Aug. 13 (Bloomberg) -- Russell Runge, an assistant city manager in Missouri, hovered on the edge of a packed reception for economic-development boosters and automotive-industry executives in northern Michigan. Runge was seeking jobs.
Runge’s city of Mexico, Missouri, located between General Motors Co. and Ford Motor Co. factories in Kansas City and St. Louis metro areas, is home to a small auto-parts maker.
“Obviously, we’d love to see more suppliers in the area,” he said last week after a long day at the Center for Automotive Research’s annual industry conference near Traverse City.
He wasn’t alone. The 17-page roster of registered attendees included a who’s who of economic-development officials from the Great Lakes to the Gulf Coast, all seeking a piece of a growing industry. The conference has long attracted state and local government officials eager to gain an audience with auto industry leaders by offering everything from MoonPies to cash incentives. There was new urgency and vibrancy this year.
“The interest has more than doubled” from state and local government officials compared with five years ago, said Jay Baron, chief executive officer of the Ann Arbor, Michigan-based Center for Automotive Research.
The car business is booming in the U.S., where sales are running at the fastest pace since 2007. The auto industry alone has contributed 14 percent to the otherwise sluggish U.S. gross domestic product recovery. With the industry’s focus on trimming costs to boost margins, economic-development officials know that now, more than ever, is the time to argue that their location, workforce and community support will make a good marriage.
Gary Wallace, vice president of corporate relations at Agero Inc., a Medford, Massachusetts-based automotive supplier that provides connected-vehicle services, watched the crowd. He knows what it’s like to be pursued by eager economic-development officials. His company opened a new call center in Clarksville, Tennessee, a year ago, creating 250 jobs to start, with plans to increase to 500. Before the decision, Tennessee and South Carolina conducted a full-court press.
“The governors were involved,” he said. “I half expected Dolly Parton to knock at my door.”
His company ultimately picked Tennessee because the location had a facility already constructed that fit its needs, he said.
As U.S. auto sales have rebounded from a 27-year low in 2009, automakers and suppliers are rushing to churn out cars to meet growing demand. IHS Automotive estimates that North America light vehicle production may rise to 17.2 million in 2015 from 15.4 million last year.
With suppliers operating at about 80 percent capacity, more will have to start expanding to keep up with demand, said Dave Andrea, senior vice president of industry analysis and economics at the Original Equipment Suppliers Association, a trade group.
As the conference played out last week, automakers announced plans to spend $434 million to boost their capacity to make vehicles and engines in North America, including a GM plant in Tennessee and Honda Motor Co. factory in Ohio.
Many executives are reluctant to commit to building a new factory and are instead doing what Ford is doing: Adding shifts and carving out additional capacity the best it can. Ford’s Van Dyke Transmission plant in Sterling Heights, Michigan, is running on four shifts, totaling 153 hours a week, said Jim Tetreault, the automaker’s vice president of North American manufacturing.
“We’re still looking at how we get more out of every plant, and that’ll be a focus for as long as the demand is as strong as it is,” he said.
As Runge, the Missouri city official, mingled at the reception, Mike Finney, head of the Michigan Economic Development Corp., sat outside on a couch, contemplating the many visitors from other states who were wooing auto investments.
“We’re trying to be on the radar screen of businesses that are in a growth mode,” he said.
Among his assets: Proximity to the now-growing Detroit Three’s U.S. manufacturing core and $170 million in cash incentives for job-creating investments in the next fiscal year in Michigan.
Finney gave his pitch for how Michigan could help businesses the same day Michigan Governor Rick Snyder told the audience that the state has a lot to offer.
The next day, Missouri Governor Jay Nixon made his pitch. He’s angling to leverage GM’s announcement in January to invest $600 million to expand the Fairfax assembly plant and its $513 million commitment to prepare for new mid-size pickups at the Wentzville assembly plant near St. Louis as well as Ford’s $1.1 billion investment in its Kansas City area plant.
“We’re using that as a hook to meet with a number of suppliers that are in that line and getting them to either build new facilities near us or expand or rent existing facilities,” he said in an interview. “There’s still investment to be made in the supplier network. I think that’s going to continue for the next few years.”
Conference organizers turned away other governors who asked to speak, said Baron, of the auto research center, citing a limit of one from outside Michigan.
The rivalries between the governments can be as fierce as Ford versus GM.
“Clearly, we have issues with Kansas in Missouri, just because we’re near each other and the Jayhawks are always somewhat annoying to us,” Nixon said.
He may be competing with Kansas to land suppliers expanding or relocating as part of GM’s expansion at Fairfax, which is on the Kansas side of the Kansas City metro area.
Grace Lieblein, GM’s purchasing chief, told the conference that the automaker aims to save $66 million in shipping costs in the next-generation Malibu by convincing a supplier to move closer to the Fairfax assembly plant. The current model is supplied by part makers located more than 700 miles (1,126 kilometers) away, she said. She didn’t name the supplier.
Greg Burkart, a managing director at Duff & Phelps, which helps suppliers with revenue of more than $1 billion with site selection, said he’s getting three to four invitations a week from various government and economic groups to visit communities with pitches for why parts makers should locate there.
“From 2008 to 2010, maybe early 2011, it was dead,” he said. “States are much more aggressive in terms of trying to attract automotive.”
7 for 1
Each worker hired directly by an automaker creates seven other jobs either by suppliers or because of spending by those new employees, the Center for Automotive Research calculates.
While auto-parts makers are still reluctant to expand, Burkhart said he expects a wave of investment in 2014 and 2015 based on demand from consumers replacing the oldest vehicles ever on America’s roads.
“It’s only a matter of 18 months, 20 months and I think the expansion level at the supply industry will really start accelerating.”
Since the auto industry began, communities have fought each other for the jobs that come along with car factories. General Motors founder Billy Durant played Flint and Jackson, Michigan, off each other for community support in the early 1900s when it was time to expand Buick, according to Lawrence Gustin’s book “Billy Durant: Creator of General Motors.”
The new lobbying efforts come after factories were closed and thousands of jobs were cut in 2009 as U.S. auto demand fell to 10.4 million cars and trucks from a peak of 17.4 million in 2000. The pain included GM and Chrysler Group LLC reorganizing through government-backed bankruptcies.
U.S. employment in motor vehicle and parts manufacturing fell to 524,200 in July 2009 from a peak of 1.16 million in June 2000, according to the Center for Automotive Research. Employment recovered 26 percent to 662,300 through the end of 2012.
Last week, as Runge, the Missouri city official, surveyed the crowd at the packed reception, competitors circled.
Trevor Hamilton of the Cincinnati USA Regional Chamber could be spotted between the open bar serving Michigan beers and a table of potato chips.
“It’s very competitive,” said Hamilton, who carried brochures touting the area’s proximity to assembly plants in the Midwest and South. “We’re competing with every other community in every other region.”
Nearby, Viktor Mizo, director of technological industrial development zones for the Republic of Macedonia, part of the former Yugoslavia, buttonholed a Chrysler executive, who smiled politely.
“It was more about introduction,” Mizo said later. “We’ve done quite a lot of Michigan events.”
The Tennessee Economic Partnership helped sponsor a networking reception the following night. Among the tables of appetizers, homage to the Volunteer State could be found, including meatballs with Jack Daniels sauce and MoonPies.
Chattanooga, home of the MoonPie, was the last big winner in the game to attract an automotive assembly, or OEM in industry parlance, with the opening in 2011 of Volkswagen AG’s plant. The Wolfsburg, Germany-based automaker invested $1 billion into the plant that now employs 2,600 people and attracted suppliers as well.
“Automotive is always seen as the holy grail of economic development,” Doug Lawyer of the Tennessee Economic Partnership said. “We’re all here because we know the automotive sector is growing and we’re interested in making sure that we all get our piece of that pie.”
As the guests squinted at the stacks of MoonPies, Ben France, an Arkansas state economic development official, could be seen wandering through the crowd. He confided that he wanted to make some connections: “We need an OEM.”
--Editors: Bill Koenig, John Brecher, John Lear