By popular demand, Atlanta’s German-American Chamber of Commerce is leading a trip to Mexico in November, putting a spotlight on the growing competition between the country and the Southeast U.S. for automotive investment, particularly from Europe.
When the chamber asked members spanning the Southern United States where to go and which industry to cover on a trade mission, the consensus came back quickly: “Mexico and automotive,” said Stefanie Jehlitschka, vice president at the chamber.
Ten delegates, including some company representatives and at least one economic developer from Alabama, will travel to Mexico Nov. 9-13 for a tour arranged by the German chamber in Mexico City, one of the more than 130 branches in the German government-backed network around the world.
They’ll tour Volkswagen, Audi and Continental Tire factories and visit various industrial parks, exploring a market that some Georgia boosters are concerned is becoming an increasingly formidable opponent to the South in one of its premier growth industries.
The South has become the indisputable German automotive hub in the U.S., and some have dubbed Atlanta “Stuttgart West” thanks to its position as the U.S. headquarters of German giants. It’s not only home to the newly revamped Porsche Cars North America headquarters — complete with a test track near the airport — but it also lured the Mercedes-Benz USA head office away from New Jersey.
Zoom out a bit, and an even stronger regional case comes into focus. Georgia has attracted a large cadre of German firms supplying nearby factories for Volkswagen in Chattanooga, Tenn.; Mercedes-Benz in Vance, Ala., and BMW in Spartanburg, S.C. Along with Korea, Germany drives automotive investment in the state, which accounts for about 40,000 jobs in 300 facilities, according to the Georgia Department of Economic Development.
Still, Mexico’s ascendant economy has started to boost its appeal. Despite its reputation for crime, analysts say Mexico has advantages on labor costs — both in manufacturing and engineering — along with an important arrow in its quiver that the U.S. lacks: reduced-tariff access to large markets like the EU and Brazil through automotive trade agreements.
Those were major factors convincing Audi to invest $1.3 billion to build SUVs south of the border at the expense of Tennessee, where land had already reportedly been cleared next to the Chattanooga VW plant in the hopes of luring Audi.
That’s an example of how Mexico is becoming a competitor on projects that would have been bound for the South just a few years ago, says the Metro Atlanta Chamber’s John Woodward.
Traveling to Europe to talk with prospects over the past five years, the conversation has undoubtedly changed, with Mexico looming larger in the discussion.
“I’ve had companies specifically say, ‘OK, Mr. Woodward, we’re looking at the U.S. Southeast and we’re looking at Mexico. What can you do?” he said. “This year alone, I’ve had that happen frankly on numerous occasions.”
To make his case, Mr. Woodward sometimes has to delve into the finer points of supply chains: Not all suppliers have to be adjacent to the parent factory. Those “tier two” suppliers may more readily look at the Southeast, especially if they have other customers in this region to supplement the Mexico plant. He also points out that cheaper labor isn’t always more efficient labor.
Tycho Stahl, partner and co-chair of the Global Commerce Practice at Arnall Golden Gregory LLP who helps German and other European firms set up shop in the U.S., said some companies have a “knee-jerk” negative reaction to Mexico.
Though he’s happy to help clients explore the market, he’s not apt to discourage their skepticism given the strength of the Southeast and the issues that have plagued Mexico’s investment pitch in the past, including rampant drug violence in the areas now winning investments
“You’re not going to have that in Georgia. You have a country of laws here. You’re not going to be shaken down,” he said.
Though the South and Mexico compete on some projects like Audi, he said the region shouldn’t be worried about a mass exodus of German suppliers.
“Big cars that are likely to be bought in the U.S. market are going to continue to be made here, and the largest BMW plant anywhere is in South Carolina,” he said.
Kia Motors, which currently has its only U.S. plant in Georgia, overlooked the state for a $1 billion plant it’s building in Monterrey in the Mexican state of Nuevo Leon. The small-car plant is reportedly aimed at offsetting supply shortages in the U.S. while helping the Korean automaker tap growing Mexican demand
Mr. Stahl says one competitive key for the South is to ensure that manufacturers have access to the right skilled workers — from welders to machine operators — so that the region isn’t competing on wages alone.
Ms. Jehlistchka and the German chamber are working on that very issue, helping technical colleges set up apprenticeship programs tied to companies that mirror their German workforce training. The chamber has also advocated for German-language and dual-immersion courses to help prepare students to land jobs with German manufacturers.
She pointed out that the chamber’s trip to Mexico isn’t target companies weighing the South versus Mexico — only those that are already here but looking to complement their existing Western Hemisphere business.
“Our goal is the sustainability of German companies and industry, so if they’re looking for any business partners in Mexico, we were certainly support them with that, which will also make them more successful in the U.S.,” she said. “We don’t see it as them potentially moving to Mexico.”
Besides, she said, the world economy and automotive supply chains are so interconnected that it would be naive to think that they wouldn’t go look for opportunities elsewhere on this side of the world.
And as Mr. Woodward agreed — that access to the broader region is something Atlanta wants to use to its advantage, and Mexican firms are also investing in Atlanta and creating jobs.
“That’s part of the pitch: We are a de facto a hub for the Americas.”
The German-American chamber is looking at the idea of making this a national trade mission next year targeting another Central or South American country. The chamber has bases in Chicago, New York and Atlanta, with smaller branches in Houston, Detroit, Philadelphia and San Francisco
See the Mexico preliminary agenda here; learn more about the trip here.
Read more: WSJ: Southeast Losing Auto Plants to Mexico Over Trade Deals
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