Auto Manufacturing Redraws its Map

Every time a site consultant or state economic-development official turns around, some automaker or large supplier is expanding a plant, ordering tooling for a promising future model, domesticating production that occurred offshore or even plotting a whole new facility. It’s happening across America’s increasingly prosperous auto belt.

In the first quarter alone, among other moves, Chrysler announced expansion of its Jeep plant in Toledo, Ohio. Ford said it would return output of medium-duty trucks from Mexico to Ohio. Volkswagen flirted with unionization of its Chattanooga, Tennessee, plant amid speculation that the company would double its footprint there via production of a new SUV. BMW revealed a major new investment at its Spartanburg, South Carolina, manufacturing complex.

And, of course, Tesla dangled its multi-billion-dollar battery “gigafactory” in front of four Sun Belt states as potentially the biggest economic plum ever bestowed by a carmaker. Texas, Nevada, Arizona and New Mexico benefit just from being considered.

Yet while American and foreign-based automakers are deciding in favor of more U.S. output than could have been imagined even a few years ago, opportunities remain limited for new states to get into the game.

Because they have built advantages in transportation infrastructure, labor-force skills, utility rates and other important auto-manufacturing criteria over the course of decades, the Midwest and South are harvesting almost all of the stepped-up domestic output.

“The states with the toughest business cases for making cars are all gone now,” note Sean McAlinden, executive vice president of research and chief economist for the Center for Automotive Research, based in Ann Arbor, Michigan. “New York, California, New Jersey—they all had the highest tax and health-insurance rates and were far from suppliers that have clustered in the Upper Midwest and South.”

Now a few new states could make cases as virgin territory for auto production. Nebraska, for instance, has positioned itself for such a run with tax reform and workforce-education initiatives, argued Larry Gigerich, managing director of Ginovus, an Indianapolis-based site consultant. Pennsylvanialurks on the fringes.

Even Arizona and Nevada could join the auto belt someday because of favorable taxes and Sun Belt locations that are increasingly crucial markets for all auto companies. Landing the Tesla plant would make either an instant Tier 1 member of the car-state fraternity. If Texas gets the nod from Tesla, it could become an auto-making superpower, since General Motors and Toyota already have major operations there making their most profitable vehicles: pickup trucks.

“No matter which state wins,” Gigerich says, “there also will be the opportunity to develop a research and technology park to leverage off Tesla’s impact, because of the sheer size of its facility.”

But as a cautionary tale, states also must consider the case of Arkansas. Surrounded literally on every side and corner by a state that already was making cars, several years ago Arkansas “fell flat on its face in an attempt to launch an automotive platform because it just didn’t have the industrial labor force,” McAlinden says.

Tennessee also provides reason to pause. The state granted Volkswagen $500 million in incentives to open its plant in 2008. But when VW cooperated with the United Auto Workers union in staging a unionization vote in the plant in February, some national and local politicians in the state threatened to close the spigot on any further financial breaks for Volkswagen if the union won. It didn’t.

One trend is clear: Increasingly, the attractiveness of the Midwest and the South as auto-making regions is equalizing. Rising wage rates and even the threat of unionization of a Sun Belt plant make it more complicated for Japanese, Korean and German manufacturers to expand in those states. Meanwhile, favorable tax reforms and the spread of a right-to-work ethos in traditional car-manufacturing powerhouses Michigan, Indiana and Ohio impose dwindling penalties on the Detroit Three for sticking with the region they know best.

“The only remaining big difference is that, for deal-closing tools, Southeastern states can bring more to the table than Midwestern states in terms of cash-equivalent incentives,” Gigerich says. “But we tell our clients not to make a decision on incentives. Everything else has to line up first.”

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