Big Three, Meet the "Little Eight"How foreign car factories have transformed the American South.
Posted Saturday, Dec. 13, 2008, at 6:51 PM ET
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StumbleUponDespite the downturn, the foreign automakers—and the states in which they operate—are much better situated than Detroit. At a time when the South's core industries, like textiles and apparel, were going offshore, foreign automakers grew to become crucial contributors to the region's economy. Through 2007, Toyota had invested more than $17 billion in 10 U.S. production facilities, which collectively employ more than 36,000 workers. Alabama, which didn't make a single car in 1995, last year produced 800,000, making it the fifth-largest auto-producing state. Tennessee just landed a $1 billion commitment from Volkswagen to set up a huge new plant in Chattanooga. South Carolina's Upstate section has been remade from a faded textile territory into a thriving 21st-century industrial powerhouse since the arrival of BMW in the 1990s. (The German automaker produces the X5 and X6 crossover coupes in the state.) "BMW offers the best manufacturing jobs in the region," says Republican Rep. Bob Inglis. "They're just a godsend for Upstate South Carolina." One measure of the love Inglis' constituents feel for BMW: On the Greenville Convention and Visitors Bureau Web site, the BMW plant has joined Shoeless Joe Jackson Memorial Park as an attraction.
The arrival of these car companies has had a huge ripple effect. "Every job in auto production supports five other jobs in the economy in steel, tires, rubber, programmers, and auto dealers," says Robert Scott, senior international economist at the Washington, D.C.-based Economic Policy Institute. Toyota's Kentucky operations support 28,000 jobs in the state. In 2007, according to the Association of International Automobile Manufacturers, foreign automakers employed 92,700 workers directly and 574,500 indirectly, accounting for 33 percent of U.S. auto production. By contrast, the Big Three employ about 240,000 workers.
The foreign automakers first came to these shores in the 1980s. Many wanted a foothold in the world's largest consumer market. But in a period when there was rising hostility to imported cars—it wasn't uncommon to see Japanese-made cars destroyed for sport in Michigan in the 1980s—establishing U.S.-based manufacturing plants was a way for Toyota and its peers to defuse international trade tensions, insulate themselves from the swings in the current market, and avoid the impact of any tariffs. And the states in the Southeast had plenty to offer—large tracts of undeveloped land with road, rail, air, and sea access; fewer snow days; and federally subsidized power from the Tennessee Valley Authority.
Above all, these states had longstanding cultures that made it difficult for unions to organize. "When the manufacturers were deciding where to open plants, they chose right-to-work states because they wouldn't have to use union labor," says U.S. Sen. Johnny Isakson of Georgia. Indeed, none of the major auto-assembly plants in the South is unionized. Like so many politicians whose states have benefited from the kindness of these strangers, Isakson now sees the world through the eyes of his new constituents. "Foreign automakers have been operating at gas prices being four, five, six dollars a gallon for years," he says. "The motivation to build fuel-efficient cars has really been around for more than two decades. But the U.S. manufacturers never supported that." (It's worth noting, however, that the senator drives a Ford Escape hybrid.) Many of the region's political leaders are now conversant with such topics as German engineering and Japanese models of continuous improvement, and they can speak chapter and verse on how these new plants are designed with flexibility—i.e., they can adjust production of models depending on consumer tastes and market conditions, whereas Detroit's plants, by and large, can't be retooled as easily to produce different models.
Locating production in areas with no history of car manufacturing was asking foreign companies to take a huge—and expensive—leap of faith. And so, to close the deal, the states began to offer huge financial incentives. In the early 1990s, competition escalated into a new war between the states—only this time the weapons were tax abatements, worker-training grants, and promises to build roads.
Alabama, for one, has forked over nearly $1 billion over the past decade and a half on such incentives. (Much of that sum has been spent on worker training.) But in return Alabama has attracted $7 billion of investment for automakers and suppliers. In the early '90s, the state was starving for investment and high-paying jobs, and so it pulled out all the stops to attract Mercedes-Benz, offering a $253 million incentive package in exchange for a plant that would employ about 1,500 people. When the plant opened in 1993 in the town of Vance, halfway between Tuscaloosa and Birmingham, 70,000 applications were filed for the 1,500 jobs. Little did Mercedes know at the time, but it was kicking off an economic revolution that has rolled like the Crimson Tide to every corner of the state. Auto-parts suppliers followed Mercedes' lead—and so did Honda, Toyota, and Hyundai. "When Alabama first announced it was paying $169,000 per job to attract Mercedes-Benz, everyone felt they were nuts," says Andy Levine, president of DCI, a New York-based firm that specializes in economic-development marketing. "Fifteen years later, it's probably the smartest investment any state has ever made." Indeed, "last year, combined, all these companies supported a payroll of $5.2 billion," says Neal Wade, director of the Alabama Development Office.
And while the Big Three frequently exhibit an air of entitlement when dealing with the state and federal governments—remember the disastrous private-jet caravan when the CEOs came to cry poverty in Washington?—the foreign automakers have gone out of their way to ingratiate themselves with their new hosts. BMW has endowed professorships at Clemson University's new automotive-engineering program. And when Alabama and Louisiana were competing to attract German steel giant ThyssenKrupp, Mercedes-Benz U.S. CEO Bill Taylor flew to Germany on his own dime to make the successful case.
It's hard to overstate the economic impact that a new plant can have. Before Nissan arrived in Smyrna in 1983, it was a sleepy town of about 6,000. Today, many of Smyrna's 40,000 residents are engaged in production of the Nissan Altima, Xterra, and Pathfinder. "Life is more convenient now because of everything that has come here, and the income that people have made working at the plant has been great," says Bruce Coble, an Assembly of God pastor who moved to Smyrna after Nissan arrived. When we spoke to Coble last week, he was visiting Gold Street Automotive, a repair shop, where the motto is "As Close to Heaven as Your Car Can Get."
Newsweek's Daniel Stone, Catharine Skipp, Patrick Crowley, Leon Alligood, Frederick Burger, and Temma Ehrenfeld contributed to the story. A version of this article also appears in this week's issue of Newsweek.
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