In April 2007, there were three major announcements that symbolized the state of affairs for the Big Three domestic automakers (General Motors, Ford and Chrysler). First, Toyota announced that it had sold more cars and trucks around the world in the first quarter of 2007 than any other manufacturer. Second, DaimlerChrysler publicized that it was actively pursuing the outright sale of its American partner Chrysler and third, based on figures for March 2007, vehicle sales for the Big Three faltered while their Asian competitors achieved substantial gains. Prior research conducted by the Southern Legislative Conference (SLC) highlighted a radical transformation in the auto industry that has been in progress for some two decades now: the continuous shrinking of the percentage of vehicles — as a proportion of total vehicles — manufactured and sold by the Big Three while a host of foreign automakers, mostly Asian carmakers with manufacturing plants in several Southern states, made very impressive strides.1

Toyota's latest announcement was no surprise, and its global sales record of 2.35 million cars and trucks in the first three months of this year, eclipsing GM's 2.26 million during the same period, signaled the end of GM's lengthy run as one of the most dominant players in all of global industry. Ever since GM surpassed Ford back in 1931, the company had dominated global vehicle production and sales for more than seven decades.

In 1998, the $36 billion merger between Daimler and Chrysler was heralded as the prototype worthy of emulation by other automakers striving to be competitive in the fiercely global auto marketplace. Unfortunately, the DaimlerChrysler coupling proved to be an ill-fated one, stricken by the radical and ongoing transformation of the American auto industry, incompatible corporate cultures, several strategic blunders, a daunting $20 billion to $22 billion health care tab for retired Chrysler workers and other structural costs. In a reflection of how Chrysler's fortunes have plummeted since the merger, one of the most serious bids received by DaimlerChrysler for its money-losing Chrysler unit was a $4.5 billion cash offer by billionaire investor Kirk Kerkorian, less than a sixth of the value of the merger in 1998.

As noted, the Big Three's financial woes were not limited to Chrysler, a trend clearly reflected in the previously mentioned March 2007 sales figures, the latest figures available at the time of this writing. Toyota (7.7 percent), Honda (7.4 percent) and Nissan (3.9 percent), popularly referred to in the industry as the J-Three, all saw their sales increase impressively but, in contrast, DaimlerChrysler (-7.5 percent), Ford (-13.5 percent) and General Motors (-7.4 percent) all saw their sales plunge. Even more disturbingly for the Big Three, cumulatively for the month in review, they held onto 51.6 percent of the market, one of their worst showings ever, while the Asian brands accounted for a total of 41.9 percent. The fact that a scant 10 years ago, in 1997, the Big Three accounted for 71.3 percent of new car and non-commercial light truck sales, while the Asian automakers totaled under 25 percent, highlights the ongoing transformation of the auto industry. Another serious repercussion of the ailing fortunes of Detroit's Big Three is the role played by the industry in dragging down the Michigan economy. The tens of thousands of layoffs occurring at the state's auto plants continues to be a major reason — along with several others — why some analysts are referring to Michigan as currently being mired in a “one-state recession.”

In the midst of the rather dire news emanating from the domestic automobile industry, the presence of a number of thriving foreign automakers, mostly in the South, continues to be a very positive phenomenon. The growing procession of foreign automakers establishing manufacturing facilities across the South began in 1983 when Nissan began production at a facility in Smyrna, Tenn. Five years later, in 1988, Toyota began operations in Georgetown, Ky., further reinforcing a trend that has seen both these companies either establish or announce additional plants recently in Blue Springs, Miss., and San Antonio, Texas, (Toyota) and Canton, Miss., (Nissan). In the next two decades, a raft of additional foreign automakers (Mercedes, BMW, Honda, Hyundai, Kia and the latest, Isuzu), either set up operations or intend to do so in many Southern locations. Consequently, the economic impact of the automobile industry in the South remains truly staggering, not only employing a substantial percentage of the region's workforce — hundreds of thousands in mostly high-tech, high-wage direct, indirect and induced jobs — at assembly plants, auto parts producers, service facilities and dealerships, but generating billions in wages, annual sales and government revenues, alongside the priceless effect of elevating the economic image of these Southern state economies.

The most exciting news concerning the automobile industry and the South recently involved Toyota's Feb. 28, 2007, announcement that it would invest $1.3 billion to build its eighth North American assembly plant in Blue Springs in the northeastern corner of Mississippi. The 1,700-acre site, very near Elvis' birthplace, Tupelo, will be the production site by 2010 for the Toyota Highlander. At full production, the facility will build 150,000 vehicles annually and is estimated to create 2,000 direct jobs ($122 million annual payroll); 4,900 indirect jobs ($168 million payroll); 1,402 induced jobs ($28 million payroll); 278 local government jobs ($9 million payroll); and 2,232 construction jobs ($161 million payroll during a two-year period). In turn, the state of Mississippi provided a $293.9 million incentive package to Toyota that included funds for infrastructure ($136.6 million); educational enhancement ($80 million); site preparation ($67 million); and other ($10.3 million). Additional, local government funds put the total package provided to Toyota at $358.5 million.

In late 2006, the ceremonial groundbreaking at the site of Kia Motors' first-ever U.S. manufacturing facility took place in West Point, Ga., near the Alabama-Georgia border. Scheduled to begin production in 2009, this 2.4-million-square-foot facility is expected to produce 300,000 vehicles per year when at full capacity. While the $1.2 billion Kia investment will employ an estimated 2,893 workers, an additional 2,600 employees are expected to be hired at five supplier facilities in Georgia. In order to lure Kia to Georgia, state and local officials harnessed a $258 million incentive package that included $75.9 million in job tax credits across five years, $20.2 million for an on-site job training facility and $60.5 million to purchase the site (all from the state), along with $130 million in property tax abatements across 15 years (from local governments). The Georgia Department of Economic Development estimates the plant will have a $4 billion annual economic impact on the surrounding communities in Georgia and Alabama.

Then, in April 2007, Isuzu Motors announced that it would begin construction at a site in Pinson, Ala., to manufacture commercial trucks. While details are still sketchy, the 300,000-square-foot facility is expected to reach a production capacity of 5,000 units a year by 2010 and provide jobs to almost 1,000 people in a few years. The Pinson facility will assemble trucks with a load capacity of four tons with the engines and platforms for these vehicles being imported from Japan. Isuzu's entrance into Alabama will signal the fifth major automaker to begin operations in the state (joining Mercedes, Honda, Toyota and Hyundai) since the mid-1990s, creating 50,000 jobs at plants and parts suppliers. Economists also indicate that the plants each contribute at least $1 billion a year to the gross state product or 1.5 percent to 2 percent of the total value of the goods and services produced within the state.

Given the incredible surge in foreign automobile industry activity in the South in the past 25 years or so, a great deal of interest surrounds the factors driving this trend. Experts identify several major factors. For instance, foreign automakers greatly value the fact that they can construct new, ground-up manufacturing facilities — incorporating all the latest technologies — more efficiently and effectively at a Southern location, as opposed to reconfiguring older assembly plants in the Midwest and Northeast. Experts also cite the economies of scale created by the cluster effect with the growing number of automobile assembly plants and thousands of auto parts suppliers in close proximity to each other in the South. As an example, more than 1,000 automotive suppliers operate in North Carolina, a state renowned nationally for its impressive automotive parts cluster; then, Grenada Stamping & Assembly in Grenada, Miss., an entity that manufactures metal stampings for the automobile industry, currently supplies Nissan and Ford in neighboring states and expects to supply the new Toyota plant too.

Low, or non-existent rates of unionization, are also proffered as a reason for the location of these foreign automakers in the South. However, in a demonstration of how the labor environment in these contemporary auto plants has changed, union officials at the Mercedes plant in Vance, Ala., failed to sign up enough workers to even hold an election regarding unionization. Salary and benefits at these auto plants consistently exceed average rates in the Southern states and sometimes surpass compensation paid to union workers at domestic car factories. Then, these Southern states offer very persuasive incentive packages including tax breaks, worker training programs, an abundant labor pool and the ability to train a workforce that has not worked in the auto industry previously. Other general features such as the weather, reduced cost of living, lower or no personal income taxes, free or inexpensive property costs to build assembly plants, along with other attractive quality of life attributes, make these Southern locations very compelling.

Finally, another major reason driving the move down South is the extremely cost-effective intermodal transportation network in the region, spanning railways, highways, airports and, most importantly, ports. While Southern ports rank at the highest level of significance from a national trade dimension, the ports of Jacksonville, Fla.; Baltimore, Md.; Brunswick, Ga.; and Charleston, S.C. — all Southern ports — handle more automobiles than any other set of ports in the country. Easy access to these ports from the plants and the efficiency with which these ports operate remain crucial factors in the location calculations of these foreign automakers.

In closing, while the domestic auto industry remains embroiled in a structural conversion that has resulted in layoffs for thousands, drooping sales figures and rising financial losses, a number of foreign automakers operate very successfully in numerous Southern locations. A number of distinct advantages, both financial and non-financial, contained in these Southern states lured these foreign automakers in the last two decades or so, a move that has completely shifted the economic orientation of these Southern locales from largely agricultural to high-tech manufacturing economies. Undoubtedly, the presence of these foreign automakers and the array of parts suppliers that followed them remain an influential feature of the contemporary Southern economic landscape.

Sujit M. CanagaRetna is a senior fiscal analyst for The Council of State Governments' Southern office, the Southern Legislative Conference. He can be reached by e-mailing scanagaretna@csg.org.

End Note

1In November 2003, the SLC released a report entitled The Drive to Move South: The Growing Role of the Automobile Industry in the Southern Legislative Conference Economies. This 148-page report carried out an in-depth review of the automobile industry in the South. A copy of the report may be obtained at www.slcatlanta.org. In addition, in the spring 2006 issue of Global Corporate Xpansion, the SLC published an article entitled “The Drive to Move South, Continues,” further expanding on the growing importance of the automobile industry in the South.

OEMs Appreciate Mississippi's Momentum

In February, Nissan North America, Inc. produced its 1 millionth vehicle at its plant in Canton, located outside of Jackson. It marked the first time Nissan had accomplished this number anywhere in the world in less than four years. The Canton plant officially opened in May 2003.

Even more impressive is that when the plant opened it aimed to build five models, four of which were brand new vehicles that had never been built.

State officials couldn't officially verify the information; however, they couldn't find another plant that has accomplished those numbers in the United States, says Gray Swoope, executive director, Mississippi Development Authority. “This is a significant event that ties into the state and its ability to deliver,” he says.

The delivery system was also of interest to Toyota Motor Manufacturing, Mississippi, Inc., which announced in February that it would build its eighth North American assembly plant near Tupelo. The company, which will manufacture Highlanders will make an $830 million investment to build 150,000 vehicles annually, and expects to begin operations in 2009.

Swoope says a key driver for the project includes the ability of the state to partner with Toyota to develop a training system in with higher education and post-secondary education to support the workforce for the long term. Another advantage is that within a 60-mile radius of this site are 14 communities with more than 6,000 acres of available industrial parks, which create siting opportunities for suppliers.

For complete details in regard to the auto industry in Mississippi, visit www.mississippi.org.