Phil Biggs covers the automotive industry for NewsTalk 1340 WJRW
December 28, 2014 – 12:30 pm ET
NASHVILLE, Tennessee – It’s not just the SEC and college football that have gained national stature in the southern tier of the United States in recent years, it is also our domestic auto industry. Over the past twenty years there has been a significant shift in manufacturing and assembly resources from the traditional automotive hub in the Midwest (Michigan, Ohio, Indiana, and Canada) to places such as Tennessee, Kentucky, Alabama, Mississippi, and North and South Carolina. This trend has only accelerated since 2010, and the migration is not abating. Here is what’s causing the rise of the south in the automotive industry:
The expectation of productivity is what’s driving future investment to the south. The average industry observer believes that the main reason that resources are shifting to the southern states is the automakers’ desire to escape the clutches of the UAW. In part, that’s true. But the more necessary and compelling explanation is the desire of the automakers – albeit in a non-union setting – to achieve greater productivity levels in the work being performed.
The two-tiered wage system, prevalent at nearly all of the southern non-union OEMs, has of course greatly enabled economic productivity for the automakers operating in those precincts. But the worker productivity that has been realized in the southern region is due primarily to the stark difference in how a non-union plant operates versus a unionized plant. One key illustration is the number of job classifications on the shop floor: In Honda’s manufacturing plant in Alabama there are ~3 job classifications, while you will find more than 150 job classifications in most General Motors plants in the U.S. and Canada. Higher rates of efficiency, teamwork, and resulting productivity are found in the Honda plant as a result of an “all hands on deck” belief versus the domestic OEM plants where workers often demonstrate a “that’s not my job” attitude – supported via union worker “protection” within the construct of “classifications” the UAW fosters.
Today, surveys Honda has conducted at its plants positively measure greater productivity, higher employee satisfaction, and resulting better quality and output as a result of its job classification policy. Increased automation in factories coupled with fewer job classifications provides a significant edge to OEMs. The call to action for the workers on the shop floor is to match that progress with new skill-building of its own, not support more and onerous job classifications.
Other than maintaining the recovery, workforce readiness is the single most critical issue facing the automotive industry. Most states are doing everything they can to attract new auto business, but a case can be made that it’s even more crucial to prepare workers for the new skills required on the assembly line. Many of the southern states are addressing this issue vigorously, having trained an inventory of skilled workers prepared to take on the new requirements in traditional assembly work which is missing or deficient for many auto companies. The states that lead the way in developing training programs that match skills with those requirements are winning. It is imperative for OEMs to have re-training programs in place to keep jobs here in the U.S., and matching the right employees with the right skills is the single greatest factor in their future growth and success.
According to the Bureau of Labor Statistics, Tennessee is tops among southern states in preparing and re-training autoworkers, and here are some examples of breakthrough solutions Governor Bill Haslam and his team are sponsoring: Over the past five years, Tennessee K-12 schools have placed greater emphasis on STEM (science, technology, engineering and math), and Haslam has invoked the “Tennessee Promise” – two years of applied technology, college-level, at no charge. Meanwhile, the University of Tennessee-Chattanooga is partnering with Volkswagen to build vocational programs i.e. VW Apprenticeship, which is already having a positive impact as senior workers before retiring hand off their highly valuable skills to newer workers, without disruption to the shop floor cadence.
Also, Tennessee and South Carolina have created “Innovation Districts” – incubators that will teach required manufacturing/pre-engineering to close the skills gaps. Tennessee has co-sponsored the National Network of Manufacturing Innovation (NNMI) and Volkswagen Academy to promote technology readiness, K-20 workforce development, and address real-world industry issues in classroom i.e. composites and light-weighting.
Will the U.S. auto industry’s massive R&D infrastructure based in Michigan ever depart for southern climates? Not anytime soon, and probably never. With fully 75% of the entire U.S. auto industry’s research and development assets located in four Michigan counties (Oakland, Wayne, Macomb and Washtenaw), that isn’t likely to change in the foreseeable future.
However, there have been serious efforts by the German (Volkswagen, BMW, Mercedes-Benz) and Asian (Nissan, Toyota, Honda, Hyundai) OEMs to aggregate more R&D focus in the southern states where they have located significant manufacturing investment. More public-private partnerships are popping up in the south, and academic alliances such as Clemson University’s International Center for Automotive Research (CU-ICAR) brokering research deals between OEMs, traditional suppliers, and organic technology companies new to the auto space.
The rise of the south is a strategic shift that is rooted in the technological, economic, and human capital changes the industry is facing. It is not a “North versus South” showdown, or even a domestic versus non-domestic OEM issue. The deeper challenge is how the industry will navigate the new forces converging in the industry – alternative powertrain solutions, urbanization in emerging world markets, emissions worries, vehicle connectivity, autonomous driving, and more – and be prepared to take all the help it can get, regardless of geography. Building a technology hub in the south to complement the R&D ecosystem in Palo Alto, Michigan and Boston is the long view.
Phil Biggs is Executive Vice President for the Nashville, TN-based technology company, NeXovation.
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