If there’s a downturn coming for the U.S. market next year as some predict, it doesn’t seem to worry the power brokers of Georgia.
The Southeastern U.S. state has been drawing significant automotive investment in recent years, and a top economic-development official tells WardsAuto he expects that trend to continue, even if market demand for new vehicles begins to soften.
“We see Georgia growing even in a zero-sum game,” says Tom Croteau, deputy commissioner-Global Commerce, who bases his optimism on his department’s successful recruiting record and “the (other) factors that have drawn companies like Mercedes and Porsche” to the state.
“I think there are other potential (corporate) headquarters out there in New Jersey, Washington, Philadelphia that are going to have some decisions to make as to whether those are the right places for talent, culture and cost in the future,” he says. “So I still think there’s a big upswing in growth for Georgia.”
Although it whiffed on a couple of high-profile projects in recent months, the state still can brag about some big plums in the automotive sector, including Kia’s maxed-out assembly plant in West Point, Porsche’s growing headquarters in the shadow of Atlanta’s Hartsfield-Jackson International Airport and a relocating Mercedes, in the midst of a move from New Jersey to suburban Sandy Springs that is expected to be completed next year.
All three automakers are doing well in the current hot U.S. market, Croteau notes. “So that’s big news for us.”
But recently the state has been focused on luring automotive suppliers, which the official says are finding Georgia well-located to serve a number of Southern vehicle-assembly plants in surrounding states.
With Mercedes now building both cars and CUVs at its Vance, AL, assembly plant, BMW slated to add X7 CUV production in South Carolina in 2018 and the potential for additional production at Kia, Croteau believes more suppliers are going to want to add capacity in the region no matter how well the U.S. auto industry may be doing overall.
“Even in an industry that isn’t growing, we still believe we’ll be able to recruit suppliers from other places,” he says. “And I think we’re seeing that.”
Location, Union Opposition Draw for Suppliers
There are 250 auto-related companies operating in the state, employing more than 18,000 people. That includes about 45 Kia suppliers with 55 facilities overall. Among recent automotive investments are a new $65 million engine-components operation for German supplier Linde + Wiemann and a new $3 million wheel plant for U.S.-based ESE Carbon, both announced in January.
“Suppliers don’t get the splash that some of these OEMs get, but for us it’s been an absolute boom in the last year and a half,” Croteau says.
Expansion at Volkswagen’s Chattanooga, TN, plant, where production of the CrossBlue midsize CUV will be added to the mix in 2017 and where a drive by the UAW to organize the workforce is under way, also has suppliers looking to Georgia for greenfield locations, the state official contends.
“Chattanooga has some challenges in terms of how much land they have left for industrial users, so we’re having more of these suppliers taking a look at land in Georgia,” Croteau says. “But I think also we’ve seen a couple of suppliers that have expressed concern about being too close to the union situation (and) have located in Georgia, where they’re still (only) an hour or hour-and-a-half away, but feel like they’re more removed from the situation.
“We have seen more (interest from VW suppliers) in this past year than we have in the entire time since VW located (in Tennessee),” he adds. “We’ve located a couple of them, (and) we have a couple more we’re working with right now.”
Conversely, Croteau says he has seen no union activity around the Kia plant to date.
“And I think they would have a really tough time in Georgia,” he says of the UAW. “I feel like the auto industry and our (local automotive manufacturers’ association) is pretty well aligned in maintaining a non-union environment in Georgia.”
A recent loss for the state came last May when Volvo Car picked South Carolina as the site of a new 100,000-unit assembly plant. But Georgia still could benefit from the Swedish automaker’s return to North American production in 2018 as suppliers pulled along with the program look for new-capacity locales with robust labor pools to tap.
“I think we’re going to see some (jobs) saturation in neighboring states that are going to push opportunities to Georgia,” Croteau says. “To put it in perspective, Atlanta’s population alone is as big as South Carolina’s entire state.
“Even though we didn’t win the Volvo plant, I think we’ll have a lot of opportunity with (its) suppliers.”
Another miss came in August when Jaguar Land Rover chose Slovakia over Georgia, South Carolina and Mexico for a new $1.3 billion assembly plant set to open in 2018.
“We were a little bit heartbroken when they said they were moving away from doing a plant in the U.S. and toward either Eastern Europe or Mexico,” Croteau says. “But they also said they really hoped to come back and revisit the opportunity. And they really believe it’s going to happen one day.”
Even with the recent loss to Slovakia, it’s Mexico that continues to be Georgia’s biggest competitor for new automotive investment. A WardsAuto forecast calls for Mexico’s light-vehicle capacity to soar 40% by 2020 to 5.1 million vehicles annually, more than double expected levels in Canada and 43% of projected U.S. capacity for the end of the decade.
Lower wages are one factor, but a bigger concern for Southern states is Mexico’s trade advantage.
Mexico has free-trade agreements with Europe, South America and Asia-Pacific, while the U.S. remains locked in negotiations for pacts with Europe and Asia-Pacific and has far less sweeping deals in South America than Mexico enjoys through its membership in the Free Trade Area of the Americas pact.
“That’s one of the things Jaguar Land Rover (pointed out) to us,” Croteau says, citing the automaker’s calculations it would cost $2,700-$3,500 more per unit to export a vehicle to Europe from the U.S. than Mexico.
“Some people talk about the cost of labor, but I think when you talk about that kind of cost per vehicle, that is a driving factor,” he says, adding the state has made known its stance on free trade in Washington. “These (investments) are going to Mexico for a reason, and we’re losing out on opportunities.”
Still, Croteau doesn’t rule out another vehicle plant eventually coming to Georgia.
“But first we’d like to see our own grow,” he says, pointing to the possibility of future expansion at Kia, which is one of the automakers adding capacity in Mexico. “We continue to have dialog with them and hope that’s in our future. There’s always room for Kia.”
