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The Southern US Automotive Belt: Built To Last?
The Southern United States is flourishing as the new and growing region in automotive
manufacturing
By Jim Romeo
What do Tupelo, Mississippi , West Point Georgia and San Antonio Texas have in
common?
Two of these sites are slated as Toyota manufacturing facilities, and one is slated for
KIA. They represent a steady trend in automotive manufacturers to relocate their
facilities and operations to points away from the traditional Northern region.
“The growth in auto production over the last few years has been mostly with the new
domestic manufacturers (Asian and European OEMs). They have opted to locate their
plants in areas not tied historically with production for the Detroit-based OEMs based
on a number of factors, including a lower cost labor base in the more remote areas,”
says Mike Thomas, Managing Director Asia Operations and North America Plant
Transitions Lead for the BKK Corporation. “In their home countries these new
domestic OEMs have typically required their major suppliers to locate close to the

2. assembly plants, and it appears they have followed that practice as they have
established production in North America.”
An influx of manufacturers in an industry such as automobile manufacturing can
stimulate the local economy with a proliferation of supply chain vendors who add to
the new local economy by adding assembly plants and suppliers who are a great source
of economic stimulation. “We believe that at least seven new assembly plants will be
built in the NAFTA block over the next five years,” according to Jim Moore, Vice
President of Automotive, Aerospace and Industrial Sales with Ryder Systems.
Moore believes that this new construction is caused in part by overall market growth
and shifting of market share among current OEMs. According to Moore, NAFTA
countries sell about 20 million vehicles each year; GDP growth of 2.5% is 500,000
vehicles, which is roughly the capacity of two traditional assembly plants. He also
believes that market share is shifting with the legacy “Detroit 3” losing share with these
new manufacturers gaining share. “This helps explain the construction announced by
BMW, KIA, Hyundai, Honda and Toyota. So new domestics are constructing new
assembly plants while the Detroit 3 are mostly upgrading existing facilities,” he adds.
Within North America, there is undoubtedly a trend in the Southern United States and
other neighboring areas. New automobile manufacturing facilities have been steadily
cropping up all over the place. But, what exactly is driving this trend?
“Most of these plants are new plants started by foreign companies building production
capacity in the US,” says George Haley, Professor of Marketing at the University of
New Haven 's School of Business , and Director of the Center for International
Industry Competitiveness in New Haven, Connecticut. “They prefer Southern
locations because Southern states are not union shop states, tend to have a worker
population that views unions with greater suspicion than do many workers in the

3. North and the Pacific Coast states, and are more likely to provide substantial benefits
to companies locating there.
The Market for Labor
Auto workers have historically received high pay and benefits and most workers
belonged to a union. The availability of jobs is undoubtedly a strong underlying force
in where a plant is located as well as the incentives to be offered to attain those jobs.
“One of the keys for OEM’s moving to the area was avoiding unions with restrictive
work rules,” says Robert McTavish, a Regional Sales Manager, and Central Region for
Visiprise, a manufacturing consultant based in Georgia. “An example is Mercedes
Benz in Alabama which has only 2 job classifications compared to Ford or GM with
dozens. The states in the areas were very aggressive with tax incentives as well.
Combine this with the improved quality of life resulting from the climate and it is an
easy choice for the companies.”
The improved quality of life is a small price to pay for state governments who will
tailor that quality of life for the auto manufacturer if they bring the pulse of economic
vitality to their region: jobs.
“The state governments have recognized that automotive manufacturing jobs are a
significant engine for their state economies,” says Larry Marshall, Automotive Market
Development Manager, and Rockwell Automation in Milwaukee, Wisconsin. “Not only
are the direct hire assembly jobs high paying, but various studies have shown that for
every automotive assembly manufacturing job there are between 7 and 11 additional
jobs created. Many of these jobs also are high paying manufacturing jobs for the parts
suppliers’ communities that locate manufacturing facilities close to the final assembly
plants.”

4. Marshall also points out that the Southern United States suffered significant job losses
in the textile sector in the 1980's and has been aggressively pursuing replacement
industries through tax, land, and educational incentives to entice other industries to
locate in their states.
“With the level of income generated by automotive manufacturing jobs, and the
associated jobs multiplier, automotive assembly plants have been a key target for state
governments to pursue with significant competition between the states,” adds Marshall.
“These incentives obviously reduce the cost to manufacture in these states. And, of
course, labor costs are lower in states where the traditional automotive labor unions
have not been as successful in organizing. A recent study by the Center for Automotive
Research (CAR) showed an hourly compensation difference of $16.15 per hour
between Toyota's active hourly wages and the Detroit 3”
Location, Location, Location
An auto manufacturer's assembly and sub-assembly plants are influenced by various
other factors that include not only logistics but many other factors as well.
“When a brand owner's vehicle sales in a region of the world reach (or are projected to
reach) the level of an assembly plant's output, it will begin to make economic sense for
the manufacture to locate vehicle production capacity in the region to reduce
transportation costs associated with exporting,” says Larry Marshall. Marshall makes
it clear that there are many variables to be taken into consideration when making these
decisions, including the location of the suppliers for the vehicle, the location of the
engine and transmission manufacturing facilities and local costs (labor and benefits) to
manufacture, as well as local taxes and import and export tariffs and regulations.

5. Assembly plant suppliers should consider these factors, as well as Just-In-Time (JIT)
delivery requirements, when evaluating whether or not production capacity should be
located in close proximity to their customers. In addition, contends Marshall, auto
manufacturers must consider the ability to support multiple customer assembly plant
locations from one or more of their production facilities. In both instances, the brand
owner assemblers and suppliers need to consider how many skilled labor resources are
available in their area.
Just-In-Time and “In Sequence”
These more recent trends in automobile manufacturers and their respective locations
are a diversion from past history in the industry and are a result of changing customer
preferences coupled with other factors.
“Changing customer preferences are greatly influencing the product mix offered by
brand owners,” adds Larry Marshall. “There is a trend toward increasing the number
of products available with the result of lowering the production volumes for each of
these platforms. The brand owners are now producing vehicles with annual sales of
20,000 - 40,000 rather than the 200,000 - 400,000 levels of the past.”
Marshall also points out that this new environment affects suppliers who need to
coordinate the same material into the assembly plant, just-in-time and in sequence.
For example, there may be two separate suppliers of instrument panels for two
different vehicles being manufactured on the same assembly line. Since the flexible
manufacturing systems can 'churn out' the various platforms one after another, the
instrument panels must be brought in to the plant from the two different suppliers still
in final assembly sequence. As the number of platforms manufactured in the assembly
plant increases, the sequencing and coordination requirements for the suppliers
increases geometrically.

6. “As a result of this increased complexity for sequencing and coordination, major
component/subassembly manufactures are locating their production facilities in very
close proximity to the final assembly plants,” says Marshall. “When the supplier's lead
times for in-sequence build are being reduced to 2 - 4 hours, close proximity either
directly inside the plant, or connected by conveying systems will become more the
norm.”
Today’s Auto Supply Chain: Sophisticated and Global
Because our transportation infrastructure is changing and supply chains are becoming
more sophisticated, there are many components of an intermodal supply chain that will
greatly influence the success of auto manufacturers who have set up and will continue
to set up shop in the Southern United States.
International sourcing is more common given the robust economy of China and its
entrance into the supply chain of a large share of US manufacturers of all types. For
automobiles, the inbound and outbound supply chain and its coordination, tracking
and on-time delivery of orders could pose riskier problems than quality control
according to George Hamilton. For practical purposes, China has been a reliable
source of supply with a lower incidence of risk than you might expect, given its bad
record for quality control in other products such as food and toys and it must not be
overlooked as a resource.
“Looking forward, the important issue will be how to incorporate China based
suppliers into the logistical system,” says George Hamilton. “Present problems have
highlighted the issue of Chinese quality control problems, however there are many
more problems than just quality.”

7. But sourcing from China is dependent upon a logistical supply chain that includes
ocean freight and that depends on plants’ distance from ocean ports. “In my opinion
distance from ports is one of the key issues.,” adds McTavish. “With the Asian trend
the landed cost will fluctuate with fuel price and with the port distance factored in will
potentially determine who the supplier is.”
Ocean freight is only one component to an internationally sourced supply line. The
supply chain into and out of the subassembly and final assembly will, of course, be
dependent on rail and trucking.
“Certainly the hard components of rail and trucking access are as important as ever
when considering supply chains,” says Mike Thomas.
Rail is essential for outbound vehicles and access to two or more major rails systems at
a site is critical to having transportation alternatives,” says Jim Moore of Ryder
Systems. “Trucks will retain the vast majority of inbound to assembly movements due
to the critical timing of assembly part movement.”
Thomas explains that the while intermodalism is a definite factor in the success of any
new plant relocating to this newer belt of manufacturing, an often overlooked need is
that of information technology infrastructure in order to support today’s complex
intermodal systems.
Thomas poses the questions: What is the optimal software system needed to
continuously monitor the supply chain? What interfaces are required between this
software and the logistics providers? What are the hardware considerations for this
software, and is this hardware available in the area where a supply source is located (T1
and T2 lines)? Technology continues to be increasingly important to the successful
management of a supply chain for an assembly plant.
Today’s technology is making leaps and bounds changes in the way inventory flows
and is controlled. “Bar coding is another logistics influence that improved the supply

8. chain to an assembly plant, giving real-time visibility to the supply of critical
components,” adds Robert McTavish.
According to McTavish, the next three to five years real-time visibility will be
improved with the use of RFID (Radio Frequency Identification). This technology
eliminates errors due to direct contact or line of sight scanning requirements for bar
coding and improves tracking over an extended supply chain.
Thomas also points out that another “soft” area of influence and consideration is that
of disaster management and recovery planning. “Given that the supply chains have
grown longer (stretching offshore) and are more susceptible than ever to natural
disasters (hurricanes, typhoons) as well as accidents (ship collisions, rail disruptions), it
is essential that a recovery and/or management plan be in place to provide an
uninterrupted supply of components,” he adds. “ It is extremely costly for an assembly
plant to be impacted by a supply outage of a critical component even for just one hour.
The risk identified with this outage must be identified and managed.”
Overall, the new basin of automotive manufacturing means that economic stimulation
is shifting. As it does, regions will benefit while logistical pathways will need to
accommodate this growth.
The new automotive South is built to last. However, its corresponding supportive
infrastructure may need to expand to meet its demands. The U.S. transportation
infrastructure and says it is not keeping pace with the growth of rail and truck traffic,
says Jim Moore. He adds: “Our highway and rail network is essentially the same as
that of 1965 when our population was 200 million despite a 50% growth to 300 million
people.”

9. Jim Romeo is a freelance writer based in Chesapeake, Virginia.

10. Jim Romeo is a freelance writer based in Chesapeake, Virginia.