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

EconSouth, Spring, 2005 by Gustavo Uceda

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 (see "Parts of the auto story"). 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 (see "A survey of Southeastern auto plants").

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 braid-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 mid 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.