Automotive Jobs Rev Economy in Southeast
But will labor-cost advantage last?
WELCOME to the new land of auto opportunity - the Southeast - where labor costs are low, taxes are even lower, and organized labor unions are scarce.
Over the past decade, auto assembly plants have been migrating here one after the other, and parts manufacturers have been following in their wake.
Ogihara America Corp., for example, a sheet-metal stamper in Howell, Mich., is spending $70 million to build an operation in Birmingham, Ala., which will supply the nearby Mercedes-Benz plant with doors, hoods, and fenders. Result: 130 new jobs.
"We see an increasing opportunity for suppliers like us to be able to do business with potential customers in the South," says Henry Soneoka, vice president of Ogihara America.
Ogihara is not alone. In recent months, several other auto-parts manufacturers announced intentions to build plants in Alabama, and more continue to flock to Tennessee, Georgia, and South Carolina. Meanwhile, several older plants have spent millions of dollars this year to expand or retool, including General Motors Corp. and Ford Motor Company outside of Atlanta.
"The auto industry has become one of the most dominant industries within the Southeastern economy," says Matthew Murray, associate professor of economics at the University of Tennessee, Knoxville. "We've really generated a big jump in that sector's share of action in the region's economy."
Prior to 1980, the Southeast was a small contributor to the nation's production of cars. In just over a decade, seven automobile and truck assembly plants have located to southern states - three in Tennessee, two in Kentucky, and two in South Carolina. Today, the Southeast is the second-largest auto-producing region in the country.
When the Mercedes plant in Vance, Ala., opens in 1997, the region will contain 20 percent of the nation's total auto-producing capacity - nearly 2.5 million vehicles a year, Mr. Murray says. In contrast, Michigan alone produced 30 percent of the nation's cars in 1994.
Between 1981 and 1990, the Midwest lost about 100,000 jobs in the traditional auto-producing states - Michigan, Ohio, Indiana, Illinois, and Wisconsin. Meanwhile, the number of auto jobs in the Southeast rose from 35,000 to 49,000.
Is Detroit in danger?
"It's not an easy call," says Thomas Cunningham, senior economist at the Federal Reserve Bank of Atlanta. "The concentration of assembly and components manufacturing in Michigan is so high that it's going to take a long time before you can say, even at current rates of migration, that Detroit is in any way threatened by the South," he says. "But that doesn't change the fact that this is a relatively good thing for the South, and it's going to propel us forward for quite some time."
Analysts view the emergence of the industry here as a boon because it's created thousands of jobs, provided relatively high-wage positions in a region known for low wages, and diversified the area's economy. They expect the growth to continue, but at a slower pace.
"It's certainly been one of the industries that has helped the region outperform the nation during the '90s," says Mark Vitner, an economist at First Union National Bank in Charlotte, N.C.
Another appeal for carmakers: A growing population along the Eastern Seaboard and the Southern states has positioned the Southeast near a majority of the car-buying population. And that means cheaper transportation costs for manufacturers.
But this year car sales have slowed, which is prompting some economists to note there is a downside in having a cyclical industry in their backyard. Still others voice concerns about the long-term impact. "In 20 years, the whole region bears a risk of losing this industry," Murray says. "Wage rates will become competitive and will essentially be the same anywhere in the country, which will eliminate any cost advantages here. And the new kind of auto that may be developed may lead to the obsolescence of much of the capacity we have now."