Tennessee gains auto sector momentum as industry faces global headwinds
The recent headlines surrounding the global auto sector describe restructuring, layoffs, turmoil and declining profits: Ford is dismantling jobs and plants in Europe, GM is making sweeping cost cuts by ceasing production at five North American plants and discontinuing several car models.
But in Tennessee, there has been a wave of good news. General Motors this month revealed its newest addition to its Spring Hill plant: the seven-seat Cadillac XT6. The Detroit-based automaker is investing nearly $300 million in Tennessee to produce the SUV and adding 200 new positions. In Chattanooga, Volkswagen plans to invest $800 million and hire another 1,000 workers to produce the company’s first electric vehicle
These investments underscore Tennessee’s position as an automotive leader. The state is home to more than 917 auto suppliers, with automotive operations in 88 of 95 counties, according to the Tennessee Department of Economic and Community Development. In 2016, 6.7 percent of all U.S.-made cars, light trucks and SUVs were produced at the state’s three major assembly plants.
Matt DeLorenzo, senior managing editor with Kelley Blue Book, said Tennessee’s history as a right-to-work state is part of what has lured automakers.
“If you go back in Spring Hill’s history as a Saturn plant, they were a lot more accommodating than the other traditional UAW units in terms of structuring their work deals," DeLorenzo said. "That has made the state an attractive place for manufacturers to build."
Why Tennessee is expanding
Bob Rolfe, commissioner of the Tennessee Department of Economic and Community Development, said the state’s right-to-work status, coupled with the lack of state income tax and business-friendly reputation, have nurtured an automotive industry that employs more than 135,000 people in the state.
VW electric vehicle plant: How will incentives compare to past deals?
“The fact that Tennessee is home to approximately 900 automotive companies bodes well because it has really become a part of the DNA, and when we look at our ecosystem in the automotive sector, we just have a fantastic presence,” Rolfe said.
But GM officials say the decision to expand in Spring Hill was driven largely because of the type of vehicles the plant makes. Consumers are buying more SUVs and crossovers, which GM produces in Tennessee, said Ken Knight, executive director of the Spring Hill GM plant.
"That’s what we make here. We see it as a natural evolution and expansion to the product line we are making today," Knight said. "It’s a good time to be in a plant that makes these types of vehicles."
GM and other automakers have poured money in recent years into SUV and crossover production in Tennessee, aligning the state’s assembly plants with consumer sales trends.
VW’s Chattanooga plant produces the midsize Atlas SUV and Passat sedan and will begin building the Atlas Cross Sport, a five-seat version of the model, this year. Nissan’s Smyrna facility, the highest volume assembly plant in North America, produces six models, including the brand’s most popular vehicle, the Rogue crossover. GM’s Spring Hill plant produces the crossover Cadillac XT5 and the new XT6, the GMC Acadia SUV and the Holden Acadia for export.
SUVs and crossovers surpassed sedans in retail registrations in 2014 for the first time, according to IHS Automotive. SUVs have averaged a 12 percent compound annual growth rate from 2005 to 2017, compared to 2 percent for cars, according to LMC Automotive.
“I think the plants in Tennessee better reflect what’s going on in the marketplace, and that’s going to help them remain viable in the long run,” DeLorenzo said.
He predicts Volkswagen’s $800 million electric vehicle project in Chattanooga and General Motors’ addition of the Cadillac XT6 in Spring Hill will have a ripple effect on related industries in the state.
“I think you end up with not only those jobs, but there is going to be additional infrastructure and supplier jobs, so there’s sort of a multiplier effect,” DeLorenzo said.
Knight says he does not see enthusiasm for larger vehicles waning, given Americans' affinity for road trips and sports activities, which helps secure Spring Hill's long-term viability. The plant also is helped by the 2012 implementation of more advanced equipment and design. As the industry moves toward electric vehicles, he expects Spring Hill to be a part of that shift.
"Our body shop framing system can produce just about anything," Knight said. "As market tastes shift, our history of producing quality and delivering great products, that will keep us on the consideration list for new work."
Beyond the types of vehicles made in Spring Hill, Knight said the company's long-term commitment to the state goes back to its central location and availability of a strong workforce.
Volkswagen doubles down on Chattanooga
Volkswagen has two plants in North America — in Chattanooga and in Pueblo, Mexico. Both plants were considered for electric vehicle production, said Doug Bartow, Volkswagen's senior vice president of strategy and new products, and the company could have also chosen to expand to other areas.
Chattanooga's strengths include its rail system, port access, technology hub and labor pool. That there was land available, as part of Volkswagen's original expansion plan in Chattanooga, also helped the area gain more production, Bartow said. Volkswagen also seeks to build cars in the markets they will be most successful in, making the U.S. more attractive for more production.
"We are trying to place the car into the market where it will sell the most. It made sense to put it in the U.S.," Bartow said. "Eventually you are going to build where you sell."
In 2017, electric vehicles comprised more than 5 percent of market share in California, the first state to implement tougher emission standards, and sales climbed by 29 percent, according to EVAdoption data. The next highest percentages of market share were in Washington, Hawaii and Oregon, at more than 2.3 percent. In Tennessee, the vehicles comprised just 0.33 percent of market share and purchases fell by nearly 8 percent in 2017.
DeLorenzo said Volkswagen’s aggressive push into the electric vehicle market is risky.
“To date, electric vehicles have not really caught on. They’re mainly sold in states that have the electric vehicle mandates. That’s going to be the challenge there — to see if there’s going to be widespread consumer acceptance of the vehicles they’ll be building,” DeLorenzo said.
But Bartow said the company expects electric vehicles to gain momentum in the next decade, with widespread usage by 2030.
"We are going to see the car industry change," Bartow said. "We are going to be driving around in electric cars. Volkswagen has made a big commitment to that.... Its always a question of when. But the key thing is, if you don’t step into right now you'll miss the whole wave."
Source: Nashville Tennessean, by Lizzy Alfs and Jamie McGee
The East Tennessee Economic Development Agency markets and recruits business for the 15 counties in the greater Knoxville-Oak Ridge region of East Tennessee. Visit www.eteda.org
Published January 25, 2019