Alabama’s automakers just want to know which business plan to use. They’d prefer the plan that keeps sticker prices lower and workers busy. But they may need the other ones.
The U.S. Department of Commerce is investigating whether foreign-made vehicles and auto parts are a threat to national security. A decision is weeks away and could inject steep tariffs into the pricing structure for Alabama assembly plants and their vast network of suppliers. Meanwhile, a revised North American trade deal waits to be ratified by a fiercely divided Congress, and more could change depending on that deal’s fate.
The details are still up in the air as the government struggles to simply stay open.
“We’re looking at all angles,” said Chris Susock, vice president of production operations at Hyundai’s assembly plant in Montgomery, which employs more than 3,000 people. “We don’t know what’s going to happen. I don’t think anybody can predict what’s going to happen at this point. But we have to be prepared.”
One of the few certainties is that tariffs would make car prices jump, and not just for imports.
An analysis by the nonprofit Center for Automotive Research found tariffs and quotas on imported vehicles and parts could cause new car prices to rise by an average of $4,400, an increase that would also hit American-made vehicles. A study by the nonprofit Peterson Institute for International Economics predicted similar price increases.
That’s because every car company uses components that are built in different countries before being installed in finished vehicles at assembly plants in America. Those networks are set up to keep car prices as low as possible.
“There is no 100 percent American-built automobile, and people wouldn’t be able to afford it if there was,” said Kristin Dzizcek, one of the authors of the CAR study.
The Hyundai, Honda, Toyota and Mercedes plants in Alabama---and their suppliers---would all have to find the least expensive way to absorb the tariffs. Some suppliers could move closer to the plant, but that’s also costly and takes a while, and there’s no guarantee how long the tariffs would last. Others may just pay the tariff and pass along the cost to consumers.
“That’s all these hypotheticals that they’re evaluating to see the plan once that’s ratified,” said Robert Burns, vice president of human resources and administration at Hyundai Motor Manufacturing Alabama. “People just see the car there. They don’t think about how it all comes together.”
The South’s Global Engine
For the first time in 2018, more foreign vehicles were assembled in the United States than American vehicles. The South has played a huge role in that change.
Of 15 major assembly plants across the Southeast, only two assemble vehicles for American companies. U.S. manufacturers stick mostly above the Mason-Dixon line, while the Southeast---from Mississippi, to South Carolina, to Tennessee---is dominated by the likes of BMW, Nissan, Toyota, Volvo and Volkswagen.
Alabama got its start in the auto industry in 1993, when Mercedes-Benz opened its first U.S. assembly plant in Vance. More than 57,000 people now work in auto manufacturing statewide, according to the governor’s office.
That’s not including the expected 4,000 workers at the $1.6 billion Toyota-Mazda joint plant that was announced for the Huntsville area last year. Dziczek said that announcement and Hyundai’s plan to invest another $388 million in its Montgomery plant stood out because auto industry investment has been thin elsewhere across the country.
Some who lost out on those investments have pointed to the South’s labor laws.
After the Toyota-Mazda plant announcement, Illinois Chamber of Commerce President Todd Maisch told The Associated Press that he believes the companies chose Alabama because it has “right to work” laws, which limit the power of labor unions by banning mandatory union dues. Every state in the Southeast has similar laws.
Now, they’re all competing for a smaller pie in a time of industry uncertainty.
“Overall, automaker investment has gone down to nothing,” Dziczek said. “They’re kind of sitting on the sidelines saying, ‘Are we playing football or baseball. We don’t know, but once we figure [it] out, we’ll get in the game.’”
HMMA maintenance worker John Hall went to Washington last summer to plead with the administration to reject import tariffs.
“This would force us to raise prices and cut production,” Hall said at a U.S. Commerce Department hearing. “A lot of Alabamians, my friends and neighbors, could lose their jobs.”
It wasn’t the first warning or the last.
Throughout 2018, business organizations, lawmakers and others warned against enacting auto import tariffs. Most of Alabama’s major auto manufacturers, including Hyundai, joined a lobbying group to try to make their case.
Even Alabama’s Republican governor, Kay Ivey, warned against the Trump administration’s tariff plan.
“Import tariffs, and any retaliatory tariffs on American-made goods, will harm Alabama, the companies that have invested billions of dollars in our state, and the thousands of households [that] are dependent upon those companies for a good-paying job,” Ivey said in a statement last year. “I strongly oppose any efforts that may harm those companies that employ thousands of Alabamians and contribute billions to our economy.”
In July, Hyundai’s 51,000-member labor union in South Korea released a statement to The Associated Press warning that the Alabama plant may be the first one on the chopping block if tariffs hurt sales. The union said its contracts with the company mandate that it close overseas factories before shutting down any plants in South Korea.
“If South Korean car exports to the U.S. get blocked and hurt sales, the U.S. factory in Alabama that went into operation in May 2005 could be the first one to be shut down…” the union said in the statement.
By December, U.S. Sen. Doug Jones was meeting with Alabama automakers at a roundtable.
“They’re very concerned,” said Jones, a Democrat.
Jones and Tennessee Republican Lamar Alexander recently reintroduced legislation that would require the International Trade Commission to study the U.S. auto industry before tariffs could be applied. Its chances to become law weren’t clear. Alabama’s other Senator, Republican Richard Shelby, said he looks forward to “reviewing the Automotive Jobs Act, as well as other similar legislation, should it receive further consideration by the Senate.”
Jones also talked about the possibility of shifting national security investigations to the Department of Defense instead of the Department of Commerce or implementing other measures to “call back some of the power the president has” to enact those tariffs.
“Hopefully, it won’t come to that,” Jones said.
The Road Ahead
The Hyundai plant has spent the past year clawing back from a downturn caused by slumping sedan sales.
It switched its production mix and started rolling out more Santa Fe SUVs. That paid off. The company set an all-time December sales record in North America while establishing more of a foothold in the only vehicle segment that’s been growing. It’s selling more Hyundais at dealerships and fewer at a deep discount to rental or corporate fleets.
The assembly line had slowed during the 2017 downturn as the company tried to roll out fewer vehicles without laying off employees.
The plant added 75 people when it sped up the line again in July---the same month that the Trump administration was holding hearings on its tariff plan.
The new $388 million engine head machining shop should be up and running by May. They’re already gearing up to roll out a redesigned Sonata in August.
They expect to build 335,000 vehicles this year, up slightly from 2018. That’s the tentative plan, anyway, based on sales projections. They’re ready to change on the fly.
“(Tariffs) may influence that, but right now all those are still hypothetical,” Burns said. “It does make it difficult for any business to plan.”