ALABAMA’S ENGINES OF GROWTH
DAIMLER, HONDA AND OTHER TOP AUTOMAKERS HAVE FOUND A HOME IN THE HEART OF DIXIE
Twenty years ago, Alabama’s vehicle production output was minimal. Extremely minimal—not one car or truck was built. This year, Alabama vehicle makers will produce close to a million cars and light-trucks, exporting more than $6 billion worth of them—enough to establish the state as this country’s fourth-ranked vehicle exporter. The driver, so to speak, has been the billions of dollars of foreign direct investment by a quartet of automotive giants: Mercedes-Benz, Hyundai, Honda and Toyota. Their U.S. subsidiaries now pace Alabama’s export rally.
In the early ‘90s, looking far ahead, Daimler AG selected Alabama to build its first passenger vehicle plant outside Germany. The company built a $400 million plant in Tuscaloosa County and in 1997 began production of a single model: the M-Class SUV. Seven years later, the company doubled its plant’s size with another $600 million investment and now uses it to produce three models with a fourth, the C-Class, slated to begin production in 2014. Over the past decade, the company has invested an additional $2.3 billion in manufacturing capacity, expanding production by more than 40,000 units a year.
“Tuscaloosa was the first production location of Mercedes-Benz cars ever outside of Germany, and today it is among our best,” says Dieter Zetsche, the mustachioed, as-seen-on-TV Daimler AG chairman. “As our pioneering plant, it is also the blueprint for our new operations in emerging markets.” (You read correctly; the chairman just lumped the U.S. in with emerging markets.)
Daimler’s site-selection choice did not go unnoticed by its global rivals—nor the state’s economic-development team. In 1999, Honda’s U.S. subsidiary, the American Honda Motor Co., chose Lincoln for its new automotive and engine factory. In 2001, Hyundai Motor America broke ground on a $1.7 billion facility near Montgomery while Toyota Motor Manufacturing Alabama opened a $700 million engine-assembly plant in Huntsville. All four plants have enjoyed consistent growth and expanded staffing.
Together, they’ve made Alabama an auto-manufacturing hub of global scale. Shipments of cars, light-trucks, engines and other auto parts accounted for nearly $3 out of every $10 spent by foreign customers last year as Alabama set a personal-best export record of $19.5 billion in 2012.
“Since Mercedes began exporting the M-Class vehicle, Alabama’s top export has been transportation equipment,” says Hilda Lockhart, director of the state’s International Trade division in Montgomery. “I’ve been here almost 15 years so I’ve seen us jump 134 percent. It is exciting to travel around the world and see Alabama-made products.”
Alabama spends upwards of $277 million per year on incentive programs, much of it subsidizing new plants and expansions of manufacturing exporters, according to the incentives database compiled by the New York Times. Last year the state’s biggest single grants recipient, European aviation giant EADS, received $158 million in cash grants and tax credits to build a $600 million Airbus plant at Brookley Aeroplex on Port of Mobile. Positioning itself to compete with Boeing in its arch-rival’s own market, EADS formed Airbus America Inc. and installed Texas’ Legend Airlines founder Allan McArtor as chairman.
For logistics-obsessed Airbus, securing the aeroplex site on the deep-water port was paramount: Airbus will at least initially import nearly all components, assemble them and then ship finished jets overseas. (The sourcing and assembly arrangement may be an efficiency expert’s nightmare, but passes the all-important Country of Origin test.) Meanwhile, Airbus stands to benefit from more than $700 million in recent and planned federal and state infrastructure upgrades of the port and in the channel feeding into the Gulf of Mexico.
Airbus is the most recent of the international investments to stoke Mobile’s economic engine. When the plant opens sometime in 2015, it will join a global business community whose economic activity is valued at nearly $19 billion by the Alabama State Port Authority. Some 28 foreign-owned companies from 17 countries are major Mobile Bay employers, including high-tech manufacturers, shipbuilders, healthcare companies, chemical suppliers, information technology brands and lumber-product exporters. In addition there are businesses making steel, gas, oil, seafood—and, coming soon, jet planes.
At the center of the action is the Port of Mobile. In 2012, the Port Authority’s containerized, steel and export coal volumes all posted significant growth as more than 25 million tons of cargo passed through. The biggest gainer was containerized freight—up 22 percent over 2011—while steel grew 8 percent and export coal 5 percent. Growth is expected to continue, spurred by planned government spending on intermodal rail, warehousing and terminal upgrades. The lead project is the Intermodal Container Transfer Facility that will provide an intermodal rail option serving north Alabama and Tennessee shippers beginning in late 2015.
Substantial export activity takes place up north as well. John Hamilton, chief operating officer of Taos Industries in Madison and a director of the North Alabama International Trade Association, cites advantages exporters enjoy closer to the Tennessee border, including the services of both the International Intermodal Center and Free Trade Zone No. 83 at the Huntsville International Airport, which offers regular cargo flights to Mexico and Europe. “We have over 40 foreign-owned corporations doing business in Research Park, a highly educated and diverse workforce [and] many foreign born who promote trade with their homeland,” he says. “The Tennessee River provides us with low-cost access to the Gulf and East Coast via the Mississippi and Port of Mobile.”
The Huntsville area, traditionally characterized by the presence of military bases and government-driven enterprises and programs, increasingly reflects entrepreneurial vigor. “There are so many small business owners who have done work for the Defense Department” and other military customers “and now are commercializing their products,” says attorney Alan Enslen, head of Maynard Cooper & Gale’s International Trade Group in Huntsville. “The aerospace, missile-defense and biotech communities spawn quite a bit of exporting.”
Case in point: the evolution of AZ Technology in Huntsville under chief Lynn Leeper . Her father started the company as an R&D contractor, developing heat-deflective coatings for NASA; she refocused on manufacturing and exporting, with 60 percent of sales now generated from Russia, China and other overseas locales. “We sell to aerospace customers, but much of our business now comes from environmental control uses over the Internet,” she says. “There seems to be more interest in that use overseas than in this country.”
Consider the similar contractor-to-exporter evolution of Kappler Inc. George Kappler, chief of the Guntersville protective-gear manufacturer bearing his family name, had but recently launched a new brand of full-body protective suits aimed at the private sector in 1986 when he attended an export workshop. “The Commerce guy who did the program said he could help us identify potential customers around the world. I thought, ‘We should check this out.’” He first contacted a U.S. commercial attaché in England, where he knew potential customers would speak his language. The attaché set up a series of face-to-face meetings and trade show appointments; their first taker was not English but Swedish, followed by a U.K. rep. Subsequent meetings produced distributors in China, Germany and Trinidad.
While technical requirements and engineering standards differ country to country, compliance is generally not difficult, says Kappler. Mastering selling styles and not running afoul of local regulations can be trickier. “In the U.S. we are big on features and benefits and like to do comparative presentations. In some places in Europe that’s frowned on and could be illegal,” says Kappler. “Europe is a stickler for following local regulations.”
Today, export sales run about $7 million a year, nearly a third of the company’s overall revenues. “The lesson I’ve learned about exporting is: Do it yourself,” Kappler reflects. “I mean, the CEO has to drive the sales and be the spark plug. If you delegate it, somehow it doesn’t get done.”
Hilda Lockhart of Montgomery’s International Trade division is happy to say that exporting is now recognized as a leading economic engine, thanks in large part to the state’s top executive and lead “spark plug.”
“When Governor (Robert) Bentley came into office he asked this agency to facilitate a five-year strategy entitled Accelerate Alabama,” Lockhart says. “The key to this strategy was to look at the state’s leading industry sectors and identify the economic drivers. Exporting is part of that five-year plan to create jobs through international trade.”
State of Emergence