Tennessee auto industry hits the accelerator: Nissan, GM, VW find ‘best employees’ here

Friday, January 16, 2015, Vol. 39, No. 3
By Sam Stockard

Five years after the Great Recession rocked the nation and nearly destroyed auto manufacturing in Tennessee, the Midstate’s industry is booming again.

Nissan’s growth is no small part of that, largely because of the company’s confidence in the state of Tennessee and Gov. Bill Haslam, according to José Muñoz, executive vice president of Nissan Motor Co. and chairman of Nissan North America, which is headquartered in Franklin.

“We have been adding more than 5,000 jobs since mid-2011. We keep growing. We have become the biggest manufacturing facility, here in Smyrna, in North America in all brands, which is something nobody would have thought about some years ago,” Muñoz says.

Muñoz was among Nissan officials who helped break ground recently on a joint project with the Tennessee Board of Regents for a $35 million Tennessee College of Applied Technology located across Nissan Parkway from the plant where Nissan technicians and other students will train. It will operate as part of the College of Applied Technology in Murfreesboro.

“We like very much Gov. Haslam and his administration. They’ve built a very strong foundation, and I really mean it,” explains Muñoz, who holds a doctorate in nuclear engineering and was appointed to his posts in January 2014 after leading company operations in Mexico, Latin America and Brazil and developing dealer network initiatives that boosted sales for Nissan Mexicana when he was its president from 2009-12.

‘Tremendous success’

Nissan, which began building cars in Smyrna in 1983, has operations in nearly 300 countries, but it is doing “very well” in Tennessee where it finds great support, Muñoz adds.

“We’re very confident, and, hey, I think we’ll show we are getting a good-luck factor for every car we make here in Smyrna and everything we do in Tennessee,” he says.

Nissan has started operations at a new engine plant in Decherd, where it began building engines in 1997, and will sell those to Daimler, Muñoz says. Nissan recently started producing the Rogue at its Smyrna plant, rather than in Japan, and will begin building its new Maxima there this year.

“By producing it locally, it’s been a tremendous success. You talk to our dealers. They can’t wait to get more cars and more cars,” Muñoz says.

“We give a little bit of a hard time to our plant managers to try to cope with the production demands. So the more you’re localized, the more successful you are and the more you want to localize.

“And the suppliers they do the same, we work together with them. We see them every day. We work together on how to improve quality. Not only is it important to localize because of the speed to bring the product to market, but especially because of the quality.”

Meanwhile, Nissan’s Leaf is the No. 1 EV car in the world. The company announced in November the production and sales of 200,000, and it has doubled Leaf sales over the last two years, Muñoz says.

For 2014, he projected the manufacture and sale of 35,000 units in the United States, built at the Smyrna plant, nearly 40 percent growth over the previous year.

“We have around 19,000 chargers and about 700 quick chargers, so the technology is really working,” he says. “We are very committed, we are very happy to manufacture the Leaf here, and we want more capacity, so it’s a great success from our point of view.”

Teaming with other states

Nissan’s growth goes hand in hand with projections made by auto industry experts.

North American auto production is expected to grow 10 to 15 percent over the next five years, says Jay Baron, CEO of the Center for Automotive Research (CAR) in Ann Arbor, Mich., and his group is working to ensure the lion’s share of those vehicles are made in this region.

During the Southern Automotive Conference in Birmingham this year, CAR unveiled a study encouraging Tennessee to team with neighboring states to strengthen the industry here and keep it out of Europe or Mexico, the hot spot for manufacturing locations in recent years.

Plants are operating at capacity and must work around the clock or expand to meet market demands, Baron says.

“We want most of that to expand locally by 10 to 15 percent,” Baron says.

The evidence

To that end, Tennessee is making its own mark, even taking production from Mexico.

A week before groundbreaking on the Tennessee College of Applied Technology, Japan-based M-TEK, which builds parts for Nissan and other manufacturers, announced construction of its North American corporate headquarters in Murfreesboro.

The $13.4 million investment comes largely because of a 10-acre land donation by the city government estimated to be worth $3.6 million. Some 250 jobs paying an average of $60,000 a year are to be set up there.

Volkswagen announced plans last summer to add a new SUV line called CrossBlue in Chattanooga, where the Passat is being made, in addition to a research and development center with 200 engineers. The reported $600 million investment will add 2,000 jobs, doubling VW’s employment in East Tennessee.

At the same time, General Motors’ Spring Hill plant is gearing up to build a new Cadillac model that was previously assembled in Mexico, in addition to another model that has not been announced. The Spring Hill facility, which was largely idled prior to the economic downtown, started assembling the Equinox just two years ago.

Key facilities

Considered the Southern arm of America’s auto industry, Middle Tennessee also has been designated as an advanced automotive manufacturing sector by the federal government.

All told, the state has more than 900 automotive-related facilities that employ more than 113,500 people.

The Volkswagen Chattanooga plant represents a $1 billion investment with more than 3,200 VW employees and more than 9,500 indirect supplier employees. The plant is expected to generate $12 billion in Tennessee income growth and $1.4 billion in state tax revenue.

Nissan boasts a $5.8 billion investment and estimated $290 million annual payroll for 8,100 jobs in Smyrna where it builds six vehicles, the Nissan Altima, Maxima, Pathfinder, Leaf and Rogue and the Infiniti QX60, a capacity for 640,000 vehicles annually.

In Decherd, Nissan has a $1 billion powertrain plant that employs 1,600 people and a $191 million Infiniti powertrain plant that in 2014 began employing another 200.

Nissan’s North American corporate headquarters moved to Franklin from California with 1,500 employees.

General Motors employs 2,344 people with annual wages of $178 million and a payroll tax of $28 million at its Spring Hill plant, formerly home of the Saturn, a facility for the Chevrolet Equinox, 4-cylinder engines, a stamping plant, two polymer injection molding operations and one paint operation for bumper fascias that are sent to GM assembly plants worldwide.

How it started

“It all goes back 30 years ago when Nissan decided to come to Tennessee. It really does. That launched the automotive industry in Tennessee, and today we have multiple plants and a lot of suppliers that have followed that here,” Haslam says. “But it really all comes back to a decision made 30 years ago by Nissan, and we as a state have reaped incredible benefits because of that.”

Tennessee’s automotive industry is growing for the same reasons manufacturers located here three decades ago, including low taxes and right-to-work laws, skilled and hardworking employees, a logistical advantage most states don’t have and infrastructure such as interstates, railroads and airports, according to Clint Brewer, spokesman for the Tennessee Economic and Community Development Department.

A designation as an advanced automotive manufacturing corridor enhances Tennessee’s global reputation and puts manufacturers on notice that they can find “elite, qualified” suppliers nearby, Brewer notes.

“We expect the state’s growth trajectory in this sector to continue,” he says. “Tennessee has embraced its global role in the business community, and we believe this sector will continue to grow.”

To continue competing, though, Tennessee must develop a more prepared workforce, and Gov. Haslam’s Drive to 55 and Tennessee Promise are part of that, Haslam says.

The governor wants 55 percent of the state’s adults to hold a degree or certificate of higher education in 20 years, and his latest initiative will enable students to pursue two-year degrees in Tennessee’s community colleges and colleges of applied technology free of charge.

Haslam’s education plan has gained traction nationwide with Pres. Obama picking up the idea for a national program. He made the announcement last week at Pellissippi State, noting that Tennessee “is at the forefront of doing some really smart stuff.” The announcement of the new manufacturing hub was also made on this trip by the president.

Competing in a global market

Industry executives and United Auto Workers leaders agree that the workforce must evolve.

During the College of Applied Technology groundbreaking in Smyrna, Nissan’s Muñoz acknowledged that “it starts to get tougher and tougher” to find new employees.

“You want to really compete in a world of global economy with global competitors that are looking for high quality in competitive products,” Muñoz adds.

“You really need to have the best employees, and I think we managed to get those here in Tennessee, and through these activities we’re going to continue to do so in the years to come.”

Tennessee Board of Regents Chancellor John Morgan points out that Nissan will use the college to train its employees, but the students who graduate there will be able to take jobs with any manufacturer in the region.

Nissan and other manufacturers will have up-to-date robotics equipment for student training, he says, noting Nissan will share its equipment for training, and the state will offer its machine-tool equipment for Nissan training.

“This is not a facility that’s limited to Nissan and Nissan employees,” Morgan says. “It truly is a partnership, and they were willing for us to be able to provide open training for folks here in Middle Tennessee.”

Graduates of the College of Applied Technology would be eligible immediately to become a Nissan employee, says Muñoz, adding 22 of 24 recent graduates scored 20 points higher on tests than the national average.

With computerization becoming such an integral part of vehicles, a skilled workforce is more important than ever in automotive manufacturing, especially in a competitive global environment, Muñoz adds, even more so than when he was an engineering student.

“Because the machines you utilize, they need to be fine-tuned, always maintained, they need to be perfect,” he notes. “So the more technology that is put into the process to make a better machine, a more high-quality machine, the better the preparation that you need.”

Mike Herron, bargaining chairman of UAW Local 1853 at GM’s Spring Hill plant, points out that Tennessee has some of the best workers in the nation. But he believes the next decade will see a shortage of skilled steel trade workers.

The United States should adopt the same philosophy as Germany and identify people who display potential in skilled trades and help train them to become experts.

“Manufacturing is seeing a rebirth here in the United States. It’s critical that we have skilled-trades people,” he says, pointing out that workers must have a strong mind as well as a great work ethic.

Systems going in are sophisticated, and potential auto workers have to enter the profession with a strong computer background, Herron says.

The right place

Mexico became a popular destination as auto manufacturers “chased cheap wages,” Herron says, but he contends a trend is taking place in the opposition direction because of a number of factors, including currency rates, environmental concerns connected to manufacturing, and logistics.

The UAW took a leading role during collective bargaining in 2011 to revive the Spring Hill plant and push through the economic downturn after North American auto production shrank from 16.5 million units to 10 million, the biggest contraction in modern times.

Auto makers idled plants, as did General Motors, which went through bankruptcy and federalization as it cut excess capacity and four brands, settling on Cadillac, Buick, Chevrolet and GMC.

“UAW went to the bargaining table with an agenda of growing jobs at the plant and turning around the idle state of the plant,” Herron says.

The result is bringing the Chevy Equinox here from Mexico, a new flexible manufacturing system and preparation for the assembly of two mid-size products, which are creating 1,800 jobs.

Why Tennessee?

The state’s location in the Southeastern United States is one of the main reasons for its standing in the automotive industry.

Relatively inexpensive and reliable power through suppliers affiliated with the Tennessee Valley Authority, proximity to raw materials and positioning with dealers and customers are crucial to manufacturers.

The UAW’s Herron points out that the Spring Hill plant is within a day or two drive of major ports and can ship its finished products to 80 percent of the country in a single day’s drive.

The absence of a state income tax also plays well with auto manufacturers, he says.

Competitive pricing in the auto industry leads to a phenomenon called a “localization” in which manufacturers need suppliers close to the plant, CAR’s Baron points out.

Tennessee has a local supply chain that is growing, as does Detroit, Mexico and Munich, Germany.

“There’s a certain degree of synergy,” Baron says, in developing a supply chain that works on economies of scale.

East-state contribution

Anderson County near Knoxville in northeast Tennessee is a major player in the supply chain, and SL Tennessee LLC, a South Korean company, announced last summer it will invest $80.5 million to expand operations and add 1,000 jobs.

SL Tennessee, which manufactures headlamps, tail lamps, gear shifters and parking brakes for General Motors plants in Mexico, Canada and the United States, is slated to complete its new building in May and follow with three substantial waves of hiring, according to Scott Laska, business development group manager for SL Tennessee.

The company opened shop in Clinton with about 30 people in 2003 and has grown to 750 employees. The expansion will more than double its workforce.

“We provide a high-quality product at a competitive price,” and the area’s labor pool and employees play a vital role in the company’s success, says Laska, who has been with SL Tennessee since 2004.

Laska sees a “definite” uptick in the South’s automotive industry, and Tennessee is a big part of that.

In addition to the workforce, good transportation and a business-friendly environment developed over the last few years are keys, he notes.

“The state’s always worked well with industry, and I think they’ve stepped it up a notch the last few years,” Laska says.

Aisan, a Toyota parts supplier, and Eagle Bend, a division of Canada’s Magna, which provides parts of numerous manufacturers, are two other key suppliers in Anderson County.

“Expansion by our existing industries is our absolute best selling point when it comes to attracting new industries,” Anderson County Mayor Terry Frank says.

“When they expand, they are telling other industries that they are happy here, happy with the local labor force, taxes and community.”

Anderson County’s main economic challenges are related to housing and residency, Frank says, and a healthy manufacturing sector with a wide array of automotive suppliers helped the county “weather the economic storm” that started in 2008.

In 2011, the county government’s fund balance dipped below $1 million, forcing creditors such as Moody’s to put it on a negative watch, according to the mayor.

But in 2012, the county experienced $64 million in industrial investment and since December 2013 another $270 million.

Since then, the county’s fund balance has grown past the $4 million mark, and Standard & Poor’s gave it a two-notch increase.

Frank credits the improvement to the state of Tennessee’s financial management and says Anderson County is anticipating more automotive industry growth this year and in 2016.

“Compared to most communities, we are not as aggressive with offering abatements and incentives but rely heavily on our location, access to the interstate and especially our ability to attract skilled labor from eight surrounding counties,” Frank says.