South Could Gain as Detroit Struggles

[question everything]

NOVEMBER 20, 2008

South Could Gain as Detroit Struggles
Foreign Auto Makers, Drawn to Region's Nonunion Labor, Are Poised to Reshape U.S. Car Industry
By PAULO PRADA and DAN FITZPATRICK
WSJ

As Detroit's auto makers seek a government bailout, the resilience of their foreign rivals could vault the South to the forefront of the U.S. car industry. Foreign makers have been lured to South Carolina, Alabama and other Southern states over the past decade by generous tax benefits and laws that make it easier to build a largely nonunion work force. That labor flexibility has emerged as a key advantage during the industry downturn, allowing foreign-owned plants to rapidly downshift in ways their unionized U.S. competitors cannot. Looser work rules are allowing German automaker BMW AG to lay off up to 733 employees at its Greer, S.C., plant by the end of the year. And Toyota Motor Corp said Wednesday it plans to let go at least 250 people at a Georgetown, Ky., factory in the first quarter of 2009. Such moves would be largely out of reach for the Big Three U.S. auto makers, which have been saddled with stricter labor rules as vehicle sales have plummeted. Union rules often guaranteed jobs for workers along with generous benefits and wages that surpass those of most other U.S. manufacturing sectors.

The foreign manufacturers -- which are also reaping benefits of advanced production lines and a more popular lineup of models -- are positioned to grab market share from domestic competitors when demand revives. "If the American car companies died, this is what would replace them," said Laurie Harbour-Felax, an auto industry consultant.

Michigan and Ohio are still dominant centers of U.S. vehicle making, producing more than 38% of all cars and trucks in 2007, but Southern states are making gains as foreign car makers add more plants in that part of the country. Four Southern states were responsible for 24% of U.S. production last year, according to Automotive News, a trade publication. Volkswagen AG, Toyota and Kia Motors Corp., which collectively will benefit from more than $1 billion in government incentives, are pushing through the downturn to complete new factories in Tennessee, Mississippi, and Georgia. Foreign makers, which currently operate eight plants in the South, have the firm support of many Southern legislators and governors, who have spent much of the past week giving high-profile denunciations of a Detroit bailout. They argue that buttressing ailing U.S. car companies would create unfair competition to foreign makers that have brought thousands of jobs and billions of dollars in investments to the region.

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By 2010, the average hourly labor cost, including both wages and benefits, should be virtually even. The Harbour Report, a closely watched scorecard of auto-plant productivity, estimates the per-vehicle labor cost for the Big Three in 2007 was no more than $260 above Toyota's. Many foreign companies also use temporary workers, who make less per hour than full-time employees and are easier to eliminate when a manufacturer cuts production. Temporary workers are supplied by outside contractors that pay their wages and supply benefits. Such workers are more plentiful in Southern right-to-work states, such as Tennessee, Alabama, Mississippi, Georgia and South Carolina. The South Carolina assembly-line workers scheduled to be let go this year by BMW are temporary and make $12 to $15 an hour, said Randy Hatcher, president of Augusta, Ga.-based Management Analysis and Utilization Inc., which supplied the workers. The 250 workers Toyota plans to let go at its Georgetown, Ky., plant also are temps.

Then there are the so-called legacy costs that Detroit plants bear. For each active worker the Big Three has on their payrolls, they are paying pensions for as many as three former workers and dependents -- costs that foreign car makers are largely free of in the U.S., according to the Center for Automotive Research, a not-for-profit research group in Ann Arbor, Mich. The foreign auto makers are also able to shift output rapidly in response to changes in consumer demand. At its factory in East Liberty, Ohio, Honda Motor Co. can tweak its assembly lines in a matter of minutes to switch to a different model. Such changes can take weeks at plants owned by U.S. makers.

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http://online.wsj.com/article/SB122714059184542693.html (subscription)

[Shardik]

1. I live in the SE and Toyota built a plant no more that three miles from my house.

It replaced over 200 acres of cotton fields.

[DJ13]

2. US divisions of Toyota and Honda use many of the same suppliers as GM uses

If the Big 3 go down, those suppliers they use will go down as well.