Auto industry expansion across South Carolina causing economic tidal wave

Friday’s announcement that Mercedes-Benz’s parent company will pump a half-billion dollars into a new Lowcountry van-making plant – coupled with the prospect of a huge Volvo factory in the vicinity – will send an economic tsunami across the entire state, experts say.

There are 401 companies in South Carolina that produce automotive parts, according to the S.C. Department of Commerce. That’s up from 305 in 2008. And each could profit from new automakers.

Automaker suppliers are in 40 of the state’s 46 counties and make just about everything that goes into an automobile: seats, radiators, windshields, hydraulics, tires, plastics, cables, fuel tanks, fuel systems, brakes, transmissions, glass, aluminum, steel, carpet, windshield wipers and dozens of other components.

The BMW X6 alone contains about 76,000 parts – each of which needs a supplier, said Lewis Gossette, executive director of the S.C. Manufacturers Alliance.

“It really is an endless list,” he said. “It’s an enormous amount of things. And that’s why these announcements are a big deal.”

In 2008, the last year for which figures are available, the auto industry pumped $27.1 billion into South Carolina’s economy. And that was before big expansions at BMW, Michelin and Bridgestone, a new Continental Tire plant in Sumter, a Giti Tire Plant in Chester, now Daimler AG’s Sprinter van plant and possibly Volvo.

Those plants represent more than $5.5 billion in investment and more than 7,000 promised jobs.

“Clearly, when these new announcements get up and running, it will be time for a new study,” said Elizabeth Feather, a researcher with Greenville-based business recruiter Upstate Alliance.

A 2014 study of the BMW plant in Greer shows the German automaker’s annual economic impact is $16.6 billion. BMW also generates more than 30,700 direct and indirect jobs, the study by the University of South Carolina’s Moore School of Business shows.

That includes the ancillary boost the plant and its suppliers have on the economy, called a “multiplier:” Those beneficiaries could be a convenience store owner who sells more gas, a movie theater operator who sells more tickets or a real estate agent who sells more homes.

Each automotive job created – and the Daimler plant promises 1,300 – creates three or more jobs from its supply chain and ancillary impact.

“The multiplier effects are stronger in the automotive industry than any other sector in South Carolina,” said USC research economist Joey Von Nessen, who helped prepare the 2008 report. “That ability to scale up employment is unique. And South Carolina has developed an extensive supply chain.”

S.C.’s history with motor cars dates to 1916

The auto industry in South Carolina began in 1916 in Rock Hill, according to the York County Museum.

John Gary Anderson and his father-in-law, Adley D. Holler, founded the Rock Hill Buggy Co. in 1886. By 1916, they had seen the popularity of new horseless carriages being built by Henry Ford in Michigan and decided to jump on the bandwagon.

Except they wanted to go Ford one better.

The Michigan manufacturer mass produced Model Ts that sold from $345 to $760 and only came in black. Anderson’s handmade touring cars sold for $1,650 for the five-passenger touring car to $2,550 for the sedan. They came in colors such as metallic blue.

The Anderson motto was “A Little Bit Higher in Price, but Made in Dixie.”

Anderson closed in 1926 as the falling price of cotton brought the Great Depression early to the South. The company produced 7,000 vehicles, only 11 of which remain today. One is at the museum.

The modern automotive industry began in South Carolina in 1973, when Michelin established its first U.S. plant in Anderson and later established its North American headquarters in Greenville. It also has a huge footprint in Lexington County, where it has invested at least $1.2 billion.

After that, the automotive industry, including Daimler and Honda, started making significant investments in South Carolina. In 1993, BMW built its first full manufacturing facility outside of Germany and its only plant in North America at the time. It now has about 8,000 employees.

But suppliers here, particularly tire makers, don’t just depend on BMW, the manufacturer alliance’s Gossette said.

“One of the great myths is that all of these suppliers are here because BMW is here,” he said. “Our automotive industry is stronger because of BMW, but it supplies a lot of folks all over the world.”

Geography, incentives are drivers

While automotive suppliers are spread throughout South Carolina, most are clustered around those roots in the Upstate.

Greenville, Spartanburg and Anderson counties lead the state with 25 suppliers each.

“The big driver here is to be close to the customer,” said Fred Cartwright, executive director of the Clemson University International Center for Automotive Research.

York County has 23 firms. Charleston boasts 21, due in large part to its proximity to the Port of Charleston. Richland County has 15 firms and Lexington County seven.

Gossette said geographic location often isn’t as important as one might think.

“These facilities have very big footprints,” he said. “You really only need to be within 150 to 175 miles to do work with them.”

Smaller firms looking for a location often pit region against region and county against county, weighing local incentives such as free land and infrastructure grants, discounted water and sewer, fees in lieu of property taxes, and other support.

Big manufacturers, like Volvo, pit state against state for lucrative incentive packages and tax breaks. Volvo is said to be weighing offers from Kentucky and Georgia as well as South Carolina.

State lawmakers last month included in a $500 million bond issue $35 million for a Charleston-area training center. Other undisclosed incentives are no doubt on the table, including job creation tax credits, free land and “closing fund” grants for site and infrastructure improvements.

Daimler received job development credits and a $14 million closing fund grant to help with property improvements related to the project.

“There’s a strong regional competition, and strong state competition,” Cartwright said. “And really, we’re all in competition with Mexico. Everything is moving South.”

S.C. has keys to success

Experts say South Carolina has been doing well so far as firms choose to build in the South and Mexico, where labor is cheaper.

Unions are almost nonexistent and the climate, both business and meteorological, is favorable.

South Carolina is becoming more attractive for many reasons, according to Zoran Filipi, who chairs Clemson’s Department of Automotive Engineering.

“A lot of that is availability of workforce,” Filipi said. “Incentives are important. Tax breaks are important. But in the long term, they have to have a supply of talent.”

Experts credit efforts of the state’s universities and technical colleges to tailor talent to the automotive and, with the advent of Boeing, aerospace industries.

But their are other factors as well, most notably the Port of Charleston

South Carolina has been the No. 1 exporter of tires for several years now, eclipsing Ohio, in large part because of proximity to the port. And the Palmetto State soon might overtake Oklahoma as the biggest producer of tires.

Experts say that recruiters at Commerce, headed by former BMW executive Bobby Hitt, and Republican Gov. Nikki Haley are swinging into the automotive industry’s sweet spot. Hitt talks the talk, and Haley is a solid closer.

“I have heard from company officials, and they are masters at this game,” Filipi said. “They have figured out what is critical for these industries.”

Going forward

The state is expected to continue to attract firms as the automotive industry continues to grow.

An improving economy and falling oil prices will boost global auto sales 1.5 percent through 2019, with the biggest windfalls coming in North America, according to market forecaster IHS Automotive.

Gas prices alone translate to as many as 7 million more cars bought nationally during that time than if oil prices had remained high and stable.

Cartwright said the state is positioned well to capitalize on that growing market, with its incentive packages, labor force, business climate, low taxes, lack of Unions, lower wages and good weather.

And its history with Michelin and BMW, and now with Daimler and possible Volvo, has created a “critical mass and momentum” that will attract the attention of other automakers and suppliers.

“We have as good a chance as anyone,” Cartwright said. “We have so many of the keys right now. We’re in good shape.”

This story was originally published March 7, 2015 at 10:15 PM with the headline "Auto industry expansion across South Carolina causing economic tidal wave."