BMW, Aston Martin, Toyota, Mercedes-Benz: Why Are Automakers Heading South?

April 23, 2015

In case you hadn't noticed, there's a mass migration underway in the auto industry. Whether they sell luxury SUVs or mainstream sedans, car companies of all stripes are heading south.

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Many are already there -- and have been for years. Hyundai has a base of operations in Alabama, while its sister, Kia, maintains a shop across the state line in Georgia. Volkswagen already does heaps of business in Tennessee, and it's planning to expand. Another VW brand, Porsche, has a home base in Atlanta, and Nissan produces vehicles in Tennessee and Mississippi

Within the past year or so, the rate of migration has picked up. Mercedes-Benz, which already has a major facility in Alabama, decided to move its U.S. headquarters to Atlanta. Jaguar Land Rover may settle in the Peach State, too. And let's not forget Toyota's high-profile move from its longtime home in California to Plano, Texas (which may or may not be the South, depending on whom you talk to).

This week, two more automakers have announced plans to invest in America's lower latitudes. BMW confirmed plans to build a distribution center in Texas, and Aston Martin is being aggressively pursued by Southern states for its rumored U.S. production facility.

In fact, the only automakers who don't seem all that interested in working below the Mason-Dixon are Detroit automakers, who -- like many others -- aim slightly farther south, to Mexico.

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THE SIREN SONG OF THE SOUTH

What's the allure of the South? And why is it such a hot spot now?

1. Demographics: Population-wise, the South is booming -- in fact, the federal government says that the South is growing at twice the rate of the Northeast. Granted, the South's economy lags compared to much of the country, but in terms of the sheer number of consumers and the size of the workforce, the South is a good bet for many automakers.

2. Right-to-work: The South consists almost entirely of right-to-work states. That's attractive to car companies, because it eliminates the complexities of working with unions. (This may become less of an issue as more states adopt right-to-work laws.)

3. The New South:  When the U.S. auto industry emerged in the early 20th century, the South wasn't considered an ideal place for manufacturing. It was rural and agricultural, with long, hot summers that hampered productivity. Over the last 100 years, that's changed, as sleepy Southern cities have grown into bona fide economic powerhouses. That's due in no small part to (a) the oil industry, which has invested heavily in the South and along the Gulf Coast, and (b) the invention of air conditioning, which transformed the way Southerners live and work.

In short, if the auto industry were coming of age today, Birmingham might be a more attractive home base than Detroit.

Will these foreign companies survive and thrive in the South? Will parts suppliers pop up in Alabama, Georgia, and other states to support the newly arrived auto industry? We'll be watching. 

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