UAW president meets with Alabama Mercedes workers amidst union drive: ‘We’re gonna win in the South’

Folks, we have never seen a manufacturing deal run like this in the American South before. Possibly not in the nation’s history, either. At least not in total value.

After decades of offshoring manufacturing capacity, new greenfield projects outnumber manufacturing plant expansions by three to one in the big buffalo category ($500 million-plus, 1,000 jobs-plus) during the last three years. 

This remarkable surge in new plants is backed by larger-than-usual private and public investments that have doubled in value since 2021. . .from $100 billion to $200 billion in less than two years. All new territory for the largest manufacturing region in the U.S. 

Sure, U.S. manufacturers geared up for WWII and the South was a leader in that effort, landing dozens of new military bases. Peacetime manufacturing facilities reworked lines that assembled tanks, planes, jeeps, guns and munitions of every size and strength imaginable. That was a period when the country was fighting for survival. That was leadership in military manufacturing and the nation as a whole coming together and stepping up for another World War.

These are not weapons of war being designed and assembled today in the South. Or are they?

Some will maintain the U.S. manufacturing sector is being redefined in an effort to fight the “war” on climate change. That can be viewed as a political statement, something this media property is hesitant to engage.

No, what is happening is not political. But if you wish, you can make it that. That’s your choice. We are simply counting up this sudden surge in GDP in Southern states. The value in monetary totals boggles the mind. Tens of billions here, there, just about everywhere.

Let’s not even get into the climate change argument. It doesn’t take a Mensa member to understand that there was no such thing as wearing shorts and a t-shirt in December in the South just a few decades ago, unless you lived in South Florida.

There’s plenty of documentation to prove this place, this orb, is heating up. Then, again, it may take a Mensa member to figure out what to do about global warming.

Unprecedented, unexpected, unreal

Call it what you will: Unprecedented, unexpected, unreal — this advance in manufacturing construction that we are witnessing. Advances in automation and artificial intelligence are finding new ways to make things on the factory floor today.

“We’re seeing a lot domestic and FDI investment in metals processing and recycling, aluminum mills, pipe mills, major cement mill expansions and manufacturing in general,” said Roger Cook, Senior Vice President of H+M Construction. “While some of our food distribution, direct-to-consumer and distribution projects are strong, we are feeling the slowdown in speculative warehouse development mainly because of higher cap rates.

“The U.S.A. is still a very safe place to invest capital when compared to the rest of the world,” Cook said.

Of course, it wasn’t too long ago that manufacturing was gone and never coming back in the U.S. When reading the paper “Made in America, Again” (Boston Consulting Group, 2011), I had already observed a smattering of plants that were bringing production back to the U.S. from China.

The paper made perfect sense and the word “reshoring” was born. I even called up one particular economic developer here in Alabama. I boldly claimed that manufacturing would be the South’s “new sustainable.” “Manufacturing? Yeah, right, Randle,” was his response. Since then, manufacturing projects of 200 jobs and/or $30 million or more in investment have outnumbered service project of the same level in the South.

Unprecedented, in that the money on the table for these projects, in the hundreds of billions, is stoked by unprecedented incentives, almost all doled out by the federal government in an effort to clean up the environment and evolve and adapt into the next great thing.

Unexpected, in that the incentives to industry to make stuff like electric vehicles, computer chips, metals, renewable energy in numerous forms (solar and wind) and even ways to remove carbon from the atmosphere like they are doing in Texas and Louisiana, really did not exist at this level until just a few short years ago.

The driver of this surge in industrial construction

The incentives available through the Inflation Reduction Act, the Jobs Act and the CHIPS Act under the Biden administration provide direct funding and tax incentives to both public and private manufacturing construction. Add the fact that reshoring has overtaken offshoring of plants in value makes the timing of this even more impressive. In short, reshoring and next-generation mobility are happening at the same time.

Well before the various incentives were put on the table by the federal government for new age manufacturing, reshoring had already begun as written earlier. We have been writing about reshoring as a way to cut costs for U.S. manufacturers for a dozen years now.

These are projects no one has seen in the practice of economic development. And this swell of capital investments has almost been instantaneous in the little world that is economic development. That would be because this wave of industrial construction began in 2021.

Unreal in that these billions are being spent in some sectors that have absolutely no track record of sustainability. It is akin to firing all your gunpowder in the dark. I don’t think anyone can predict exactly what the EV market share will be three years from now. We have already seen some electric battery plant layoffs, some in the wind industry.

Sure, megatons of steel are being erected on megasites in the region. Some of those sites have been available to industry for over a quarter decade. One site in North Carolina — Liberty — is one I have walked. I used to have a photo of the late North Carolina Commerce Secretary Jim Fain and Toyota site search boss Dennis Cuneo walking that site. That was 20 years ago. That Randolph County, N.C., megasite sat empty all that time. Until now. Toyota is spending $13 billion on the site for next-generation mobility. Yes, Toyota came back to the Liberty site 20 years later.

Until the last several years, there were few such things as a $13 billion project (Toyota, North Carolina) to make batteries for electric vehicles. There were no such thing as a $25 billion (or thereabouts including support and plant) Korean project in the U.S. to produce batteries and EVs (Hyundai, Georgia). There was no such thing as new mines being dug for lithium, cobalt and nickel.

Over the last decade, in terms of value, these projects can only be compared to LNG export plants that first began to take shape a decade ago in Louisiana and Texas. Those investments were extraordinary at the time.

This is all unreal, Star Trek stuff. What’s next? Electric airplanes? Yep, that is happening, too, in the South.

These last two or three years should be noted and for good reason. According to Alan Amici, CEO of the Ann Arbor, Mich.-based Center for Automotive Research, $53.1 billion has been invested in the Southern Automotive Corridor by the industry for electrification of automobiles since 2018. Also according to Amici, nearly $100 billion has been invested in North America by OEMs in 2022 and 2023.

Eighty percent of all new jobs are created by existing industry?

That statement, that myth, has proven to be so untrue here lately. Most of these monster deals are greenfield projects. The old adage that 80 percent of all new jobs are created by existing industry does not apply to the last three years in the South. Not even close. Of our “Big Buffalo Awards” found in this section, there are 68 new projects and only 23 expansions.

The last of the big buffalo?

Southern Business & Development’s fall 2017 cover story was titled, “The Last of the Big Buffalo?” I was the author of that story that posed the question to readers, and I made an attempt to explain that projects such as automotive assembly plants, semiconductor deals and such would be hard to find in the coming years, meaning post-2017. The basis for that argument was the fact that large, game-changing projects in the South were dwindling as fast as the labor shed after banner years in 2015 and 2016. 

The demographic numbers were difficult to ignore seven years ago. In 2017, over 10,000 people in the U.S. turned retirement age (65) each day. And on that same day, on average, less than 1,000 people turned working age (16). Again, it’s not politics. It’s math.

Even more, smaller employment numbers from projects announced in the South were clearly setting a precedent at the same time capital investments were skyrocketing. It was clear that what was a 1,200-job deal back in the 1990s had morphed into a 200-job project by 2017.

As a result of breakthrough automation, those 200 workers could do the job of 1,200. At the same time, a $50 million project had somehow modified into a $150 million to $200 million capital investment. A $500 million buffalo was now a mega-$3 billion buffalo in today’s age.

Had we reached a point in the second decade of the 21st century where automation was reducing the worker gene pool? Were the increases in capital investments and a reduction in big buffalo job generation a no-doubt indication that automation was indeed eliminating the need for large labor deals?

Well, obviously not when you have projects like Hyundai needing 8,000 workers for its complex near Savannah and many, many other labor-intensive projects all across the region. This run of large employee manufacturing projects proves that the 2017 cover story about the “last of the big buffalo” was premature.

Incentives are driving this supercycle of industrial construction

There was a time prior to these federal incentives that are backing clean energy projects when the feds let the market figure itself out. It wasn’t the feds who were doling out the tax breaks and cash incentives. For decades, it was the states and local incentives that helped determine which state or community would capture a big deal and which one wouldn’t.

The late site selection consultant Buzz Canup once told me, “The federal government has little if anything to do with economic development.” Not unlike “80 percent of all new jobs are created by existing industry,” the feds having “little to do with economic development” is now completely untrue. Certainly in 2023 and 2024, the feds had almost everything to do with this increase in capital spending. And in Trump’s time in office as well.

Both Trump and Biden’s initiatives have worked

Taking the politics out of it, President Biden’s lucrative tax cuts and incentives in the three previously mentioned bipartisan bills are obviously supporting this slew of new investments and job generation in the South and in the nation.

In a report that came out in The Wall Street Journal in November, economists from Harvard, Princeton, the University of Chicago and the U.S. Treasury agreed that effects of the Tax Cuts and Jobs Act (TCJA) of 2017, during President Trump’s term, were generally positive in that the largest corporate tax cut in history incentivized additional investment, specifically from multinational corporations.

The authors wrote:

“First, the TCJA caused domestic investment of firms with the mean tax change to increase by roughly 20 percent relative to firms experiencing no tax change. Second, the TCJA created large incentives for some U.S. multinationals to increase foreign capital, which rose substantially following the law change. Third, domestic investment also increases in response to foreign incentives, indicating complementarity between domestic and foreign capital in production. Fourth, the general equilibrium long-run effects of the TCJA on the domestic and total capital of U.S. firms are around 6 percent and 9 percent, respectively. Finally, in our model, the dynamic labor and corporate tax revenue feedback in the first 10 years is less than 2 percent of baseline corporate revenue, as investment growth causes both higher labor tax revenues from wage growth and offsetting corporate revenue declines from more depreciation deductions.”

In short, Trump’s corporate tax cut has done what Biden’s tax cuts and incentives have done. The results of both were more business investment, more growth, higher wages for workers and little effect on government revenue as the economy expanded.

The return of the “big buffalo”

In the world of economic development, “big buffalo” are economy-changing projects of massive capital investment with a thousand or more jobs at the opening of the project.

In the economic development community, some agencies chase buffalo and some chase gazelles. Most chase both, or anything worthy that is drawn to that community’s pasture.

There are many different strategies regarding the recruitment of industry, mostly based on the product that’s available — large tracts are a must for big buffalo — and labor availability. Yet, just one of those grand buffalo can change an entire state’s economy.

All one needs to do is look at the 30-year economic data from when BMW landed in South Carolina, Mercedes-Benz in Alabama, Samsung in Texas, Nissan in Tennessee and Toyota in Kentucky.

Of course, the biggest buffalo in the South in terms of employment are UPS in Kentucky, FedEx in Tennessee and Disney in Florida. There are others, like Amazon, but those came to my mind first.

Where is the labor going to come from?

In this day and age, community development and economic development are as close as they have ever been. If your community does not have a “sense of place” (a phrase my longtime friend and consultant J. Mac Holladay used forever, bolstered and repeated by folks like author Richard Florida), then labor attraction is much more effective than simply a good job.

With the labor shed essentially empty (unless somehow sanity reigns from our political leaders and a fair immigration policy is implemented), labor will be attracted to places with good jobs supported by a great place to live. The recruitment of labor is now as important as it has ever been to communities in the South.

Big investments are not knee-jerk deals. Then again, they have surfaced with such speed, there will undoubtedly be some fallout. 

Over the last 30 years, the South would average about six to eight billion-dollar-plus projects, almost all oil and gas related, in any given year. If the South landed a dozen in a year of $1-billion-plus, that was an extraordinary year. The last three years have blown that average out of the water.

Conclusion

Yes, incentives and corporate tax cuts on the federal level are working in the U.S., and the last two presidential terms and the laws implemented by Congress during those two terms have been well received, therefore boosting the economy. Again, at no time since Southern Business & Development and its websites have been published (over 30 years) has this level of capital investment been seen.

There are many factors other than incentives and tax cuts that are driving this surge in new manufacturing facilities. Ten, 20, 30 years ago, it was tough for the U.S. to compete with China and other low-cost global locations for new manufacturing investments. Things change.

A few months ago, direct foreign investment in China dropped for the first time on record in the third quarter of 2023. In 2014, China saw a record inflow of over $110 billion from investors from abroad, much of that total by U.S. manufacturers building plants there. In the third quarter, it recorded a negative $11.8 billion in foreign direct investment.

Yes, things change and today it is the U.S., especially the South, that is winning in the fight for manufacturing supremacy worldwide.

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