SUV, crossover focus saves Tennessee jobs
Major investments in crossover and SUV production have largely insulated Tennessee auto assembly plants from recent rounds of layoffs as the industry reacts to declining car sales.
In fact, Volkswagen in Chattanooga, General Motors in Spring Hill and Nissan in Smyrna have been on hiring sprees lately, which is a good sign for the state’s automotive sector.
“Generally speaking, plants that build trucks, crossovers and SUVs, when you look at all the economic factors and the fact there are projections the market is going to continue to be strong in 2017, it bodes well for the workforces and communities that build those products that have anticipated continued growth opportunities,” GM spokesman Dan Flores said.
The auto industry is a major economic driver for Tennessee. In 2015, 6.3 percent of all U.S.-made cars, light trucks and SUVs were produced in the Volunteer State, according to the Tennessee Department of Economic and Community Development. There are automotive operations in 88 of the state’s 95 counties, and transportation equipment ranks as Tennessee’s top export.
The three major assembly plants in the state have undergone recent expansions to help meet consumer demand for bigger vehicles.
General Motors has invested millions in the Spring Hill plant to increase output of the crossover Cadillac XT5 and GMC Acadia midsize SUV. The facility, about 40 miles south of Nashville, recently added a third shift and 650 workers to bolster production. That’s on top of nearly $1 billion in investments announced last year to build V8 engines for trucks and SUVs, launch a new high-efficiency engine program and modernize vehicle programs.
“GM, like every other automaker, is trying to react to what people want. From our perspective, we have several new crossovers and SUVs coming this year, including a new Chevrolet Equinox and Traverse and some other products we haven’t yet announced. We’re planning on capitalizing on this migration from cars to trucks with more new SUVs and crossovers,” Flores said.
The Detroit-based automaker has poured money into its Tennessee plant at the same time it trims its workforce elsewhere in the U.S. to help reduce inventory to meet demand.
In November, GM said it would lay off 2,000 workers between its Lansing, Mich., and Lordstown, Ohio, plants because sales of cars made at those facilities — including the Cadillac ATS and CTS, Chevrolet Camaro and Chevrolet Cruze — are declining. The company also plans to cut nearly 1,300 jobs in Detroit and close five assembly plants for one to three weeks this month.
GM’s crossover sales surged 21 percent in 2016, with car sales up 4 percent, Flores said.
The total midsize car segment shrunk from 16 percent U.S. market share in 2013 to 12.9 percent market share in 2016, according to data from GM. Small SUV sales grew from 0.6 percent to 2.9 percent during the same time period. Midsize pickups increased from 1.6 percent market share in 2013 to 2.5 percent market share in 2016.
“There has been a big shift from sedans and typical cars to taller vehicles, mostly SUVs or crossovers,” said Jack Nerad, executive editorial director at Kelley Blue Book. “… I think low fuel prices are helpful to that trend, the fact than an SUV is a very versatile vehicle is helpful, people like the high driving position, and it’s easier for many people to get in and out of an SUV than a low-slung sedan.”
December sales pushed the U.S. auto industry to a new record, with 2016 sales rising 0.4 percent to 17.55 million. But some auto manufacturers are trying to play catch-up with current market trends, Nerad said.
“North American-based manufacturers … are more inclined to set up a plant to build one or two models and that’s what that plant builds. If demand for that vehicle wanes, they cut back production there. They might end a shift, lay off workers, take some furloughs,” Nerad said.
Auto manufacturers have to predict consumer trends far in advance to line up suppliers, secure parts and prepare for production. For that reason, many manufacturers are shifting to become more flexible on assembly lines.
“Building the vehicles that are well matched to consumer demand sounds simplistic, but it’s not in this industry. The more you can match what you build to actual demand — if people want a lot of crossovers, building more crossovers and not trying to force sedans on them with high incentives — it’s a much better business proposition for the typical manufacturer,” Nerad said.
In Tennessee, auto plants have been well positioned in recent years based on current market trends.
VW’s Chattanooga plant in December started production of the Atlas, a seven passenger crossover SUV. The German automaker — which said in November it would cut 30,000 jobs worldwide after its massive emissions scandal — invested $900 million in Chattanooga to expand the plant by 26 percent to accommodate the Atlas line.
The plant, which also manufactures the Passat sedan, has 2,800 workers, up from 2,400 last summer, with plans to hire 500 additional workers by April.
“We are in a major hiring phase (at the Chattanooga plant). Even during the diesel issue last year, our workforce remained stable. Automotive trends are cyclical, and the diversification of our product line is one means to maintain stability during any downturns,” VW spokesman Scott Wilson said.
Nissan’s Smyrna facility, the highest volume assembly plant in North America, produces six models, including the brand’s most popular vehicle, the Rogue crossover.
Product diversification helps protect the plant from shifting market trends. Annual production at the plant exceeds 640,000, with 8,400 employees and additional hiring underway.
“We run two lines — an SUV and a car line. Our flexible manufacturing process allows us to vary our mix among the six vehicles currently made here. This flexibility allows us to easily modify our production based on customer demand fluctuations,” Nissan spokeswoman Parul Bajaj said.
To be sure, the pendulum could swing back to cars, especially if gas prices rise dramatically. But Nerad anticipates several years of strong sales for crossovers, SUVs and trucks.
“When fuel prices are low, bigger vehicles sell better. There’s an absolute correlation there. We see that and we’ve seen that for decades now,” Nerad said.
Source: Knoxville News Sentinel, by Lizzy Alfs, USA Today Network
The East Tennessee Economic Development Agency markets and recruits business for the 15 counties in the greater Knoxville-Oak Ridge region of East Tennessee. Visit www.eteda.org