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June 8, 2012
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Kentucky Carmakers Hit the Gas

As market demand accelerates, Ford, Toyota and GM all make long-term commitments with new models, major reinvestments

By Lorie Hailey

Automotive manufacturing has not made a quiet comeback in Kentucky. It is roaring, making investments across the state, creating new jobs and raising hopes for a robust recovery.

In the past two years, auto manufacturers have demonstrated their commitment to the commonwealth for years to come by pumping cash into the state’s four production plants – two Ford Motor Co. facilities in Louisville, the General Motors plant in Bowling Green and Toyota’s manufacturing hub in Georgetown. Kentucky sites were chosen to produce at least three new or revamped vehicle lines.

The all-new 2013 Avalon, which is the first Toyota vehicle to be completely developed in North America, is assembled at the Toyota Motor Manufacturing plant in Georgetown.

Auto parts manufacturers and suppliers are banking on the Bluegrass state also. Since January 2011, at least 81 new locations or expansions have been announced, creating nearly 6,000 jobs and investing approximately $1.3 billion, according to the Cabinet for Economic Development.

“Things are definitely picking up,” said Erik Dunnigan, commissioner of the Cabinet for Economic Development’s Department for Business Development. “It really trends with automotive sales. When sales kind of fell off a cliff (in 2008) … obviously the supply base and the automotive manufacturing base went with it.”

The commonwealth is home to nearly 450 parts manufactures that supply automakers here and in nearby states. To hold on to and improve the competitiveness of facilities here during the recession’s deep squeeze, Kentucky modernized its economic incentive programs.

Scores of companies used the bottom-line boosting incentives to update their aging Kentucky homes or build new ones. Typical incentives: lower taxes over 10 years in exchange for achieving predetermined goals for capital investment and jobs for Kentuckians.

Though previously the nation’s No. 3 vehicle producer after Michigan and Ohio, Kentucky downshifted several positions last year because of Louisville Assembly Plant’s rebuilding shutdown and the Japanese earthquake and tsunami-induced disruption of TMMK’s supply chain.

However, Toyota resumed full production late in 2011, and Ford’s Louisville Assembly Plant (LAP) is not only back online but added a second shift and is preparing to add a third as well. The supplier operations are merging into production traffic as well.

The increase in automotive projects is directly linked to the increase in U.S. automobile sales, Dunnigan said.

During the Great Recession, consumers held off on buying new vehicles, leading to an older fleet on U.S. roadways and creating pent-up demand for newer vehicles. Manufacturers decreased production and held off on investing in their factories in response to lower sales volume.

In the boom years just before the crisis, the industry made about 16 million vehicles per year. That number fell below 10 million during the recession, Dunnigan said.

As the economy crawled toward recovery, auto sales began to pick up. An estimated 14.3 million vehicles will be sold in 2012, according to IHS Automotive.

Increased new vehicle demand gave a green light to formerly hesitant automakers to invest in their factories, retool their operations and hire more workers. Those investments then fueled investments in the supplier base, too.

“It is just kind of a ripple effect of maintaining a good, strong, robust automotive manufacturing sector,” Dunnigan said.

In 2009, at the height of the economic crisis, Kentucky only had about 25 new automotive project announcements and less than $100 million in total investments, he said. Project numbers increased to 61 in 2010, especially late in the year, adding 5,300 new jobs.

“When you combine 2010 and 2011, we’ve had over 10,000 new jobs created and over $2 billion in investments just in the automotive sector,” Dunnigan said.

Louisville Assembly Plant reimagined

Robotic equipment is used to build the 2013 Ford Escape. It was installed last year at the Louisville Assembly Plant as part of a factory redesign.

Last year, Ford finished transforming its Louisville Assembly Plant into a state-of-the-art facility. The $600 million project – which created 1,800 jobs – made the plant Ford’s most-flexible high-volume plant in the world.

It currently manufactures the next-generation Ford Escape, but because of its new technology, it can produce up to six different vehicles at the same time. Its flexibly designed production lines can retool for a new vehicle in weeks rather than months, allowing Ford to react quickly to changing economic conditions or shifting customer preference.

“One of the biggest struggles in manufacturing was being able to quickly respond to changing consumer vehicle preferences as fuel prices escalated and smaller, more fuel-efficient vehicles were in hot demand,” said Todd Nissen, manager of corporate news at Ford Motor Co. in Dearborn, Mich. “That, however, led to one of our biggest opportunities, as we worked to transform facilities from those building solely large trucks and SUVs to those capable of building smaller vehicles.

“In the process of upgrading our plants, we have significantly improved their flexibility, which will allow us to much more quickly respond to changing consumer preferences in the future. Louisville Assembly Plant is one of the plants to benefit from this strategy and approach.”

Most of the 1,800 new workers transferred from other Ford locations, Nissen said. Later this year, however, the Louisville Assembly Plant will add a third shift production crew, requiring approximately 1,300 additional employees.

“We expect the majority of those employees will be new hires,” Nissen said.

Ford is not finished spending money in Louisville, however. Next, the company plans to rebuild the Kentucky Truck Plant, which employs more than 4,000 workers and manufactures the F-250 through F-550 Super Duty trucks, the Lincoln Navigator and Ford Expedition.

“In the next few years, Kentucky Truck Plant will launch the next-generation F-Series Super Duty, and Ford will make a $621 million investment there to add a new press line,” Nissen said. “We can’t be more specific about timing right now.”

Ford’s impact in Louisville goes beyond its 7,000 employees, Nissen said. He estimates that every direct automotive job supports nine other indirect jobs.

Toyota adds engine capacity

In May, Toyota Motor Manufacturing Kentucky announced plans to increase its four-cylinder engine assembly line production by more than 100,000 units annually at its sprawling plant in Georgetown. The $30 million project will begin in August 2013 and create about 80 new jobs.

The plant assembles engines for the Avalon, Camry, Camry Hybrid and Venza, which all are made in Georgetown. The capacity increase will supply engines also for TMMK’s Camry and Camry Hybrid, and the RAV4 assembled in Woodstock, Ontario, Canada.

The investment will increase engine production at the Kentucky plant to more than 500,000 annually and will increase total Toyota engine production in the United States to more than 1.2 million per year. The announcement is the latest in a string of Toyota production increase announcements since February, including at plants in Indiana, West Virginia and Canada. The cumulative investment is approximately $565 million and nearly 1,000 jobs.

“We are hopeful that this a sign of more positive announcements in the future,” said Wil James, TMMK president.

The Georgetown plant also is in the process of manufacturing the all-new Avalon model, which has a bolder, sportier and dramatically different design than its predecessors.

The 2013 Avalon is the first Toyota vehicle completely developed in North America. It will be made exclusively in Georgetown.

The new sedan will not reach showrooms until later this year, but it recently made an appearance at the New York Auto Show and is “getting great reviews,” James said.

Expansion of the power-train facility and the building of the updated Avalon is “very positive economic news,” he said.

“When we make new investments in our plant, it generally creates opportunities to maintain or even increase our workload,” James said. “That is not only good for our company and employees but good news for our local communities.”

Toyota has had a significant impact on Kentucky since it opened more than 25 years ago, offering high-paying jobs and benefits packages, contributing to local tax rolls and encouraging other automotive-related manufacturing businesses to locate here.

TMMK currently uses about 100 parts suppliers in Kentucky, which James says accounts for about 20,000 jobs.

Preparing for the next-generation Corvette

In May 2011, the General Motors Bowling Green Assembly Plant announced it had been chosen as the site to build the next-generation Corvette. With the selection came the promise of $131 million to upgrade the 30-year-old production facility.

“People might assume that it would be a natural choice to put the next-generation Corvette into the plant that’s been building them for 30 years. But it’s not,” said Plant Manager Dave Tatman. “Not in my company today. In my company, you need to earn your right to new business. The good news is Bowling Green Assembly earned the right to do that.”

GM is not describing the next-generation Corvette, or saying when it will be manufactured. The plant currently is producing the 2013 model, a special 60th anniversary model and a Corvette 427 convertible.

“It’s the most powerful convertible ever built by General Motors and the most powerful convertible in production in the world,” Tatman said. “And it is driving an awful lot of interest in the Corvette enthusiast community.”

The plant has been slowly adding employees after being hit hard by the recession. Entering 2008, the plant employed 1,100 workers. That number was cut in half in 2009.

“In 2009, the plant only worked about six months of the calendar year because of the economic crisis,” Tatman said. “And certainly our car tends to be a bit of a luxury purchase for most of our customers (suggested 2012 retail is $49,600 to $111,600), so the demand fell precipitously during that period of time, causing the layoffs and causing the loss of general business continuity.”

The number of employees dropped to 470 in 2010, and in 2011, the plant employed 449 workers.

GM’s $131 million investment and an increased demand for the luxury vehicle, however, has allowed the plant to add jobs and bring back laid-off workers. Nearly 140 employees – laid off from Bowling Green or from other GM plants – have been added since January. Employment is up to 550.

Orders for the iconic American sports car are very strong, which is “an indicator of sustained economic recovery,” Tatman said.

So far this year, the plant has produced about 7,000 Corvettes.

Lorie Hailey is associate editor of The Lane Report. She can be reached at lorie@lanereport.com. Follow her on twitter.com, @loriehailey.

 

 

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