Automotive

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Site Selection Needs for the Automotive Manufacturing Sector and Their Respective Tier One and Tier Two Suppliers

30 Apr, 2006

By: J. Michael Mullis

Automotive Manufacturers first conduct overall market assessments vs. overall production capabilities in order to determine the longer term needs for increased production. Once the need for increased production is ascertained, initial and more comprehensive evaluations of logistics are completed to determine geographic regions in North America which would be selected for additional consideration.

The Tier One and Two suppliers must conduct logistics evaluations, but such evaluations are relative to service capabilities to one or more Automotive Manufacturers. Those suppliers must make certain that they consider location candidates that will meet the Automotive Manufacturers’ broadcast production needs; with just-in-time deliveries of various automotive components to fully accommodate the production needs, flow, and volumes of the Automotive Manufacturers.

Once the logistics aspects of the projects to be established by the Automotive Manufacturers, and their respective Tier One and Two suppliers are met, the Broad Search site selection process is initiated with the preparation of comprehensive evaluations and matrices of several additional factors:

• Population characteristics and growth trends.

• Labor – Labor market size and type, quality, employee choice attitudes toward unionization, productivity measurements, costs, commuting patterns, ethic and/or minority representation, etc.

• Overall operating costs (labor, taxes, utilities, project debt amortization, etc.).

• Transportation systems (highways, rail, deepwater ports, intermodal, commercial and general aviation airports). Access to intermodal facilities is becoming a very important site selection factor.

• Utilities (electric, natural gas, water, sewer, advanced telecommunications – availabilities, capacities vs: utilizations, reliabilities, costs, funding capabilities for system expansions).

• Environmental – Determination of how environmental considerations might affect the site selection process, and costs and timing for construction, for proposed project establishments.

• Governmental factors – Evaluation to determine if area government(s) support expanding existing industry growth, and new industry growth.

• Overall quality of life issues – A major evaluation factor to make certain that locations offer various amenities for automotive related automotive Companies to be successful in the recruitments and/or transfers of professional, management or technical personnel from all over the world.

• Business interruption risks associated with natural disasters (ex. – hurricanes, tornadoes, earthquakes – levels and frequencies of occurrences).

• Area education systems – all levels and types. Key emphasis is placed on area secondary and post-secondary public school systems since very high levels of workforces for the automotive related Companies’ new projects are developed from those area education systems.

• Image – Measurement of the location candidate’s overall image to the region, and the outside world.

• Physical site evaluations –

  • Site size, dimensions, overall configuration

  • Contiguous area

  • Previous use

  • Utilities (locations, line sizes, connection fees, capacities)

  • Existing easements/right-of-ways

  • Existing structures which would have to be removed

  • Archeological studies available

  • Zoning; timing and process for rezoning, if necessary

  • Zoning restrictions (maximum heights, noise curfews)

  • Site subject to flooding

  • Elevation range of site

  • On-site wetlands issues

  • Sub-surface characteristics

  • Endangered species

  • Maximum coverages of facilities and impervious areas vs. total site

  • Ownership and control

  •  Pricing

     

• Incentives – all types and levels; which specific interests in project related initial cost reductions. Statutory and voluntary.

• Humanistic factor – The sum of all local characteristics impinging on a location analysis which originates in the attitudes, idiosyncrasies, and opinions of all the people involved. This factor has added significance, in that it continues in place after the project is placed in operation. Automotive related Companies’ failures to identify, understand, and adjust to humanistic factors cannot only lead to poor location selections, but can also turn otherwise very favorable locations into perennial problem areas, despite excellent logistics and economic credentials.

Reduced lists of location candidate finalists are selected based on the results of the comprehensive evaluations and matrices of the previously mentioned site selection factors; plus several visits of the specific Project Teams to those finalists.

Once the Broad Search location analysis process is completed, the Narrow Search location analysis process is initiated with a reduced number of location candidate finalists. The Narrow Search location analysis process involves at least these actions:

• Preparation of detailed pro-form as for initial and repetitive costs.

• Matrices for the weighting and rankings of various institutional factors.

• Project Team visits with area industries; and key business people/organizations.

• Project Team visits with all levels of governments.

• Selection of the preferred location candidate, and at least one (1) alternate location candidate.

• The creation and documentation of a Memorandum of Understanding (MOU) document that legally binds the agreement made upon deal among all of the involved parties. The execution of such a document frequently involves formal public actions and public hearings.

Pitfalls to Avoid:

Anonymity – Automotive related Companies frequently find it very difficult to maintain Confidentiality during their respective site searches; and such Confidentiality may be absolutely essential for reasons of pre-mature exposure to the press, awareness to competitors, and disclosure to existing workforces elsewhere.

Population Characteristics – Trends must be carefully analyzed to assure automotive related Companies of longer term adequate population growth and quality.

Labor and workforce evaluations – The skill sets for area labor and workforce must match the needs of specific Automotive Manufacturers, and the respective Tier One and Two suppliers. Frequently those labor and workforce evaluations are not conducted appropriately. The Automotive Manufacturers, and the respective Tier One and Two suppliers, must place more emphasis on quality, trainability, attitude, commuting patterns, and productivity of labor and workforce vs. pure costs. Too frequently automotive related Companies are sold a “bill of goods” on area workforce capabilities vs. automotive related Companies’ true needs for workforce; and it takes literally years for those automotive related Companies to establish qualified and dependable workforces.

Transportation system access – Access to rail, deepwater ports, intermodal facilities, and airports is becoming a more critical assessment than ever before. As Automotive Manufacturers are continuing to establish operations in North America, higher percentages of automotive component products are being shipped from abroad. Such transportation system access evaluations must be conducted to accommodate the Automotive Manufacturers’ needs for access to global markets for inbound component products, and outbound finished products.

Utilities – Automotive Manufacturers, and their respective Tier One and Two suppliers, must carefully evaluate all existing and future planned utility networks and systems; with particular reference to longer term supplies of cost effective and dependable electric, natural gas, water, and sewer services. De-regulated environments for electric and natural gas services are making the site selection process even more difficult for analysis by those automotive related Companies.

Business Interruption Risks Associated With Natural Disasters – With increased occurrences for hurricanes, tornadoes, and earthquakes, Automotive Manufacturers, and their respective Tier One and Two suppliers, must spend additional time in evaluating construction and possible operating cost penalties; plus business interruption risks in the event of damages, due to such occurrences.

Environmental –Frequently automotive related Companies do not properly evaluate all aspects of environmental considerations relative to process air emissions, wastewater discharges, the handling and disposal of hazardous and non-hazardous materials, and noise abatement. The improper analyses of all environmental considerations are frequent causes for project development delays.

Education Systems – Automotive related Companies must carefully evaluate all types and levels of public education systems at secondary and post-secondary levels. Automotive related advanced manufacturing technology requires access to a more computer literate educated workforce; and workforce training has become one of the key criteria for on-going site selection activities.

Legal Systems – Automotive related Companies must carefully evaluate tort reform; and the overall ranking of government liability systems.

Physical Industrial Sites – The cycles for site selection activities for Automotive Manufacturers, and their respective Tier One and Two suppliers, are being reduced on an on-going basis. Automotive related Companies must place more emphasis on “Certified” or “Shovel Ready” sites that have been evaluated and documented in detail previously in order to qualify such sites for automotive project related developments. Completed advance evaluations regarding environmental and geotechnical aspects of sites are also critical.

Permitting – Automotive Manufacturers, and their respective Tier One and Two suppliers, frequently encounter problems in their respective evaluations of permitting; with specific reference to facility design/physical development and process operational related issues. More time must be spent on the formulation and negotiations for all types and levels of accelerated permitted processes; with due consideration for the allowance of sufficient time for all required public meetings and hearings.

Incentives – Too frequently, Automotive Manufacturers, and their respective Tier One and Two suppliers, place too much emphasis on incentives too early in the overall site selection process. All other location evaluation factors must be satisfied before incentives can be appropriately evaluated and weighted. Incentives should be the final factor for preferred site selection decisions for otherwise equally ranked location candidate finalists.

Required Formal Public Actions/Public Hearings – Automotive related Companies frequently do not give due consideration, respect, and proper planning for required formal public actions and public hearings. Careful handling of the information network with government officials and the public is essential to the successful completion of various project establishments.

Success Stories – There are numerous more recent success stories for the establishments of major projects in North America for Automotive Manufacturers such as Toyota in Kentucky, Indiana, Texas, and most recently Ontario, Canada; Nissan in Tennessee and Mississippi; Diamler Chrysler in Alabama; BMW in South Carolina; Hyundai in Alabama; and most recently KIA Motors in Georgia. These Automotive Manufacturers have created the needs for literally hundreds of Tier One and Two suppliers to establish operations throughout the U.S., Canada, and Mexico.

General Trends In The Marketplace – Particularly the southern U.S. is realizing substantial growth in the automotive related industry; primarily due to workforce characteristics, relatively low overall operating costs, reasonable access to worldwide markets, readily available large industrial sites at very low to no costs, and aggressive state and local level incentive packages.

Ontario, Canada is also experiencing significant growth in the automotive related industry; primarily due to workforce characteristics, and easy access into U.S. markets.

 

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