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Regional Review: Southern States Are Hub for Foreign Automakers & Suppliers

Over the past decade, the South has emerged as a manufacturing hub for big automakers. Major international firms such as Mercedes-Benz, Toyota, and Volkswagen are just a few of the players that have a strong and growing presence in the South. As the auto industry continues to recover, that formidable industry cluster is fueling growth across Alabama, Arkansas, Kentucky, Louisiana, Mississippi, and Tennessee.

Location USA / April 2013
Toyota Motor Corp. is expanding its Huntsville, Alabama engine facility to increase North American production of V6 engines.
Toyota Motor Corp. is expanding its Huntsville, Alabama engine facility to increase North American production of V6 engines.
Kentucky alone has seen more than $2.8 billion in total investment and more than 12,500 new jobs created in the automotive sector over the past three years (January 2010 through December 2012). "That accounts for more than one third of the new investment that was made in the state over that period," says Kentucky's Business Development Commissioner Erik Dunnigan.

Toyota, for example, set up operations in Georgetown, Kentucky, in 1985. The facility is now the company’s largest manufacturing facility outside of Japan, and it has played a key role in bolstering the state’s automotive sector. The Georgetown facility currently employs 30,000 workers, and Toyota Motor Manufacturing Kentucky employs and additional 7,000.

Auto’s Re-Emergence
Toyota and General Motors both have major expansions in the works at their Kentucky operations. For example, Toyota announced last May that it plans to increase capacity for 4-cylinder and 6-cylinder engine production. "That creates a ripple effect in that it allows our supply base to grow and become more robust," adds Dunnigan. Kentucky currently boasts more than 440 motor vehicle-related companies that employ more than 69,000 people.

That automotive success story is by no means unique to Kentucky. States such as Alabama, Tennessee, and Mississippi have their own automotive success stories. "Generally, what we are seeing in the South is a re-emergence of the auto industry," says John Lenio, a managing director in the Economic Incentives Group at CB Richard Ellis in Phoenix, Arizona.

Over the last 10 years, the automotive industry has invested more than $7 billion and created more than 35,000 new jobs in Alabama. Mercedes-Benz, Honda, and Hyundai all operate vehicle assembly plants in the state, while Toyota and International Diesel build engines in Alabama. Toyota has a major expansion under way at its Huntsville, Alabama, engine plant with a new 300,000-square-foot building. The expansion will increase the company's North American production of V6 engines and add 125 jobs. The new facility is scheduled to be up and running by March 2014.

Spin-Off Developments

Expansion among top manufacturers is, in turn, fueling growth among supplier companies such as plastics molders and small machine manufacturers. "What has happened in terms of game-changers is that when these big plants announce and open up, that has opened up a lot of opportunities for suppliers to locate near the plant," says Lenio.

States such as Mississippi are benefiting from that spin-off development. Mississippi welcomed its first automotive manufacturing plant in 2000 with the arrival of Nissan. In 2007, Toyota announced a major production facility near Tupelo that now employs some 2,000 people. Since then, eight Tier-1 suppliers have set up operations in Mississippi to supply and support that Toyota plant.

Many of those suppliers are growing along with their automaker clients. Tennessee is home to more than 900 auto manufacturers and suppliers. It continues to attract both new firms and expansions among existing companies. For example, Huf North America recently announced a $20 million expansion at its Greeneville facility that will create an additional 100 manufacturing jobs. The company is a wholly owned subsidiary of Huf Hülsbeck & Fürst GmbH & Co. The German firm is a world leader in the design, development and manufacture of mechanical and electronic key systems, locksets, steering locks, and remote-control systems for the automotive industry. The expansion is expected to be completed by the end of 2013.

And German automaker Mercedes-Benz, a subsidiary of Germany-based Daimler, will add 1,000 new production jobs to its facility in Vance, Alabama. The facility will be producing the new C-Class model. The company expects to begin hiring for the production jobs in 2014.

A Pro-Business Climate
One of the big draws for companies throughout much of the South is the low-cost environment on various fronts — from business taxes to labor and transportation. "The South is considered to be very competitive from a labor cost standpoint," says Lenio.

Southern states are leveraging their low business costs, strong labor pool, and stellar transportation infrastructure to attract new business. The region's transportation infrastructure, including interstates and Gulf Coast ports, provides easy access for firms shipping products and parts around the country and south to Latin America.

The region is working hard to maintain this strong business climate to foster growth in all of its key industries, including automotive, aerospace, life sciences, energy, and technology. In order to capture business in an increasingly competitive environment, these Southern States are working to further improve their economic development tools, strengthen work force training, and foster innovation through public-private partnerships.

For example, Louisiana has enacted several new incentives to encourage business investment in the state. One new tool is the Competitive Projects Payroll Incentive, which provides qualifying firms (durable goods manufacturers as well as pharmaceutical producers, gas-to-liquid conversion projects, and data services) with up to a 15 percent rebate of new job payroll annually for up to 10 years. The state's recently enacted Corporate Headquarters Relocation Program provides qualifying firms with a 25 percent rebate on facilities and relocation costs to be claimed in equal parts over five years; and its new Corporate Tax Apportionment Program provides a single-sales factor apportionment (already available to all manufacturers in Louisiana) to corporate headquarters, logistics/warehousing, data centers, clean technology, destination healthcare, R&D operations, renewable energy, digital media and software development, and other target sectors.

Other Southern States are also continuing to make tweaks to their incentives programs. For instance, as part of its Accelerate Alabama initiative, the state's legislature passed two new economic development programs in the last session: (1) Alabama expanded its income tax capital credit to warehouse and distribution facilities; and (2) the state passed an incentive program specifically aimed at attracting data centers.

Arkansas is also continuing to promote Stem WORKS, a pilot education/training program introduced by Arkansas Governor Mike Beebe and his Workforce Cabinet. The initiative focuses on Science, Technology, Engineering, and Math (STEM) education in high schools and universities in an effort to prepare the state's work force for emerging high-tech fields. Schools participate in either New Tech Network and/or Project Lead the Way.

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