How foreign car factories have transformed the American South.

Commentary about business and finance.
Dec. 13 2008 6:51 PM

Big Three, Meet the "Little Eight"

How foreign car factories have transformed the American South.

Toyota Motor Manufacturing plant in Georgetown, Kentucky. Click image to expand.
A Toyota Camry Hybrid on the assembly line

The central Kentucky town of Georgetown, just north of Lexington, used to be known for the state's two main exports: bourbon and horses. Legend holds that in 1789, somewhere nearby, Elijah Craig, a Baptist minister, distilled the first batch of bourbon in charred oak casks. Thoroughbreds graze and trot across fenced fields of trim bluegrass on the horse farms that ring much of the city. But in the past 20 years, a different type of horsepower—the kind generated by Camrys, Avalons, and Solaras—has transformed Georgetown from a quiet country town into a booming suburb and export engine. In 1986, Toyota—lured in part by nearly $150 million in tax breaks and other incentives—built a massive manufacturing plant here.

And in the years since, the bucolic landscape has been transformed. The 1,300-acre plant in which Toyota has invested $5.3 billion produces a car roughly every minute. Georgetown's population has doubled. In fields where farmers once grew tobacco and raised cattle, McMansions, apartment complexes, and condominiums have sprouted. A 150,000-square-foot upscale retail center is rising near the Toyota plant, the better to serve its 7,000 employees. "There is no doubt the state's investment in Toyota has repaid itself many times over," says state Sen. Damon Thayer, a Republican who represents Georgetown in the Kentucky General Assembly.

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To be sure, the Georgetown plant isn't immune from the problems that have brought America's domestic manufacturers in Detroit to the brink of disaster. It recently furloughed 250 temporary employees and has throttled back production. But Brian Howard, 42, a team leader in painting operations and a 20-year veteran of the plant, is pleased with the way things are going. He enjoys high wages and cheap health insurance—$74 per month for his family. "They've told us for years that they've planned for a rainy day," he said. "Well, it's here and we're still doing well compared to the Big Three."

Time was, the Big Three were the U.S. auto industry. No longer. Over the past two decades, enticed by cheap labor and massive incentives, a second auto industry has emerged: nonunion, Southern-based, and foreign-owned. Large plants, with names of Asian and European carmakers emblazoned upon them, now dot the Southern landscape. By moving aggressively into Kentucky, Tennessee, Alabama, Mississippi, South Carolina, Georgia, and Texas, foreign manufacturers—call them the "Little Eight"—have transformed the economic geography of the nation's auto industry and the political debate surrounding its future.

To hear the rhetoric wafting down from Capitol Hill of late, you'd think that Toyota, Hyundai, BMW, and the rest are as all-American as Mom and apple pie. And in many ways, they now are. Sen. Mitch McConnell of Kentucky made an impassioned plea on the Senate floor for his colleagues to oppose the $15 billion aid package the House of Representatives had approved for General Motors, Ford, and Chrysler. "Labor costs need to be brought on par with companies like Nissan, Toyota, and Honda—not tomorrow, but immediately," he said. By the weekend, McConnell and fellow anti-bailout Republicans like Richard Shelby of Alabama and Bob Corker of Tennessee had stopped the bailout bill in the Senate.

The Southerners seem to have chosen an especially precipitous time to pick their fight with the Detroit Yankees: Without the money, General Motors and Chrysler have warned that they might be forced to file for bankruptcy protection. Harley Shaiken, a labor economist at the University of California-Berkeley, says a Detroit meltdown, on the eve of Christmas and in the midst of the worst job market in modern memory, "would be a devastating anti-stimulus package."

The anti-bailout lawmakers are all Republicans possessed of a deep-seated antipathy to organized labor and angry at the way the government has bungled the financial bailout. But they and many of their counterparts in the Senate have become experts on the labor practices of foreign manufacturers, because they've seen them up close. The tussle over the bailout has evinced what at first blush may seem a new kind of provincialism that pits Democrats and a few Republicans (like Sen. George Voinovich of Ohio) from heavy union and Big Three states against Republicans from right-to-work states in the old Confederacy. While McConnell & Co. oppose federal subsidies for the Big Three at the federal level, the states from which they hail have generously extended billions of dollars in subsidies to foreign automakers.

But there's a deeper cleavage at work here. Today's Southern solons have watched their local economies blossom thanks to a younger, more-vibrant auto industry unencumbered by the Big Three's legacy costs and union work rules—a sort of anti-Detroit that has the flexibility and ability to turn profits by making the types of cars that Americans actually want to buy.

Of course, the foreign companies are confronting the same difficult market situation as Detroit. Car sales, hammered by a lack of credit and low consumer confidence, are down across the board this year. In November, sales of Toyotas were off 34 percent; today, a financial planner's billboard in Smyrna, Tenn., seeks the business of Nissan employees who are taking the company's buyout offer of up to $125,000. In San Antonio, the Toyota Tundra plant lay idle for three months this fall, though Toyota hasn't laid off anyone. Instead, according to Richard Perez, president and CEO of the Greater San Antonio Chamber of Commerce, Toyota offered the city "a whole bunch of folks who need to get busy." (San Antonio put them to work on beautification projects.) Of course, Toyota has resources to act in a more paternalistic manner—in part because the parent companies aren't saddled with the burdens of providing health care and retirement for workers in home markets.

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