Auto Production Soaring in Southern U.S.

BMW's Spartanburg County plant became the largest exporter in the U.S. last year, enabling South Carolina to surpass Michigan for No.1 export status.

August 8, 2012

4 Min Read
Final inspection at BMWrsquos Spartanburg SC plant
Final inspection at BMW’s Spartanburg, SC plant.

Europe’s economic troubles and the soaring yen may be bad news for Germany and Japan, but they are turning into a windfall for the Southern U.S. states, where Japanese and German auto makers are cranking up production of cars and trucks like never before.

WardsAuto forecasts the South’s share of U.S. light-vehicle production will top 40% for the first time ever in 2013, driven by increases at Toyota, Honda, Volkswagen, BMW and Mercedes-Benz as well as Korean and Detroit-based auto makers.

GM, Ford, Hyundai and Kia are boosting output at plants in Southern states as they increase capacity to keep up with demand in the steadily recovering U.S. light-vehicle market. But Japanese and German auto makers have even more reason to do so.

Comparatively low U.S. manufacturing costs and weak sales in their home markets are driving the two transplant groups to move more production to the U.S. for local sale and global export.

For instance, BMW’s Spartanburg, SC, plant is the sole producer of the X3, X5 and X6 cross/utility vehicles. The auto maker says it exported 192,000 vehicles, about 70% of the 276,000 vehicles it built in the U.S. in 2011, through the Port of Charleston to 130 markets worldwide.

The Spartanburg plant became the largest vehicle exporter in the U.S. last year, enabling South Carolina to surpass Michigan as the largest vehicle-exporting state.

Unfortunately, the boom is not expected to create new factories and construction jobs. Toyota’s plant in Blue Springs, MS, which started building Corolla compacts in November 2011, and VW’s facility in Chattanooga, TN, that started Passat sedan assembly in April 2011 are predicted by WardsAuto to be the last new assembly plants constructed in the U.S. for the foreseeable future.

Instead, production gains will come from boosting the capacity of existing facilities by adding extra shifts, increasing line speeds or integrating new production technology and assembly lines.

Analysts say this strategy keeps investment low and limits risk in the highly cyclical industry.

The only big construction projects seen in the future are planned for Mexico, the WardsAuto forecast says. For instance, last year, Honda announced it will invest $800 million in a new vehicle and engine plant in the state of Guanajuato with capacity to produce 200,000 Fit subcompacts annually beginning in 2014.

Analysts say it is an example of Japanese auto makers emphasizing local production because the high value of the yen is making exporting products built in Japan unprofitable. 

Honda has said publicly it is aiming to build everything it sells in North America locally.

Last year, Honda’s and Toyota’s North America production was down 20% due to lack of parts for the first 10 months caused by the earthquake and tsunami in Japan.

Nissan’s output was up 12% in the timeframe, largely because the auto maker does not source as many parts from Japan. Analysts expect this revelation to permanently change the U.S. production landscape.

Even so, the WardsAuto forecast says the South will not pass the Great Lakes region in vehicle production anytime soon, despite the massive downsizing and plant closings that have taken place in states such as Michigan and Ohio during the past four years.

The region that may be the biggest loser is Canada, which has lost appeal as the Canadian and U.S. dollars are near parity and negotiations with the Canadian Auto Workers union remain uncertain.

Manufacturing vehicles south of the Mason-Dixon Line certainly is not new. The Detroit Three have had a smattering of plants there for decades. Nissan started light-vehicle production at Smyrna, TN, in 1983, followed by Toyota in Kentucky and Honda in Alabama.

But as U.S. auto sales revive from the worst slump since the early 1980s, activity is picking up:

  • In this year’s third quarter, VW, Hyundai and Ford all are adding third shifts, and GM is reopening its Spring Hill, TN, plant to add Chevy Equinox capacity.

  • In Q4, Nissan is expected to add a third shift in Smyrna to produce the Leaf electric vehicle and Rogue CUV.

  • In 2013, Honda will increase capacity at its factory in Lincoln, AL. It is investing $84 million and will hire 100 new full-time workers to increase annual Odyssey minivan capacity by 40,000 units. Plus it is adding Acura MDX production.

  • In 2014, BMW will increase capacity to add X4 assembly, the WardsAuto forecast says. Also in 2014, Mercedes will add assembly of its C-Class entry-level luxury cars at its factory in Tuscaloosa, AL.

  • And in 2015, VW will add production of a midsize CUV at Chattanooga thought to be the replacement for the current Tiguan.

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