EconSouth (First Quarter 2005)

Southeast’s Auto Industry
Climbs Into the Driver’s Seat

The face of the U.S. vehicle assembly industry has changed dramatically in the past 20 years. As the number of domestically owned production facilities in the United States declines, foreign plants are expanding. The Southeast, where labor and land costs are attractive, draws many of the new assembly facilities.

General Motors, Ford, and Chrysler were responsible for almost all of the nation’s auto production and industry employment until the 1970s. But since then much of the industry’s employment growth has come from foreign makers, whose U.S. facilities are known in the industry as “transplants.”

Auto production in the Southeast continues to expand. The nine assembly plants and numerous associated suppliers located in the region continue to add to payrolls as auto manufacturers establish new production in the Southeast or increase production at existing facilities. This trend has been well publicized and is the result of several factors, including the desire by foreign producers to locate assembly close to U.S. markets, incentives from state and local governments, lower labor costs, and favorable weather conditions. As long as these factors remain in place, Southeastern auto production is likely to remain in the fast lane.

Foreign makers spur auto production and employment in the Southeast
The U.S. auto industry, including companies in automobile and light truck production and parts manufacturing, directly employed close to 1 million workers in 2004, according to the U.S. Bureau of Labor Statistics, with about one-fourth of them in Michigan. Industry employment nationwide has been declining from its peak of around 1.3 million workers in 1999. Automobile and light truck assembly plants in the United States employed more than 250,000 workers in 2004, with approximately 700,000 more working at parts suppliers.

In the Southeast, auto assembly facilities directly employ more than 32,000 people and create numerous other jobs at parts suppliers located near auto plants. Auto assembly plants also create many transportation jobs related to the delivery of vehicles and parts as well as numerous production-related service jobs.

The Big Three automakers—General Motors, Ford, and Chrysler—were responsible for almost all of the nation’s auto production and industry employment until the 1970s. But since then much of the industry’s employment growth has come from foreign makers, whose U.S. facilities are known in the industry as “transplants.” Transplants’ U.S. facilities now produce about two-thirds of all the vehicles foreign automakers sell in this country, and as of 2004, transplants accounted for more than half of the region’s auto production and employment and 15 percent of national production.

Much of the recent job creation in the automotive sector has come from transplants such as Honda, Nissan, Toyota, and Hyundai. That growth is evident in the Southeast as these companies have established new plants and added capacity in the region over the past 20 years. Even as auto industry employment has declined or stagnated in most areas of the nation, some Southeastern transplants have added thousands of jobs. Most recently, in fact, Nissan, Honda, and Hyundai announced new plants or expansions in Alabama, Mississippi, and Tennessee that will add an estimated 3,000 new jobs to the region’s payrolls this year.

Parts of the Auto Story

With about 700,000 workers—or 7.8 percent of total U.S. durable goods manufacturing employment—the motor vehicle parts manufacturing industry is an important component of the national and Southeastern economies. In the Southeast, hosts of part manufacturers have followed new auto assembly plants to the region. Suppliers have typically located close to or have easy transportation access to assemblers, enabling them to fulfill just-in-time inventory situations and reduce shipping costs.

The latest figures from the Bureau of Labor Statistics show that motor vehicle parts manufacturers employ 36,400 workers in Tennessee and about 7,400 in Mississippi. In 2004 alone, new and expanding investment by suppliers in Alabama totaled $779 million, creating 3,400 new jobs in the state.

While many of the vendors supplying parts to the large assemblers are relatively small, others, such as the recently announced Georgia parts supplier for Honda’s Lincoln, Ala., plant, are large employers and have a major economic impact on local communities. Some suppliers use sophisticated equipment similar to that used by auto assemblers to produce complete modules that save time at the final assembly stage. Other suppliers concentrate on just a few parts and use a far less involved manufacturing model.

The environment for suppliers has become more competitive lately, especially with the escalation of raw materials prices. Tier one suppliers—those that deliver directly to assemblers—have come under pressure from assemblers to hold prices down. And tier two suppliers—those that supply parts and materials mostly to tier one suppliers—have been forced to cut into already thin margins to secure business.

Competition from suppliers in low-wage countries also continues to put pressure on domestic producers. For these reasons, many automotive analysts anticipate fewer suppliers in the future. The outlook for the auto parts industry as a whole, however, is expected to be favorable for at least the near term, according to a study by the U.S. Department of Commerce. The introduction of new, regionally assembled automobiles is expected to bolster the parts industry. This trend may be especially true in the Southeast, where new vehicle production capacity continues to climb.

Productivity on the rise
Nationally, productivity standards in the auto industry are steadily improving as technological advances have allowed more production with the same or fewer workers. On this basis, Southeastern plants generally outperform the national average of 47.7 vehicles per employee per year. Leading the region in 2004 were the Ford plant in Hapeville, Ga., Nissan’s Smyrna, Tenn., plant, and the General Motors plant in Shreveport, La., with vehicle production ratios per worker of 102, 73, and 72, respectively.

Looking at productivity in terms of the time required to produce a vehicle, the 2004 Harbour Report gave Nissan’s Smyrna, Tenn., plant its highest productivity ranking in 2004. The Smyrna plant is the most productive assembly facility in North America, needing only 15.3 hours to produce an Altima, according to the report.

High levels of productivity in the auto industry have contributed to hourly wages for auto production workers that are 40 percent higher on average than those for other U.S. manufacturing jobs. For instance, in 2004, the average U.S. auto production worker earned $21.67 per hour versus an average $16.14 per hour for all manufacturing workers.

High productivity levels and responsiveness to market demands characterize successful plants. Nissan’s regional plants in Smyrna and Canton, Miss., are prime examples of these traits. Dan Gaudette, Nissan’s senior vice president for North American manufacturing operations and a member of the Atlanta Fed’s Nashville Branch board of directors, said that “Nissan has accomplished something that no other company has done, launching a brand-new facility [Canton] and adding four new products within eight months of each other.”

For many years, domestic assembly plants have also earned a reputation both for efficiency and meaningful economic contributions to their communities. For example, Ford’s Hapeville, Ga., plant, the Southeast’s oldest still in operation, has contributed significantly to the expansion of Atlanta’s southern metro area over many years, and the new Nissan plant in Canton, Miss., has brought new infrastructure and greater prosperity to the city. However, while auto assembly plants boost their host economies, strong competition within the industry always puts pressure on the plants to be even more efficient and to adjust production according to market demand. Especially among the Big Three producers, this drive for efficiency has resulted in production cutbacks as aggressive introduction of new models from Asian and European manufacturers is increasingly challenging most of the domestic producers’ best-selling models.

What attracts auto plants to the Southeast?
Since the early 1980s, fierce competition for growing segments of the nation’s vehicle market has driven foreign plants to migrate production to the Southeastern United States. Lowering labor costs and moving production closer to markets are part of what is behind this migration. But state and local government incentives—tax abatements, land subsidies, employee training, and infrastructure improvements, to name a few—have also attracted overseas producers to the region. Over time, foreign automakers have attained successful market penetrations, first in compact car segments and more recently in other vehicle makes, including full-sized light trucks and SUVs.

The competition for market share and the addition of more production capacity by foreign transplants should bode well for consumers. Measured by the consumer price index, new vehicle prices have declined since the mid-1990s. In 2004, new car buyers actually enjoyed essentially unchanged prices for upgraded models. Obviously, in this environment cost control and product demand will continue to be dominant factors affecting the life expectancy of production facilities.

Diverse production among the region’s plants

The 10 Leading Auto Models Produced in the Southeast in 2004
Note: Numbers above the bars indicate the sales volume growth from 2003 to 2004.
Source: Manufacturers’ data
Changes in the vehicle market dictate expansions and contractions among auto factories. One significant trend is the shift in production from cars to trucks, including SUVs, minivans, and pickup trucks, by both domestic and foreign producers. Cars currently account for 47 percent of all vehicle registrations compared with 70 percent in 1990. These production changes are particularly notable among high-priced models in both car and truck segments. The successful introduction of crossover vehicles, a fast-selling new breed with characteristics of both cars and trucks, exemplifies the shifting tastes of the market. Crossover models assembled in the Southeast are the Honda Pilot, the Saturn Vue, and the Chevrolet Uplander.

An analysis of sales and production performance reveals two significant trends: first, the growing importance of the light truck segment, which reached 55 percent of total sales in 2004, and second, the increasing share of foreign brands, which grabbed 30 percent of the nation’s vehicle market in 2004. Two car models illustrate divergent sales paths of domestic versus transplant vehicles: In 2004, the Nissan Altima sedan posted double-digit sales gains while Ford Taurus sales dropped markedly (see the chart). Sales of the Taurus would have declined even more if not for support provided by sales to the rental fleet market.

Producers who can do a better job of matching shifting consumer demand and plant deliveries are best positioned to maintain production schedules, so it’s no coincidence that Nissan’s Smyrna and Canton plants, which produce four vehicle platforms each, were most successful in adjusting output according to changes in vehicle demand. Four of the 10 leading models produced in the Southeast were Nissans, with most posting increased sales during 2004. Like Nissan, most auto manufacturers now strive to have production accommodate changes in demand.

An auto production windfall for the Southeast
The Southeast’s nine assembly plants and numerous associated suppliers represent a major and important source of manufacturing employment growth when other traditional manufacturers, most notably textiles and apparel, shed jobs in the Southeast. The conditions that lured automakers southward—cheap land and labor and aggressive courting by state and local governments, among others—will continue to hold significant appeal for manufacturers. Auto production is likely to continue to expand in the Southeast as long as these factors remain in place, ensuring a bright future for regional employment in the industry.

This article was written by Gustavo Uceda, an economic analyst in the Atlanta Fed’s research department.


Notable Dates in Southeastern Auto Plant History




Ford opens its Hapeville, Ga., plant, the region’s oldest active plant. Later that year, General Motors begins production at its Doraville, Ga., plant. General Motors opens its Shreveport, La., plant. Nissan’s Smyrna, Tenn., plant — the region’s first foreign-owned plant as well as its largest — opens.  





General Motors opens the Southeast’s second-largest plant, its Saturn facility, in Spring Hill, Tenn. A second transplant — DaimlerChrysler-Mercedes’ factory — opens in Vance, Ala. Honda opens its Lincoln, Ala., plant. Nissan’s facility in Canton, Miss., begins production. The Southeast’s newest auto production facility — Hyundai’s Montgomery, Ala., plant — begins production.
A Survey of Southeastern Auto Plants

Ford Motor Co.—Hapeville, Ga. Ford credits the efficiency of the Hapeville plant to its workers. Today, the plant—which opened in 1947 and is the region’s oldest active plant—employs 2,300 people, who produced 235,542 vehicles in 2004. This total translates into the highest production per employee of all Southeastern auto plants. In the last two years, conflicting rumors have abounded about the plant’s future. Many retail buyers have shifted to other vehicle segments. Moreover, in the wake of the Sept. 11 terrorist attacks and subsequent decline in travel and tourism, demand for Taurus and Sable models softened as fleet sales dropped. More recently, fleet sales have improved, and the Taurus is the second most produced model in the Southeast. Taurus’s high-volume markets have created a sense of stability for the plant’s workers for now. Recent news about the aging plant has Ford considering spending $750 million to retool the plant to build a Lincoln sedan and a crossover model to replace the Ford Taurus and Mercury Sable now produced there.

General Motors—Doraville, Ga. Last year the plant, with a payroll of 3,600 workers, began assembly of new lines of crossover trucks and minivans. Production in the plant—opened in 1947, just after Ford’s Hapeville facility—has declined recently, with production levels down from about 239,000 in 2002 to 160,000 in 2004. However, GM spent about $150 million at the plant to update its 2005 line, which now includes existing crossover models—the Buick Terraza and the Chevrolet Uplander—along with newly redesigned crossovers, the Pontiac Montana SV6 and the Saturn Relay. Thanks to strong demand, Doraville’s production levels in January 2005 are far above year-earlier levels and are forecast to reach 200,000 for the year.

General Motors—Shreveport, La. The Shreveport plant, which has specialized in GM trucks since its opening in 1981, assembles the Colorado and Canyon trucks that replaced the S-10 and GMC Sonoma trucks in late 2003. With a combined production of 217,000 trucks, the plant has been growing steadily and now directly accounts for about 3,000 factory jobs. In 2004, the Colorado was the fourth most popular model produced in the Southeast, with sales growth expected to maintain GM’s leadership in the profitable truck segment. Last year GM announced a $250 million retooling investment at the plant for the production of the Hummer H3 SUV, which debuts this summer.

Nissan—Smyrna, Tenn. Operating since 1983, the first foreign transplant in the Southeast is the largest and, by some measures, the most productive assembly plant in the region. The plant assembled over 489,000 vehicles and employed 6,700 workers in 2004. The Smyrna facility now produces two popular sedans, the Altima and the Maxima, and three trucks/SUVs: the Pathfinder (added last year), the Frontier, and the Xterra. Smyrna’s outlook is bright, with strong demand for the vehicles produced there driving production gains. The plant’s production in 2005 could top 550,000 vehicles.

General Motors-Saturn—Spring Hill, Tenn. Designed to compete with foreign manufacturers, the Spring Hill plant opened in 1990. Currently, the plant ships about 211,000 vehicles yearly, down more than 11 percent from 2003 levels. The plant employs about 5,900 workers and is the second-largest plant in the Southeast, after Nissan’s Smyrna facility. The Ion compact sedan last year had a disappointing performance while the Vue SUV has done better with a new, affordable crossover concept. Spring Hill’s lower-than-expected sales in 2004 resulted in temporary halts to production to allow the market to absorb excess inventories. A recently announced labor agreement between GM and plant workers at Spring Hill will allow the company greater flexibility to trim work schedules according to market needs.

DaimlerChrysler-Mercedes—Vance, Ala. A successful plant that has assembled vehicles for the United States and global markets since 1997, the Vance facility—producing the M-class SUV sold in 135 countries—contributed nearly 1,900 direct jobs, with plans to expand the workforce to 4,000 by 2006. As U.S. and world demand softened in 2004, production levels were down 10 percent from 2003. The plant produced 73,600 vehicles in 2004, and 35 percent of those were exported. Export shipments in 2004 were lower than in 2003, but new upgrades brighten the production outlook. The plant is currently undergoing a $600 million expansion to introduce Mercedes’ redesigned M-class SUV and the Grand Sports Tourer, a crossover vehicle designed to meet growing demand for this segment.

Honda—Lincoln, Ala. Since late 2001, the Honda plant has assembled the Odyssey minivan. Last year, with the introduction of the Pilot crossover model, the plant’s combined production reached a record 209,165 units. Last year, the Lincoln facility employed about 3,300 workers. Currently, with the Pilot production line fully implemented, the job count in late 2005 could reach 4,400. The competitive minivan market made it difficult for Odyssey sales in 2004 to sustain 2003’s levels. In 2004, sales growth was nearly flat.

Nissan—Canton, Miss. Typically, new assembly plants in the United States produce two vehicle lines, but the $1.4 billion Canton plant, opened in 2003, has an ambitious production schedule that includes five lines with a total annual production capacity of 250,000 vehicles. The facility’s output for 2005 includes the Nissan Altima, the Quest minivan, the Armada SUV, the Titan full-sized truck, and the Infinity QX56 full-sized SUV. Canton’s total employment in 2004 was 4,200 workers.

Hyundai—Montgomery, Ala. The region’s newest plant is expected to start production in May 2005 with the Sonata and Santa Fe SUV models. Initially the plant capacity was designed to produce 93,000 vehicles, but the company recently ramped up planned capacity to 150,000. At present, the facility has filled 1,200 of the 2,000 planned jobs. By summer 2005, production will be up to full speed. The outlook is bright for the Sonata and Santa Fe: Last year, sales of the entry-level midsized sedan and SUV models topped 107,200 (up 30 percent from 2003) and 111,500 (up 10 percent from 2003), respectively.


Return to Index