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.
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.
By 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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01/13/2010
Automobile production's impact on the Southeast
Automobile production has become a major industry in the Sixth District and has significant impact on the economic health of the region. Recently, the near-term outlook for several regional assembly plants brightened because of two major developments. The first development was a stronger-than-expected rebound in national vehicle sales at year-end. The second piece of positive news concerned changes in the production mix announced by some regional auto manufacturers. Additional facilities recently opened or scheduled to begin production also bodes well for the future of the auto industry in the region.
National vehicle sales rose in December, up to 11.2 million units compared to 10.9 in November 2009 and 10.3 million in December 2008. Although economic uncertainties such as high unemployment and low consumer confidence will likely continue to pressure auto sales, the reported progress is encouraging.
The national economic downturn had a drastic impact on auto production and auto assembly utilization rates. According to MonthlyAutocast.com, national and Southeastern plants' utilization rates, defined as the share of vehicle production volumes to plants' capacity, dropped to 42 percent in early 2009. By the fourth quarter of 2009, however, utilization rates climbed to over 60 percent as most automakers rebuilt vehicle inventories depleted by the "cash for clunkers" program. According to Cliff Swenson, editor of MonthlyAutocast.com, December 2009 capacity was 71 percent, a bit higher than in November, but still anemic at best. Swenson noted that although at year-end dealers were keeping leaner vehicle inventories, with business picking up, a need to rebuild inventories, and higher exports, he estimated that capacity utilization rates will steadily rise in the next two years.
Favorable developments for changes in the production mix of several automakers have also brightened the near-term outlook for auto production. According to the December 2009 sales report from JD Power & Associates, the sales pace of fuel-efficient autos like the Nissan Versa, Honda Fit, and others far outperformed the year-over-year 7 percent increase for all vehicles.
Additionally, several new facilities have begun or will soon begin vehicle production in the region—for example, Kia in West Point, Ga., and Volkswagen in Chattanooga, Tenn. Increased assembly will not only result in additional jobs at the plants themselves but for suppliers as well. Auto industry employment trends from the U.S. Bureau of Labor Statistics show the importance of auto assembly production in job creation at the companies of parts suppliers. According to BLS data (NAICS 3361 and 3363), one job in an assembly plant supported 2.8 jobs in motor vehicle parts industries during 2008. These facts are confirmed by many communities in the region that have seen the spread of jobs in the parts suppliers industry around the fastest-growing regional assembly plants.
The chart below gives an outlook for regional auto production:
Highlights regarding future auto production in the region:
- According to MonthlyAutocast.com, future production estimates for eight regional producers are much higher than the depressed volumes reported in 2009. Several regional auto producers recently announced plans to adjust their production mix to rapidly changing vehicle demands.
- Automotive News reported that Mercedes Benz USA announced plans to produce its C-class sedans at its plant in Vance, Ala., with expected production starting in 2014. The Vance plant currently produces the M-class SUV and R and GL crossovers, with some shipments exported to Europe. With a nearly 60 percent utilization rate, during 2009 this plant produced about 91,000 vehicles, far below the 150,000 assembled a year earlier.
- In late 2009, Kia Motors, a subsidiary of Hyundai, started production of its Sorento crossover at its West Point, Ga., plant, with an annual estimated production of 100,000 vehicles by late 2010. This is a sister company to the Montgomery, Ala., plant that assembles the Hyundai's Sonata and Santa Fe models. Currently, demand for Hyundai vehicles is strong with some models taking market share from discontinued domestic models.
- Nissan plans to add capacity for a new wave of light commercial vehicles, including the Leaf, the nation's first electric vehicle, which would start production in late 2011. According to company officials, Nissan is expanding its Canton and Smyrna, Ga., facilities to update its production mix to more fuel-efficient vehicles. This news is important for a regional company with the largest output (about 500,000 vehicles scheduled to be assembled in 2010).
- Decisions for Toyota's Tupelo, Miss., plant are wild cards in the regional production game. News reports from Tokyo are pointing to the company's continued interest in adding production in the United States, its largest and most profitable market. The $1.3 billion plant was to open this year and produce the Prius, but these plans were cancelled in late 2008 as fuel prices dropped and vehicle demand weakened.
- Volkswagen is opening a $1 billion facility in Chattanooga, Tenn., in 2011 and plans to employ 2,000 workers. Production plans are supported by recent strong demand for VW products and by company officials recently stating plans to more than double its sales in the United States.
The outlook for the automobile industry in the Southeast, like the outlook for the nation, shows signs of a slow recovery.
By Gus Uceda, a senior economic research analyst in the Atlanta Fed's research department
January 13, 2010 in Automobiles, Employment, Manufacturing | Permalink
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01/06/2010
Looking ahead to 2010
January is the month for outlooks. The Atlanta Fed's 2010 Outlook for the region starts by noting that:
"The region, like the rest of the United States, weathered a difficult year in 2009, but indications of a turnaround in the economy suggest a less rocky 2010. However, daunting challenges remain before Southeasterners can be confident of a full and lasting recovery."
The outlook goes on to describe current and expected performance in several sectors. Here are a few of the highlights:
Employment
The decline in initial unemployment claims suggests that job losses will continue to ease into the next year. In 2008, when employment losses accelerated, the big question was, When would job losses subside? In 2009, as job losses eased in parts of the Southeast and the nation as a whole, the question turned to, When would employment expand and labor markets recover?
Two factors should support employment growth in 2010. As of Oct. 31, 2009, Southeastern states received less than 35 percent of the federal stimulus funds they were awarded, and this influx of funding should continue to fortify the jobs picture in 2010. Additionally, after four quarters of contraction, the U.S. economy expanded in the third quarter of 2009, which should encourage hiring.
On the other hand, a number of factors could dampen employment recovery. Before hiring, firms will likely rely on current workers for increased productivity. Several Atlanta Fed regional business contacts across the Southeast have indicated that they want to see a few months of sustained growth before they consider increasing hours for current workers or recalling laid-off workers, suggesting that employers may require even longer sustained growth before they hire new workers.
Once firms begin to hire, the rate of hiring may be weak compared with previous expansions. Some business contacts indicated that they have not only reduced their work forces but have structurally changed their firms so they might need fewer workers in the future. Furthermore, the large number of firms closing across the Southeast produced permanent layoffs. For example, the region's auto parts manufacturers will continue to feel the pinch from auto plant closings. Despite some recent improvements in the economy and easing of job losses, Southeastern labor markets are far from recovered.
Auto production and manufacturing
The outlook for Southeastern auto production in 2010 is mixed. Factors such as imbalances among vehicle production and consumer demand, tight credit markets, and low consumer confidence will continue to limit discretionary spending on autos and thus production flows.
On the positive side, foreign automakers are investing heavily in the region, and the economic ripple effects will be felt for years to come. Volkswagen is opening a $1 billion facility in Chattanooga, Tenn., in late 2010 or early 2011 and plans to employ 2,000 workers. Parts suppliers for the new plant will create more than 11,000 additional jobs, according to a University of Tennessee study. Kia Motors also opened its West Point, Ga., plant in the third quarter of 2009 to manufacture its Sorento model, a move that will bring 1,200 jobs to the area and have economic effects felt fully in 2010.
Manufacturers other than automakers are also putting down Southeastern roots. Mitsubishi's Pooler, Ga., plant producing advanced steam and gas turbines and servicing turbines used in power generation is expected to add 500 jobs to the region in early 2010. High-tech firm GS Yuasa is scheduled to open its doors, creating 100 jobs in Roswell, Ga., producing lithium-ion battery packs. NCR is already making ATMs in Columbus, Ga., and plans to employ 870 people during the next three years. Additionally, Huiheng Medical is opening a Baton Rouge, La., plant that will manufacture radiation treatment devices, creating 300 jobs in the area.
Real estate
In the coming year, Southeastern housing markets will continue their recovery, but activity will remain weak by historical standards. Bank-owned properties will continue to come to market, particularly in Florida and Georgia, and will continue to depress home prices and keep construction activity in check. Homebuilders have found it difficult to compete against bank-owned properties that have typically sold below replacement cost.
Southeast commercial real estate (CRE) markets will remain challenging in 2010 although activity should stabilize and slowly improve during the year. Construction backlogs are currently at very low levels across most of the region, and financing is likely to remain tight, particularly for CRE projects. Consequently, commercial development should remain at low levels, and projects will remain largely build-to-suit.
Take a look at the entire issue of EconSouth for more detail and reports on other sectors as well.
In addition to the Atlanta Fed's outlook, several university research centers produce economic outlooks for their regions. These centers are part of our Local Economic Analysis and Research Network (LEARN), and most produce updates to their outlooks throughout the year.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
January 6, 2010 in Automobiles, Employment, Manufacturing, Outlook, Real Estate | Permalink
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