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10/06/2011

General Motors reopens Tennessee plant as it seizes market share

Cranking out more than 207,000 vehicles in September, General Motors was the nation's largest auto manufacturer by volume and has gained the most volume in the first nine months of 2011. Conversely, Toyota has lost the most volume so far in 2011 (down 116,793 units from this point last year). GM has been aggressively seeking a cut of Toyota's market share since the supply chain disruptions earlier this year, but recently the firm has announced plans that hint they'd like to keep that increased market share—and perhaps expand it.

Note: Auto production was up 10 percent in September 2011 compared with one year earlier as the domestic Big Three automakers continued to pick up market share.

In a closely followed round of bargaining, GM announced last Wednesday that it had reached an agreement with the United Auto Workers that would add 6,400 manufacturing payrolls to GM facilities around the country. Part of this agreement, though very unconventional, has residents of a small town about 30 miles south of Nashville very excited. It's extremely rare for auto facilities to reopen once closed, but part of the agreement reached last week will once again get gears moving at GM's Spring Hill, Tennessee, plant.

Plant history and new beginnings
The facility opened in Spring Hill in 1990, originally producing the Saturn. The plant was an economic boon for the area, causing the population of sleepy Spring Hill to grow twentyfold. However, nearly twenty years from the date of opening, the factory, like many others, began feeling the pains of the sluggish global economy. In an attempt to adapt to changing economic conditions, the plant underwent a major retooling phase in 2008 when GM transitioned from producing Saturn vehicles to a crossover SUV, the Chevrolet Traverse. However—to make a long, painful story short—it wasn't enough to save the facility, and GM announced its closure in June 2009, ironically the month that marked the official end of the recession.

SP_photo
Roughly 30 miles south of Nashville, the town of Spring Hill, Tennessee, is witnessing a rare occurrence: GM's auto production facility there is reopening.

In May 2009, the unemployment rate in Maury County, Tennessee, was an already-elevated 11.8 percent. With the closing of the factory doors in June 2009, the unemployment rate in the county skyrocketed to 17.3 percent. The unemployment rate has remained elevated for the county since the factory's closing. Although approximately 3,000 workers were impacted by this closure, some workers initially avoided the unemployment line as the GM plant continued to build engines for other GM cars as well as performing operations related to stamping, polymers, and providing service parts and powertrain operations.

One possible explanation for the dip in Maury County's unemployment rate (see the chart below) shortly after the plant's closing was a reallocation of labor to Lansing, Michigan, home of another GM plant where some Spring Hill employees were offered positions (thus causing a decrease in the number of unemployed, which yielded a lower unemployment rate for months following the plant's closing.). Even still, the rate for Maury County is sticking stubbornly around an unlucky 13 percent (as of August 2011, it was 12.7 percent).

Now, however, initial reports from GM estimate a new 1,700 jobs will be created at the Spring Hill facility. Of these jobs, 600 will produce one model, while another 1,100 workers would focus on the production of the second model. In an area where there were 31,190 employees working across all industries in August, there's certain to be a substantial positive impact from increasing employment by roughly 5 percent of the current number of employed people. The plant is already undergoing capital investments that suggest hiring would begin early next year.

Southeastern states hold advantage in recruiting new foreign auto plants
Southeastern states have particularly had success landing assembly plants opened by foreign automaker in the U.S., as explained in the newly released third quarter edition of the Atlanta Fed's magazine, EconSouth. By offering tax breaks, state-funded training programs and other incentives, Southeastern states have secured over half of the foreign automaker assembly plants opened in the United States since 1990. Tennessee could be viewed as a leader of the pack in automotive manufacturing strength; the state has been ranked No. 1 for the second year in a row by Business Facilities, a national economic development publication.

Evidence of this can be seen in the recent opening of the Volkswagen plant in Chattanooga as well as Nissan's lithium ion battery plant, which is currently under construction. But last week's announcement by GM has left Tennessee residents and the state's leaders excited about potential positive employment growth in the manufacturing sector from domestic automakers. At first glance, research economists familiar with the automotive industry believe the Spring Hill plant announcement of 1,700 positions could offer a total gain of 6,000 jobs to Tennessee, once an estimate of indirect job creation is included.

Photo of Mark CarterBy Mark Carter, an analyst in the Atlanta Fed's research department, and Amy Pitts, an analyst for the Regional Economic Information Network at the Atlanta Fed's Nashville Branch

October 6, 2011 in Automobiles, Employment, Manufacturing | Permalink

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