The battle between regions for new or incremental investment is as fever-pitched as ever and heating up. With Mexico attaining over 65% of the greenfield OEM investment in North America over the past three years—but accounting for ~25% of current light vehicle output—it is obvious that this imbalance is driving several U.S. states and Canadian provinces to rethink their investment attraction strategy because non-Mexico locations are losing ground.
Long gone are the days when a state governor would view automotive investment as a side line, only intervening when convenient or absolutely necessary. Today, the tide has decidedly turned. Thanks to several aggressive states, the number-one job for several governors is investment attraction, and much of this is related to automotive and aerospace. The new mantra from several government agencies is “What can we do to help you?” They hope this will land them investments.
There are many examples. One European OEM hoping to locate a new facility in North America has been courting several U.S. states as well as Mexican and Canadian development entities to be the next site for an automotive assembly plant. A couple of governors in key auto states have been making trips to Europe as frequently as once a month to underscore their case for being the chosen one. With the average new facility having an annual capacity of 100,000 per year and employing up to 2,000 people, and with supplier-related jobs adding 5x to this total, one quickly understands the stakes. Additionally, most OEMs are looking to expand capacity once a facility is established, which only adds to the importance.
Investment attraction with automotive has matured over the past decade. As competition heats up, each jurisdiction is blazing its own path. Tennessee, Kentucky and Alabama were the most active for several years. They were the recipients of much of the Japanese OEM investment in the 1990s. Subsequently, South Carolina, Georgia, Indiana, and Mississippi have achieved success, too. Each has a different approach to automotive investment attraction.
OEM and Tier 1 CEOs are not only seeking locations with the best economic attraction but the optimal combination of the right labor pool, flexibility and speed to work through red-tape, and the ability to work with one coordinating entity. This last point is critical. Executives want a one-stop solution to speed the process and ease decision-making.
Each state takes a different approach. Several states use a government-centric structure which is headed by the state economic development authority, but ultimately the governor calls the shots. The state coordinates with regional agencies, educational institutions, power companies, counties, and even the Federal Government. Kentucky, Tennessee, South Carolina, Ohio, and Indiana all operate in this manner. Other states utilize non-profit entity which coordinates with all these entities but provides continuity between government mandates. Alabama has had great success with this model. Michigan stands out for having the only “Auto Coordination Office” with a single person heading the office. Lastly, Mexico and Canada utilize specialized investment attraction structures which fit their laws and regulations.
What does all of this have to do with the modern auto industry? Plenty. Expansion to new locations is critical. Conducting this efficiently over the long-run can be the difference between success and failure. A company with the industry’s best technology being sourced from an inefficient facility with high costs, extreme labor turnover and poor quality is not a way to achieve world-class products. Where one locates and the relationship with the local development agency is critical to long-term success.