a new Volvo model at its plant in China's Guangzhou Province's Dongguan City. Geely is one of China's largest private automakers.

Mercedes Using Downtime to Train Suppliers

Since February, Mercedes-Benz has used downtime at its plant in Vance, Ala. to train plant managers from approximately 35 parts suppliers in the automaker's supply chain. The suppliers have been brought in every Friday while Mercedes had its plant down. Between mid-May and June 22, the plant was also shut down, and about a dozen workers on the Mercedes line trained more suppliers on the manufacturing processes. The training was done in an effort to help suppliers save on manufacturing costs, improve quality and to improve communications between the supply chain and the OEM.

Toyota Making no Changes in San Antonio

When Toyota announced in 2003 that it was building a pickup truck plant in San Antonio, more than one automotive expert was baffled. After all, there was no supplier network in south Texas and the plant was being built over 700 miles from the spine of the Southern Automotive Corridor where supply chains were concentrated. The idea was hatched by Toyota's marketing division that a large pickup truck built in the largest pickup truck market -- Texas -- was reason enough to spend hundreds of millions of dollars on a stand-alone facility. Things have changed since Toyota rolled out its first Tundra model down in San Antonio. But what hasn't changed is Toyota's commitment to build the Tundra in south Texas. In June, Toyota officials maintained that it has no plans to change its Texas strategy and it will continue to assemble the truck, even though sales have tanked in the last year.

Penske Buying Saturn

Michigan-based Penske Automotive announced in early June that it will buy the Saturn brand, which used to be assembled in the Southern Automotive Corridor, from bankrupt GM. According to the MOU, Penske will purchase the rights to the brand, parts inventories and the right to distribute vehicles and parts through existing Saturn dealerships. GM will continue to assemble Saturns on a contract, interim basis. Penske operates over 300 retail automotive franchises.

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