Southern U.S. auto plants weather industry storm

LINCOLN, Alabama Tue Jun 2, 2009 2:55pm EDT

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LINCOLN, Alabama (Reuters) - To find a U.S. region where auto manufacturing is well placed to weather the storm in the American car industry, look south.

As General Motors Corp this week followed Chrysler into high-profile bankruptcy, a spotlight turned on southeastern states where foreign auto manufacturers have located plants in recent years.

People associated with Alabama's car industry, which employs around 50,000 people, expressed no pleasure this week at the demise of domestic manufacturers up north.

But several said they were relieved the southern auto producers have largely been shielded from the storm battering the domestic industry.

They have been insulated because their lower-cost plants give them a cost advantage and their foreign owners are financially stronger.

"We have been very fortunate that most of them (Alabama-based auto plants) have been able by cutting back on the work hours to avoid massive layoffs," said Linda Swann of the Alabama Development Office, which promotes industry.

"We think that we are coming back strong when the economy ticks up," Swann said.

There were 570,600 workers at U.S. auto plants and their suppliers, according to figures from the U.S. Department of Labor in January.

But in the last decade, car manufacturers have selected southern states for new plants due to lower labor and energy costs, cheaper land, state subsidies, a lower tax burden and -- significantly -- the absence of unionized labor.

Like other southern states, Alabama is a so-called right-to-work state where employees are not required to join unions. Wages tend to be lower than in union plants, though Swann argued living costs were also lower.

There are eight major assembly plants operated by foreign-owned auto companies in six southern states, and while U.S. auto companies cut back in Detroit, companies from abroad are expanding in the U.S. South.

Volkswagen started construction of a plant in Tennessee last month and Kia Motors Corp is building a plant in Georgia. Toyota's nearly completed plant in Mississippi has been halted for economic reasons.

Domestic manufacturers operate 11 southern plants and although five have been closed this decade and two more are slated to shut their doors, the closure rate is lower than elsewhere in North America, said Mike Randle of Southern Business and Development magazine.

"Eventually it is going to be very good for the South once this (domestic auto) restructuring occurs. The South is already a beachhead for foreign automakers," said Randle, whose publication tracks the southern auto industry.

SMALL TOWN BOOM

The town of Lincoln, Alabama, set in a forest a few miles west of the giant Talladega superspeedway track, typifies how foreign-owned car manufacturers can transform sleepy southern towns.

Prior to Honda's arrival in 1999 the town with a population of 4,600 was a bedroom community serving cities such as Gadsden and Birmingham where the industrial base had vanished since the decline of textile manufacturing.

The plant, with products that include the Odyssey minivan and Pilot sports-utility vehicle, employs around 4,000 people and has boosted many sectors of the local economy.

Per capita income in Talladega County rose 7.4 percent per year from 2000 until 2006, when it leveled off, the highest increase for any county in Alabama, said Calvin Miller, of the Talladega County Economic Development Authority.

The city has grown by several thousand, developers have built 20 new subdivision housing estates, schools have expanded and even new churches have sprung up.

Even so, Detroit's loss is Alabama's loss too, according to Lincoln Mayor Lew Watson and others in the town.

"We are a Honda town but it doesn't mean that everybody here drives a Honda," said Watson, who has served as mayor for 30 years. "What happens in Detroit has an impact on Lincoln, Alabama. We live in a global economy."

Southern states are not immune from the credit crunch and recession that have driven U.S. auto sales down and forced manufacturers to cut production.

More than a dozen Alabama-based suppliers who make parts for the foreign-owned car plants but also for GM and Chrysler have suffered, Swann said.

Honda reduced its U.S. production by 204,000 units from 1.468 million units during the last fiscal year because of a downturn in sales. That meant a 6,000-unit decline in production at the Lincoln plant, said spokesman David Iida.

As a result, a Lincoln-based company that hires temporary workers for the Lincoln plant, Elwood Staffing, announced in January it would lay off 706 workers, according to an Alabama government website.

(Editing by Michael Connor in Miami and Cynthia Osterman)

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