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An economic engine for Southwest Virginia?
Toyota's interest in Roanoke region focuses attention on its auto industry

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Should Virginia offer more than $100 million in incentives to attract an auto assembly plant?
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by Deborah Nason
for Virginia Business
July 2006

For more than eight decades, Norfolk has been home to a Ford auto assembly plant. In the early years, the plant made Model T’s, and more recently it was one of the company’s biggest producers of Ford’s top-selling F-150 pickups. Less than five years ago, the factory underwent a $375 million retooling to boost truck production.

But that investment and the plant’s 81-year history didn’t save it from Ford Motor Co.’s cost-cutting ax. The company announced in April that it would close the plant and eliminate its 2,400 jobs by 2008 as part of a restructuring designed to boost profitability.

Yet as one era in Virginia automaking comes to an end, a new chapter could be beginning in another part of the state. Two days after the Norfolk plant closing was announced, The New York Times reported that the Roanoke region was among four areas in the Southeast being considered for a Toyota Motor Corp. assembly plant.

Toyota’s interest in the Roanoke region should not come as a surprise. Southwest Virginia has a well-established presence in the auto industry. The Interstate 81 corridor from I-64 to the Tennessee line is home to dozens of auto-related manufacturers. They range from a truck assembly plant in Dublin (Volvo) to a catalytic converter factory in Blacksburg (Corning) to a maker of sealing systems in Alleghany (Acadia Polymers).

More than 7,300 workers from Floyd to Covington make their living from the auto industry.

One expert observer says a Toyota plant would be a natural fit. “I don’t think Toyota is blowing smoke,” says George Hoffer, an economics professor at Virginia Commonwealth University, who specializes in transportation issues. “Appalachia has tons of Toyota parts manufacturers,” he says. (Not to mention two Toyota assembly plants in Kentucky and a power train plant in West Virginia.)

Japanese carmakers, in fact, have made significant investments in U.S. production facilities in the past 20 years after Japan’s trade surplus with the United States became a hot political issue. The plants built in this country have created jobs and political allies while blurring the distinction between Japanese- and American-made cars.

Hoffer says the Japanese manufacturers initially put plants in states that never had assembly plants. “No senator from that state will vote for any kind of import restrictions,” he says. “The latest trend is for the Japanese to enter where the Americans have left, and come in and fill the void. But they don’t go anywhere near a unionized area.”

The Japanese newspaper Yomiuri Shimbun has reported that Toyota plans to add 10 automobile assembly plants worldwide by 2010 in an effort to pass General Motors as the world’s largest automaker. Last year, Toyota produced 7.36 million vehicles while GM made 9.05 million. The additional 10 assembly plants would give Toyota more than 10 million vehicles produced at 41 sites.

At this point, Toyota is not even confirming that it plans to build another plant in the United States. “As we continue to grow, we will consider whether we will expand our operations,” says spokesman Dan Sieger. Generally, he adds, a plant is completed about three years after plans for construction are announced. Observers have speculated that the plant would require 1,000 to 2,000 acres of land and would employ about 1,800 people.

A possible stumbling block for Virginia recruiting any car manufacturer is its conservative reputation for providing incentives. Many states have conducted bidding wars for new auto assembly plants. Texas, for example, provided Toyota with $130 million in incentives for a truck plant in San Antonio, which opens this year and eventually will employ 4,000 workers.

A Toyota plant would provide a huge boost to an already thriving auto industry in the Roanoke region. Several companies operating in the area have announced major expansions this year, including Koyo Steering Systems (power steering systems) in Botetourt County, $36 million; Virginia Forge (wheel hubs) in Buchanan, $18 million; and Intermet (sheet metal) in Radford, $14.3 million. They are among 140 announcements of new and expanded automotive facilities in Virginia during the past decade. All told, they represent more than $2.2 billion in investment and more than 11,500 jobs, according to the Virginia Economic Development Partnership, the state agency that tracks company expansions.

The growth of the Roanoke area’s auto industry has played a role in the region being profiled in publications such as Business Facilities (in 2006) and Expansion Management (in 2002).

Two particular hot spots, Botetourt County and the New River Valley, demonstrate the strength of the Southwest Virginia automotive corridor. “We’re a small county, about 32,000 population,” says Jerry Burgess, Botetourt’s county administrator, “but we have five of the region’s tier one auto suppliers [Metalsa, Virginia Forge, Dynax America, Koyo Steering Systems and Altec Industries].” These are companies that manufacture and assemble parts that go directly into cars and trucks. Tiers two and higher refer to those companies which manufacture parts of parts.

Burgess says that between 1990 and 2005, the number of jobs in Botetourt County rose 95 percent to 9,088. Twenty-five percent of those jobs were auto-related.

Burgess has more than 30 years of experience in economic development. He notes that the county does not have a separate economic development department. “[Prospective] companies are dealing with someone who can make a decision — either myself or my two deputy administrators.”

Local automotive manufacturers appear to appreciate that hands-on attitude. “Dynax is not in Botetourt because of XYZ supplier — it’s because of what the state and local officials promised and came through with,” says Gary Spencer, a board member of Dynax America, a transmission company that located a plant in the county in 1996 and now has 278 employees. “If you get one or two individuals who are very supportive and believe in a community, they tend to be the deciding factor. You have almost an entrepreneurial spirit in the government.”

In the New River Valley, Volvo in Dublin employs approximately 3,000 people who make all the Volvo trucks and Mack highway trucks sold in North America. But company spokesman Jim McNamara says the plant’s economic impact stretches beyond its payroll. “In 2005, [the plant] used 202 suppliers of goods and services within a 75-mile radius of the plant, at a cost of $142 million.”

But many major automotive players in the New River Valley are not connected to Volvo, says Aric Bopp, executive director of the New River Valley Economic Development Alliance. He cites Intermet, EaglePicher, Federal Mogul, TMD Friction and Corning. The New River Valley and Roanoke are “right at the pinwheel of an automotive crescent which curves all the way up to Detroit,” he says.

In fact, while Southwest Virginia often appears to be remote from other parts of the state, its location has been an asset in the auto industry. The suppliers along I-81 are only a day’s drive from Detroit and other auto manufacturing centers in the Midwest.

Del. William H. Fralin Jr., R-Roanoke, thinks the area’s logistical advantages will soon improve. He is a proponent of the Heartland Corridor Initiative, which is trying to enhance rail connections between Norfolk and Chicago. The project includes the opening of an intermodal transportation hub in the Roanoke region at which cargo can be transferred between trucks and the Norfolk Southern railroad. “When you open up an inland port facility, you see growth from companies looking to locate near a transportation hub,” he says.

“ We have all the ingredients for being able to create a significant amount of jobs,” Fralin says, listing factors such as an underutilized airport, good rail service, a north-south interstate in I-81 and the proposed construction of I-73 creating a new connection with North Carolina. “Whether it’s Toyota or Joe’s Widgets, they’re going to look at the fundamentals,” he says.

Those fundamentals include a relatively low cost of doing business in the Roanoke region. Weekly income in the area averages about $631 per capita ($32,812 a year), compared with $815 ($43,380 annually) statewide, according to the Virginia Employment Commission. Economic developers also tout the region’s electricity costs as being among the lowest in the United States. However, Appalachian Power, the area’s primary utility, recently asked the State Corporation Commission for a $198.5 million rate increase, its first since 1993.

Southwest Virginia has been attractive to the auto industry because no one product or customer now dominates the local industry. For example, Dynax America builds transmissions for Toyota, Ford, GM, Mazda, Nissan and Chrysler; Intermet Foundries produces sheet metal for Ford and Chrysler; and Metalsa makes truck chassis frames for Volvo, Peterbilt and Kenworth.

Another factor contributing to the strength of the region’s automotive corridor is the reputation of its labor pool. “We have an incredibly good work force,” says Phil Sparks, executive director of the Roanoke Valley Economic Development Partnership. He notes workers are proud of their reputation for being honest and hard working. “It’s a ‘mountain work ethic’ —which many attribute to being in the Bible Belt,” says Sparks.

Should Toyota not choose the Roanoke area for a new plant, one other Virginia site may be a possible candidate, Norfolk. Toyota representatives reportedly scouted the Norfolk area before Ford announced the plant closing.

Hoffer, however, believes Norfolk would be more attractive to a company that is comfortable with a union environment. “Saturn is going to market in the U.S. its German-designed cars; therefore the Ford plant becomes attractive as a [less expensive] entry into the American market,” he says.

 

 


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