The southeastern United States continues to be a major regional target for economic development expansion opportunities in the automotive industry. The Carolinas, Georgia, Alabama and Tennessee, among other surrounding states, are seeing an uptick in economic development activity with the strong economy.
This year, a variety of companies who were on the verge of deploying their capital to build an American plant have decided the time is now. Volvo, for instance, is in the process of opening a second line at its plant in the Charleston, South Carolina, area, and Voestalpine Automotive Components has been in growth mode in Bartow County, Georgia. At the same time, other automotive businesses are sitting on the sidelines, anxiously waiting to see whether escalating tariffs are a short-term anomaly or long-term challenge.
Tariffs have certainly complicated the legal landscape in the Southeast for the automotive industry, but they are not the only factor that businesses and economic developers are focused on right now. At automotive conferences and in private conversations, many decision-makers are equally concerned about workforce issues and rapidly changing technology.
Below are three big questions we’re hearing from clients and practical considerations for how to navigate them.
Where Should We Locate or Relocate Our Facility?
Evolving federal, state and local policies can have a large impact on site location. There is a big effort at the federal level to encourage investment in rural areas, including through the new Opportunity Zone program and the New Markets Tax Credit program. Those programs, along with federal and state tax credits for historic buildings, textile mills and abandoned buildings, can help manufacturers recover more than half of their qualifying costs, depending on the specifics of the project. These programs may, to some extent, offset some of the costs that might be identified by the uncertain regulatory and market factors automotive manufacturers currently face.
Each state and local government also has its own toolbox of economic development incentives to help make the numbers work as well, including cash grants in North Carolina, employment tax credits in South Carolina, and property tax breaks in Georgia. It is critical to incorporate these programs into the early-stage plant planning process in order to take into account how plant and production automation may impact these benefits for the company.
How Do We Find and Retain Skilled Workers and Keep Labor Costs Down?
The reality is that many manufacturers are struggling to find the skilled workers they need. The incentives to move to rural areas can cut both ways with this. On one hand, companies face less competition for the area’s skilled workers. On the other hand, there may not be enough of them in those areas.
A potential solution across the Southeast is the growth of skills initiatives. Community colleges and even some high schools have developed apprentice-style programs that help manufacturers find and train talent, including Central Piedmont Community College in North Carolina, Greenville Technical College in South Carolina, and the Aiken County, South Carolina public school system, which partnered with global engine manufacturer MTU to develop an internationally recognized apprenticeship program.
Companies who are considering expanding and need specialized skills should make an effort to reach out early on to local economic development offices, who can help them understand the best options for a customized training program in their communities. State and local economic development offices will often help fund the programs and set them up with community colleges or schools, with funds sometimes coming from both federal and local resources. These programs are intended to improve the overall readiness of their labor pool.
In addition, because of the tightness of the labor force and the clustering of skilled workers in the automotive sector, companies have increasingly been competing with wage increases. This has leveled the playing field somewhat between the Southeast and other parts of the country, as wages in the Southeast have crept closer to averages in the Northeast and the Midwest. However, the Southeast still has a more affordable workforce than those other regions, according to U.S. Labor Department data, and economic developers can help with workforce costs through training programs and business incentives.
There have also been more attempts to organize labor at Southeastern plants over the past few years. That said, the region has right-to-work laws that for years have been a mainstay of attracting industry. Recently, union campaigns at Boeing’s manufacturing plant in North Charleston, South Carolina and Volkswagen’s plant in Chattanooga, Tennessee, have been unsuccessful.
How Do We Position Ourselves with Evolving Technology?
Changing technology is having an impact on state and local economic development incentives. Traditionally, incentives have been geared toward job creation and capital investment. Some automotive companies who signed agreements years ago now have the technology to automate more of their plant to increase productivity, resulting in jobless growth and, therefore, potentially creating a situation where the jobs requirement components of the previously negotiated incentives agreement is no longer achievable.
Depending on the state or local government agency overseeing the agreements, it can be possible to modify those incentives, especially if the automation has resulted in increased capital investment to counteract the lower job numbers. Economic developers are ultimately focused on the growth of the overall community, and if an automotive manufacturer is contributing to that growth, they will want to reach a compromise.
In the Southeast, the overall business climate and the strength of the auto sector can make tariffs and other government policies, workforce challenges and advancing technology easier to navigate, especially in partnership with economic developers, community colleges and legal counsel.
Richard Few is a partner on Parker Poe’s Manufacturing & Distribution team and coordinates the team’s automotive initiatives. He counsels U.S. and international businesses on strategic tax planning and structuring business mergers, sales, acquisitions and reorganizations, economic development and commercial and public financings.
Sam Moses is a partner at Parker Poe and co-leads the law firm’s Manufacturing & Distribution team. With more than 20 years of experience in international business expansion, site selection, and economic development, he has spent considerable time representing global automotive suppliers on such matters.