State auto plants ready to restart
Spirits soared when Bridgestone’s tire plant reopened at La Vergne, Tenn. If the U.S. follows suit, economic recovery appears quick. But that’s a big if. It’s unclear whether Americans will save or spend.
Ever since Tennessee emerged as a major car-making state, its automotive sector has avoided Detroit-style busts.
But this time, Tennessee took the deep plunge. Almost all of the state’s 100,000 auto industry workers were idled in March, April and into May under shelter-in-place orders to help fend off the coronavirus pandemic.
The wave of temporary layoffs crippled spending and led to lost tax revenue, forcing mayors throughout the state to begin figuring out what to cut from municipal budgets. Just how deep the budget cuts must be still isn’t clear.
Carmakers in Alabama, Georgia and Kentucky have begun to ramp up vehicle assembly lines, while their General Motors, Nissan and Volkswagen rivals in Tennessee trail by a week or two.
Several weeks must pass before the Tennessee auto economy rolls again and the full decline in state and municipal tax revenue is known, particularly in the automotive manufacturing belt running from Clarksville to Chattanooga.
“There’s really no doubt that automotive manufacturing has taken a more significant hit than other sectors or manufacturing overall,’’ said Bradley Jackson, chief executive of the Tennessee Chamber of Commerce & Industry in Nashville.
“It really ripples through when you have major manufacturing facilities closed for a period of time. You have to look at the taxes that are not going into the economy,” Jackson said, noting the state’s 10 largest manufacturers pay about 70% of the sales and use taxes collected by Tennessee state government.
Nearly the entire auto industry statewide was closed, unlike the 2008 recession. Back then, bankrupted Chrysler and General Motors scoured Detroit. Yet the downturn grated less harshly on the so-called transplants, the foreignbased automakers making cars and trucks in the American South. That meant the 2008 downturn was less harsh on Tennessee’s auto industry.
Tennessee’s sizable auto-parts sec
tor feeds components to the transplants, including Honda, Hyundai and Mercedes in Alabama; Kia in Georgia; Toyota in Kentucky and Mississippi; BMW and Volvo in South Carolina; and Nissan in Mississippi and Tennessee.
Even as GM was reorganized under bankruptcy laws in 2009, transplants expanded. Nissan ramped up Leaf electric car output south of Nashville at Smyrna. Volkswagen launched its East Tennessee mega-complex at Chattanooga. Toyota landed the Corolla assembly line at Blue Springs, Mississippi. Kia went into West Point, Georgia. Honda scaled up a new Civic plant at Greensburg, Indiana.
This time, Tennessee experienced the sweeping setback known in boomand-bust Northern car towns. What's more, Tennessee never was more reliant on automotive jobs, a result of the transplant expansions and the wave of partsmakers that followed VW into the state.
By late April, nearly half the 352,000 state residents who had filed for unemployment compensation amid the pandemic lived in upper Middle Tennessee. This region, anchored by Nashville, accounts for a third of the state's jobs but showed disproportionately more layoffs. That's in large part because Nashville's huge hospitality sector shut down as did the automotive industry that has emerged in Middle Tennessee, Jackson said.
Jackson stopped short of describing this as a full-blown Detroit-style recession. Those are brought on by financial storms that take years to weather — such as the 2008 contraction in consumer credit. This time, shelter-inplace orders cut consumer spending and triggered layoffs. With those shelter orders lifting now, people can resume jobs and spending again.
“This has been an extraordinary event,'' Jackson said. “It's a pandemic. We should have a faster bounce back, but I think how fast it is will depend'' — on whether people spend income at precrisis levels.
What comes next is up to the public
Although assembly lines are beginning to ramp up, auto executives are uncertain when full output will return. Consumers will dictate the industry's vitality, said Karl Brauer, executive publisher of market research guides Autotrader and Kelley Blue Book.
“Maybe I'll be more careful with my money this year,” Brauer said, summarizing one American viewpoint that could stifle auto sales.
A key yardstick auto executives watch is annual sales of new vehicles in the United States. Before the crisis, some analysts predicted sales could top 2019's 16.9 million-vehicle level. If the pandemic leaves consumers cautious, however, 14 million or fewer vehicles might be sold, Brauer said.
A 12% to 18% drop in auto sales for the year likely will cut into autoworkers' overtime pay, reduce demand for temporary workers who can comprise as much as 10% to 25% of a plant's labor force, and in turn reduce demand for components made in the supply plants. The end result: Less consumer income and reduced tax revenue.
Although about 70% of Tennessee's factories kept running as essential businesses, including the chemical, food and medical device plants at Memphis, the car industry is now so big it can nick into state tax revenue whenever it shuts down.
“The legislature may be forced to look at adjusting the budget,” Jackson said.
Consumer confidence drives car sales