Site Selection Factors for the Automotive Industry
The U.S., Mexico, Canada Agreement (USMCA), for example, which has now higher local [requirements] content. So before, the local content for automotive projects was at about 62%, and now they raised it to 75%, which means you have to manufacture much more in the U.S. For example, Germans like to ship in the engine but that is a very large part [of the car]. So, the whole supply chain is changing. And then, with all the new agreements with China, for example, the tariff war going on, back and forth, how many tariffs are coming. And then also the threat with the European Union, will there be tariffs or not? … And then every month, [Mexico will get taxed] another 5% until they are at 25% and a lot of companies in the U.S. like, for example, Volkswagen and Mercedes and BMW, they ship in a lot of parts from Mexico because they have a lot of plants there, they have a lot of suppliers there. So that's a lot of trade going on between the borders. If that gets like to 25% that would be a high impact on the whole automotive industry.
Automotive Industry Site Selection in Small Communities
Yeah, I personally experienced that because I worked on the Mercedes project in Tuscaloosa, Alabama. That was my first project after university, and I moved to Tuscaloosa. It's not the largest city, but they got a very large automotive plant… It's a very tiny city, maybe 1,300 population. But all the European, also the Japanese I think they want to be the client, like the employee of choice. So, we saw that BMW located in Greer, South Carolina… And then my personal experience was, I was moved back from South Korea because I was asked by Hyundai KIA to build a plant here in the U.S…. Maybe not everybody knows that it’s about 70 miles south of Atlanta and about 80 miles north of Montgomery, Alabama.
So, I was moved there, and there was not much there. There was the site, which had 52 owners, 30 houses on there. But the chairman of Hyundai really liked that site. There was no [highway] exit and everybody was afraid about labor. So, I moved there for the U.S. work. There were no apartments [there], so I ended up in Valley, Alabama where I still live, and I love it. But at that time, there was no Waffle House, no McDonalds. So, we created the rural “McDonalds / Waffle House” index. If you don't see that, you know you are in a small area.
This area was highly impacted by the textile industry, so they lost a lot of jobs in that community… So when KIA decided to locate to locate their plant there, it's a full automotive plant with maybe 4,000 jobs. They attracted all those restaurants, residential areas and suppliers. So nowadays, 14,000 people live there. So, nowadays there's an exit, you find apartments, you find all the amenities, McDonalds, Starbucks, everything is there. They are the major employer, and they attracted all the suppliers and everything to that area.
So all my clients would never select a major metro area, because it just makes, for them, no sense to be in a big area where everything already is because they know they will attract so many jobs. Then the only topic was the labor because there was not much around. Everybody was highly concerned. So when they opened up the online application, they received 50,000 applications in two weeks. And we were all like, “Well, where are all those people coming from?” I asked some people when they came, they were coming more from the north or from the west or so and they said they would move there for a good job. And these are highly paid good automotive jobs. So, all those people kind of moved there.
What Automotive Companies Look for in Smaller Communities
Smaller areas need to have, for example, a large enough site, [which is] normally for big plant, at least 1,000 acres and utilities, and you need to have power. You can maybe build a substation, but there needs to be a transmission line somewhere; water and gas and sewer; fiber optics. And also normally, it's a foreign direct investment, so people like to have an airport. They normally tell me they want an international airport in a two-hour radius, [or so] they can change planes and go to a domestic airport first. But they should be one-and-a-half hours to two hours [away from an airport]…
For all those plans, you need rail. So if you need a major rail line that's important for those plans… you need a permit… So, there's some other things playing into it. Also, [it’s a positive] when the community adjusts very well to the cultural things we see. So, if Germans come in, they're different than Koreans or [another foreign company]. So, if they adjust a little bit to the different cultures and get familiar with them, then you can build up a really good relationship with the clients, like with the KIA plant. They moved so many Korean families to that area. But the area adjusted to it very well. They put some school systems, there are language courses, and now they have a lot of Korean barbecue restaurants.
How Communities Fill the Housing Gap
I'm doing a site selection right now, and this is one of the questions [we’re addressing] because the executives come and they say, “We have to move some experts and they will bring their wife and their kids and they have to live here.” So we always look at the housing market, so we check like, is there enough housing for the beginning? But still, you have about two years until you’ve done all the earth work and the construction. So the community clearly has to show us a concept. Is there enough space for additional housing? And normally in those areas, they build so many new houses… and you build some apartment complexes. [All communities] have different needs. We needed apartments, so they bid up apartments very quickly in nine months. And then they already started to develop some, like one-family housing areas. So the community needs to look into that because that's really important. Also, schools that offer maybe some special language training when you have so many foreigners coming, I mean, your community will be highly impacted by one of those cultures.
Urban vs. Rural Sites for Foreign Direct Investment
We look at [urban and rural] areas at the very beginning, so we normally have… 14 states included at the very beginning, so we have metro areas included. We have small areas. The first thing we do is [look at the location itself]. So if the site doesn't work, the project will not be successful. [Next, we look at] incentives. We don't look at incentives at the beginning. I know some people do, but normally we just make sure we have sites which work, and then we look at the area. So, then the client can see if there's a smaller rural area, [that might] have a great site, but there's not much there. Then you look at a metro area. The metro area will be for sure more expensive, the quality of life will be higher and your housing costs will be higher. Your land will be higher cost.
And so normally what we see in smaller communities, they are very open to land a very big project. So they make some communities. We have seen some of them do outstanding jobs and they do a lot of things to improve their area. I mean, you have to really work with the client because clearly, they at first like… metro areas [more]. But it's a back and forth, so we will have a full evaluation and you will see at the end. Maybe they like [the small community] more than the metro area at the end, like the new Toyota Mazda plant that’s going to Huntsville, Alabama. This is kind of more like a metro area. It's not a huge metro, but it's like a larger city. So I mean, it just depends on the client. But, like I said, we have so many examples where they selected smaller areas.