The U.S. Auto Industry is Jumpstarting the Manufacturing Sector
With more competitive labor agreements, automakers are building more in the United States, retooling and refurbishing existing plants, and backshoring operations.
McElroy's declaration has proven to be true over and over again by the plethora of new auto industry announcements made mid- to late-2011 that are expected to have a notable economic impact in 2012 - and beyond.
Several months after that industry appearance, McElroy spoke to Area Development about the U.S. auto market's rocketing upwards ride in an uncertain economy that is still wobbling.
"Despite the woes you hear, the meltdown and uncertainty, the auto industry in the United States - and globally - is doing pretty well right now," he noted. "For whatever reason, sales are decent in the `New Normal,' but nowhere near where they were four years ago. However, Detroit automakers are now profiting due to restructuring. They closed a lot of factories due to the 2008 sales collapse when the credit markets closed. But now, with more competitive labor agreements, it makes sense for them to build more in the United States, retool and refurbish existing plants, and insource work now that labor rates are under control."
Domestic Automakers on a Roll
For example, in July, GM announced that its powertrain plants in Ohio and Indiana would get the bulk of a $129 million investment. The plants produce transmissions for Buick and Chevrolet models that incorporate eAssist fuel-saving technology. The monies are part of GM's $2 billion investment in 17 facilities in eight states that are expected to create or retain 4,000 jobs.
GM also broke ground on its $331 million expansion of its Arlington, Texas, assembly plant in October. The facility will make future Chevrolet Tahoes, Suburbans, GMC Yukons, and Cadillac Escalades. When completed, the company could add 100 jobs to the plant's 2,500-plus positions.
Recently, GM's CEO Dan Akerson told Automotive News that he predicts flat industrywide U.S. auto sales in 2012. However, he believes the company can continue to be prosperous due to a low break-even point that came about in part by its new UAW labor contract. The newspaper also reported that GM told analysts it can turn a profit at a 10.5 million-unit U.S. sales pace, which is at least 16 percent under the sale volume number Akerson anticipates next year.
And in mid-October, Chrysler reached a tentative labor agreement with the United Auto Workers (UAW). The accord would add 2,100 jobs and includes $4.5 billion of plant investments that, according to the union, will produce new models plus upgraded vehicles and components by 2015. In particular, it has been reported that three plants in southeast Michigan could attract over $1.2 billion in investment and 250 new jobs, in addition to nearly 2,800 jobs retained.
More good news: If the tentative Ford/UAW agreement goes into effect, plans call for the manufacturer to add a third shift - and 1,100 jobs - to its Chicago assembly plant in 2012. Also, over the next four years, 900 jobs are expected to be added to that facility as well as to Ford's Chicago Heights stamping plant.
The sputtering economy is even supporting a fairly new "green" American car company: McLean, Virginia-based GreenTech Automotive plans to build a Mississippi assembly plant to produce hybrid and electric cars. In August, it announced a joint venture deal allowing it to produce/sell its "green" cars in China. In September, it announced the plant had successfully completed the certification process to export cars to Europe.
Foreign Vehicle Manufacturers Continue to Invest
However, it's not only American auto manufacturers that are cautiously preparing for the industry to rebound here and abroad. The "new reality" of industry prosperity also extends to foreign vehicle manufacturers with operations in the United States, as well as to countless suppliers to the automakers that reside near them in bulging clusters. The majority of this activity is taking place in two regions: the Midwest and the South/Southwest.
McElroy noted that - for at least a decade - America has been quite an attractive place for foreign companies to manufacture vehicles. Besides providing market proximity, America provides the foreign automakers with "very good infrastructure," a dollar that has "weakened tremendously" against the yen and other foreign currencies, and a highly trained and motivated work force. That's why foreign automakers from Europe, Korea, and Japan "have all established operations in the United States - overwhelmingly in right-to-work states." Clearly, non-American auto/truck manufacturers are finding that "now" is the perfect time to invest in the United States in preparation for anticipated industry growth, sales, and success.
For example, U.S. production of the 2012 Kia Optima began in September at Kia's manufacturing plant in West Point, Georgia, after the completion of numerous expansions. The company had recently added a third shift that raised the total jobs created at the plant to over 3,000. That same month - after being operational for just a few months - Volkswagen's Chattanooga, Tennessee, assembly plant announced its 10,000th Passat had rolled off its assembly line.
Toyota said it would begin rolling out its first Corolla vehicles this fall from its new Blue Springs, Mississippi, manufacturing facility - the carmaker's 10th U.S. plant. It's estimated the facility will eventually create 2,000 jobs. In September, the company began four-cylinder engine production at its TMMAL (Toyota Motor Manufacturing, Alabama, Inc.) plant in Huntsville, Alabama, where V6 and V8 engines also are made. It was reported that the additional production increased plant employment to almost 1,000 workers and total investment to $637 million. Combined annual production for all three engines will total about 500,000 units.
Recently BMW announced plans to hire 100 new professionals for jobs at its Spartanburg County, South Carolina, facility. BMW expects to increase production capacity there to 240,000 units by 2012. In 2008 the automaker had said it would invest $750 million for a 1.5-million-square-foot expansion and create 500 more jobs on top of its 7,000-person work force. The German company currently supports over 23,000 jobs in South Carolina and generates $1.2 billion annually in wages/salaries. According to a 2008 university study, each BMW job has a multiplier of 4.3, and the company's economic impact for the state is pegged at $8.88 billion.
And earlier this year, Nissan announced it would create about 300 jobs at its Canton, Ohio, plant for production of its Xterra SUV and Frontier pickup models. Carlos Tavares, chairman of Nissan Americas said that by 2015, 85 percent of Nissan and Infiniti vehicles sold in the Americas would be built on U.S. soil, up from the current 69 percent.
Indeed, ramping up manufacturing capacity is one big trend now seen in the auto industry, pointed out McElroy. And while experts predict more plants will be built in the next decade, McElroy predicts they won't be proliferating as much as they are now.
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