Foreign automakers fuel in South's economy


The Associated Press

MONTGOMERY, Ala. – Hyundai's new plant opening today is the latest sign that the Mercedes-Benz decision to locate in Alabama a decade ago turned the state – like much of the South – into a new automotive frontier.

Despite early skepticism that tax breaks and incentives given to the German automaker were overly lavish, it helped Alabama emerge as a major Southern contender for jobs-rich vehicle assembly plants and related industry.

Hyundai is opening a 2 million-square-foot plant that's expected to employ 2,000 here, the Korean auto company's first assembly line in the United States. When Mercedes picked a site near Tuscaloosa in 1993, it also was placing its first U.S. assembly plant in Alabama.

In the following years, Honda put a vehicle and engine manufacturing plant in Talladega County and expanded its work force to 4,400, and Toyota bolstered its Huntsville engine factory to 800 workers. Mercedes recently celebrated an expansion that increased its Alabama work force to 4,000.

Alabama's success in luring automakers is reflected throughout Southern states – some 25 domestic and foreign-based plants have popped up in the region from Texas through Kentucky in just as many years. Economic and automotive experts say plant properties are cheaper in the Southern states, as are their employees.

The South's right-to-work states are especially tempting to foreign automakers who don't want to deal with the costly retirement and health-care packages demanded by union workers in the Great Lakes area, said Michael Randle, publisher of Southern Business & Development magazine.

“The manufacturing segment of the automotive industry has been moving south in the last 20 years, and in the last three, four years that movement has accelerated,” Randle said. “Twenty years ago, if you said that the activity in the South on automotives would quadruple that of Detroit, people would have said you're crazy.”

About a third of the nation's automotive production is in the South, according to the Washington-based American International Auto Dealers Association.

Alabama ranks third in the South in potential vehicle assembly employment, claiming 16.25 percent of the region's jobs behind top-ranked Tennessee (25.55 percent) and second-ranked Kentucky (25.08 percent), according to the Economic Development Partnership of Alabama.

“Once you look at how much payroll the industry is generating, there's absolutely no doubt they're going to have an enormous impact,” said Keivan Deravi, an economist at Auburn University-Montgomery.

Hourly wages on the production line at the Hyundai plant in Montgomery range from $14.40 to $22 an hour, based on the level of the worker's experience. That's on par with the $16.21 national average wage for non-union auto workers, while union workers make an average $20.32 an hour, according to the United Auto Workers.

“You grow savvier with every project you work and what we have learned is we've been very successful in bringing in four automotive companies to our state,” said Alabama Development Office Director Neal Wade.

He said the state has been so successful in the automotive game that it is shifting the focus from attracting companies to helping the present ones expand – as indicated by Mercedes-Benz, Honda and Toyota all announcing expansions in the past seven months.

Initially, industry newcomer Alabama wasn't expected to reap all the economic benefits anticipated from the Mercedes deal. The state promised a whopping $253 million in incentives to open Alabama's first automotive plant in Vance, originally projected to employ 1,500.

A study by The Midwest Center for Labor Research, a Chicago firm that studies economic policy and private industry, said the Alabama Development Office and Troy State University greatly overstated the ripple effect of the plant.

The Midwest Center's report said the plant would indirectly create 6,246 jobs, not the 14,285 estimated originally, and would pump $347 million into Alabama's economy, not the $623 million claimed by the state's projections.

Criticism has dwindled in recent years, though the incentives haven't. For example, the state provided $252 million in tax breaks and incentives to attract Hyundai to Montgomery.

Now Alabama has fulfilled its financial obligations to Mercedes and other plants through payment plans and, in the meantime, has seen the automotive industry account for nearly 80,000 jobs in the state, Wade said.

Researchers at The Midwest Center are even considering whether to revisit their Alabama study, citing concerns over accuracy and the notable improvements to the state's economy.

“Perhaps the whole Mercedez-Benz situation was positive. I'm not sure, but I'm intrigued by the question,” said Dan Swinney, executive director of The Midwest Center.

Still, the plant victories are bittersweet.

Wade conceded that the jobs created by the automakers and their accompanying suppliers don't always fill holes left by Alabama's diminished apparel industry. The state has lost more than 58,000 manufacturing jobs since 2000.

“It's not replacing those jobs, but it kind of cushions the impact of losing those jobs,” said Ahmad Ijaz, an economist with the University of Alabama's Center for Business and Economic Research.

He added that the positive impacts of the auto manufacturing plants were never overstated. “If nothing else, they might of been understated, because future expansions were not taken into account,” he said.

Click video to hear audio