Nissan began the Southeastern trend when it opened its first U.S. manufacturing plant in Smyrna, Tennessee, in 1983. During the 1980s, Toyota expanded into Kentucky, BMW expanded into South Carolina, Nissan opened a plant in Mississippi, and Honda and Toyota both opened plants in Alabama. In the last eight years, Toyota launched a plant in San Antonio, Texas, and announced plans to build a new facility in Blue Springs, Mississippi. Honda nearly doubled the size of its Lincoln, Alabama facility and Kia is currently completing a new manufacturing facility in West Point, Georgia.
The automotive industry is the largest manufacturing industry in the U.S. With a manufacturing facility come suppliers that must be located near the Original Equipment Manufacturer (OEM) to provide supplies as needed and Just-In-Time (JIT). Additionally, designers, engineers, and a variety of manufacturing support work is required, all of which must be centered at the assembly plant. It is estimated that as many as eight indirect jobs are created for every one direct automotive job.
Consequently, automotive plants are among the most sought-after corporate expansions by states. No wonder Senator Bob Corker says he will never forget the day “The Call” came. It was a midsummer afternoon in Washington, D.C., and Corker, the U.S. Senator from Chattanooga, was involved in an energy hearing. In the midst of listening to his colleagues, Corker was interrupted by the buzzing of his Blackberry. At once, he recognized the number that flashed on the screen, excused himself, and took the call in the hallway. Volkswagen was on the line.
For Corker, several other politicians and civic leaders, and thousands of rank-and-file citizens in Chattanooga, the news was good - almost unbelievable. Volkswagen, one of the largest and most recognized car manufacturers in the world, had decided to locate its North American manufacturing plant in Chattanooga.
Mayor Ramsey declared VW’s decision a dream come true. “An automobile plant is rare and hard to come by,” Ramsey said. “But it has wide-ranging and long-term effects. That makes it a prize, a special piece that can grow into something significant.”
How significant? One only has to research the impact that overseas auto manufacturers have had on cities throughout the Southeast. What follows is just a sample of what Chattanooga can look forward to.
Nissan Starts a Trend
In 1983, Nissan became the first foreign automaker to locate a manufacturing plant in the South, choosing tiny Smyrna, Tennessee, 115 miles northwest of Chattanooga. Twenty-five years later, the company celebrated a milestone anniversary, having produced 8.2 million vehicles. As for Smyrna, the town’s per capita income has increased by more than $5,000.
From an initial hire of 1,300 employees in 1981, there has been steady growth. In 1984, Nissan announced plans to build the Sentra in the U.S., which created 1,700 additional jobs. In 1989, the plant underwent a $490 million expansion to facilitate assembly of the Altima Sedan, creating more than 2,000 jobs.
“Nissan’s decision to begin manufacturing in Tennessee 25 years ago was a watershed event for our state and our nation,” Tennessee Governor Phil Bredesen said when Nissan celebrated its 25th anniversary last June. “With Nissan’s continued success and the passage of time, it’s easy to forget what a bold, innovative move that decision was and how it transformed our state’s economy. The launch of the Smyrna facility was literally the first step in an explosion of automotive manufacturing in the Southeastern U.S. and the impact of the Nissan team is still being felt today.”
“After 25 years, Nissan’s investment in Tennessee continues to reap benefits for our state each day,” said Matt Kisber, commissioner of the Tennessee Department of Economic and Community Development. “From the thousands of good-paying jobs to the additional employment provided by Nissan suppliers to the quality of the vehicles rolling off the assembly line, all of us in Tennessee are proud of Nissan’s contributions to our state’s economy.”
Mercedes-Benz Celebrates a Decade and One Million Cars
In 1993, DaimlerChrysler AG (DCAG) chose Tuscaloosa, Alabama, as the production location for the Mercedes-Benz M-Class and the first Mercedes-Benz passenger vehicle plant outside of Germany. In 2000, DCAG announced that it would invest an additional $1 billion to double production capacity and add 2,000 jobs. In 2002, the company announced that the plant would build the R-Class Sports Tourer. In May of 2005, DCAG announced that the new GL-Class would be produced at the assembly facility.
Today, the Mercedes-Benz U.S. International (MBUSI) Tuscaloosa plant grounds include two assembly shops, two paint shops, and one body shop, occupying more than 3.2 million square feet. Vehicles produced at the facility are sold to more than 135 countries around the world. In November of 2007, MBUSI celebrated the production of its one-millionth vehicle. More than 4,000 employees work at the plant, a huge increase over the 1,500 that were originally planned.
In a 2007 study issued by the Center for Business and Economic Research at the University of Alabama and commissioned by the Economic Development Partnership of Alabama, Mercedes-Benz U.S. International and its major suppliers reportedly accounted for 41,830 jobs — 17,822 of which were located in Tuscaloosa County where the plant is located.
At the 10-year anniversary of the plant, Alabama Governor Bob Riley was quoted as saying, “The economic impact of MBUSI and its Tier One suppliers was well over $6.8 billion to Alabama’s economy. Mercedes-Benz changed the economic development model for Alabama. It improved the economy of the whole state.”
Hyundai Adds First Kia U.S. Facility
In March of 2006, Kia Motors Corporation, a division of Hyundai Motor Company, announced that it would invest $1.2 billion to construct a 2 million square foot facility on 3,300 acres in West Point, Georgia. The facility will be the first Kia car-making plant in the U.S. and is located 80 miles from Montgomery, Alabama, where Hyundai Motor Company opened a $1.1 billion plant in 2005. Hyundai employs 3,200 at its Montgomery facility and 35 suppliers have added more than 4,500 jobs.
The Seoul, South Korea-based automaker expects to have the new facility completed at the end of this year, with the capacity to produce 300,000 cars a year. The new facility will employ nearly 2,900 people; at least five suppliers will locate close to the new facility and employ an additional 2,600 people. The average salary for employees of the plant is expected to be $50,000 a year. Last year, Kia began taking applications for hourly positions and received 43,000 applications for 2,500 jobs in 30 days.
A Mirror Image of Chattanooga?
Of all the Southern towns that have been enriched by the addition of automotive manufacturing, Chattanooga officials were most interested in Greenville-Spartanburg, South Carolina. The parallels between Greenville-Spartanburg and Chattanooga are compelling.
Both mid-sized metropolitan areas have a history of strong manufacturing. As the nation’s economy shifted over the years, both cities were forced to change their manufacturing base and project a new image. Their facelifts began by transforming their respective downtown riverfronts, which both did so successfully that they have achieved nationwide notoriety and earned high marks from various publications that rank the best places to live in the U.S.
In 1992, Chattanooga’s impetus for growth was the opening of the Tennessee Aquarium. That same year, Greenville-Spartanburg successfully recruited the only American manufacturing plant of BMW, the German automaker.
Since opening its first facility in Greer, South Carolina, 14 years ago, BMW, has continued to expand its production facilities and increase jobs. From an initial investment of $500 million in its first facility that employed approximately 2,000 people, BMW has invested an additional $2.9 billion and expanded manufacturing space to over 2.6 million square feet, supporting 23,000 direct and indirect jobs.
Additionally, the company announced in March of 2008 that it will invest an additional $750 million to add 1.5 million square feet and 500 new jobs by 2012. Today, 52 suppliers have located to the state to support BMW operations. A recent study conducted by the University of South Carolina estimates that BMW contributes $8.8 billion per year to the state’s economy.
The Impact on Chattanooga and
the Region
In trying to assess the impact Volkswagen will have on Chattanooga, Tom Edd Wilson, president and CEO of the Chattanooga Area Chamber of Commerce, reaches back for a significant historical reference - a long way back. “Volkswagen is probably going to impact our economy more than anything has since the Civil War,” Wilson said. “The impact over the next 25 years or so can be huge, absolutely huge.”
In an effort to quantify that impact, the University of Tennessee’s Center for Business and Economic Research conducted a study that predicts Volkswagen will boost income in the region by $511 million annually, as well as increase tax revenues for state and local governments by $55 million a year. In addition to the 2,000 jobs created by direct employment in Chattanooga, the UT study estimates another 9,477 jobs will be created in a tri-state region through construction and supplier proliferation.
If those numbers aren’t encouraging enough, Dr. William Fox, principal author of the UT study, says the numbers lean to the conservative side. Furthermore, the study didn’t take into account Volkswagen’s eventual growth. The examples of Nissan in Smyrna and BMW in Greenville-Spartanburg would suggest VW will increase manufacturing in Chattanooga as it expands its product line.
“That study just measured the first investment and the first 2,000 jobs,” said Matt Kisber, Commissioner of the Tennessee Department of Economic and Community Development. “Volkswagen has made it clear that [Chattanooga] is where they’re going to grow their roots. And as their strategy succeeds, the Chattanooga facility will grow. VW has publicly said they’ve designed their facility to be twice as big. So the impact will be a factor greater than what’s being talked about today [in] seven [to] 10 years down the road.”
Given Tennessee’s rise as a major player in the auto industry, Senator Corker has high hopes and expectations for the state. Corker said in early December, “What we want to be is a shining beacon to the world about how manufacturing, how business, takes place in the United States of America and does so with people who have labor-management relations and understand what it takes to be competitive in this world.”
“We’re becoming that [beacon] quickly and will become even more so as suppliers and others locate here,” says Corker. “[The Volkswagen plant] is a tremendous opportunity for the South, for Tennessee, to really shine, not just in this country but around the world. If we do that, more and more investment will take place.”
Zach Wamp, the 3rd District U.S. Congressman from Chattanooga, has long been a champion for the Tennessee Valley Corridor. From Huntsville, Alabama, through Oak Ridge, Tennessee, and up to Virginia Tech, the Tennessee Valley Corridor has been at the forefront of alternative fuel development, so much so that the Oak Ridge National Laboratory was selected in 2007 as one of the U.S. Department of Energy’s three Bioenergy Research Centers.
When asked to comment on the impact of Volkswagen on the city, the state and the region, Congressman Wamp is quick to reflect on the many opportunities for alternative fuels and eco-friendly cars. “There will be a partnership between the Oak Ridge National Laboratory and Volkswagen for alternative fuels,” says Wamp. “And some of that research will be geared toward biodiesel, so that it fits Volkswagen’s needs, their niche and, frankly, their market.
“Chattanooga and the Tennessee Valley Corridor were uniquely positioned to establish this partnership with Volkswagen,” says Wamp. “Where it leads, only the future will tell. But it has the potential to be an outstanding research and technology partnership, bringing the latest research to the market, and then literally taking that to a tremendous private-sector growth.”
Matt Kisber is convinced the extensive worldwide media coverage of Volkswagen’s partnership with Chattanooga will lead to other business deals. “If you approach it from that perspective, you really see Volkswagen as the anchor,” Kisber said. “They bring a great deal of visibility to Chattanooga and to Tennessee. There will be residuals from that. Here’s a company that talks publicly about looking at the entire United States to find the best place to plant their flag and call home, and after an exhaustive and thorough process, they chose Chattanooga. So a lot of other companies will say, ‘Wow, if they did that, there must be something there for us to look at.’”
Another positive by-product of Volkswagen’s presence, Ramsey says, is education. Many of the candidates for the plant’s 2,000 jobs will have to be trained or retrained. “There will be a lot of other technical manufacturing companies relocating to our area,” Ramsey said. “People are going to have to have a good education and be trainable to get those kinds of jobs. And an educated community is a better community.”
Many who have been involved with the Volkswagen project believe that there will be philanthropic benefits from the partnership. “Volkswagen is a company that is very committed to the community in which it operates,” Kisber said. “They’ll be a major contributor philanthropically and will help elevate Chattanooga’s influence in arts, culture, the outdoors, and recreation.”
As proof of that, Ramsey points back to the words of Stefan Jacoby, President and CEO of Volkswagen of America, on the day the deal was announced. “I have always said that ultimately it would be based on something intangible - something in our gut, or maybe better, in our hearts,” Jacoby said in July.
“That comment about the intangibles becoming the tangible, that sums it up very well,” Ramsey said.
“Volkswagen felt comfortable enough that they located their manufacturing plant here. And they’ll want to become more and more involved with our city and our state. I’m very excited about what that involvement will mean to our future.”