By Dan McCue
Staff Writer

Of the five business clusters identified in the Angelou Economics report, the document driving the tri-county region’s ongoing economic development efforts, the automotive industry cluster has always been seen as the goal that’s most readily achievable, according to the area’s economic development types.

After all, among them, Charleston, Berkeley and Dorchester counties are already home to more than 30 automotive suppliers, including the Robert Bosch Corp., maker of antilock brakes and fuel injection systems, and also the region’s largest private employer, and Cummins Inc., maker of turbochargers and cooling systems, among other products.

The region is also home to American LaFrance, the emergency vehicle manufacturer currently in the midst of relocating its operations in North Charleston, and DaimlerChrysler, which is converting American LaFrance’s current digs into a new commercial van assembly plant.

Then, of course, there is the BMW Manufacturing Co.’s manufacturing plant in Spartanburg, a facility that produces nearly 590 vehicles a day and ships 60% of the vehicles it builds annually to 120 markets around the world, most of them passing through the Port of Charleston.

But if the region has undeniable traction in the industry—automotive analysts believe it certainly does—it lacks the one thing likely to kick-start the development of a full-blown cluster: an anchor business so integrated into the community’s fabric that its spinoffs extend not just to manufacturing, but also to such businesses as marketing firms and staffing companies.

“If you’re going to foster an automotive business cluster, the first thing a region needs is a major corporation, an original parts manufacturer, to move there and make it happen,” said David Lucas, vice president of the Autodata Corp., an industry statistics firm in Woodcliff Lake, N.J.

“Charleston has a lot of factors in its favor, but you need that manufacturer, with its supply chain demands, to really get things moving,” he continued. “That’s what we are seeing in Tennessee; thanks to Nissan, suppliers are rolling into the state. As far as economic growth goes, it doesn’t get better than that.”

But who and how?

David Ginn, President and CEO of the Charleston Regional Development Alliance, said supplementing the region’s automotive supplier base with an original equipment manufacturer is one of his group’s primary objectives.

But the $100 million question is, what will that company be? And more to the point from an economic development strategy perspective, what market trends will be the decisive factors in recruiting such a company to this region?

The first thing that’s almost a certainty is the company won’t be Ford or General Motors. Both companies, for the moment at least, have outgrown their sustainability due to labor and health care costs and other factors, and are dramatically scaling back their work forces.

While that makes for corporate headaches and unpleasant headlines, industry watchers have seen these kinds of upheavals before, most notably in the early 1970s, when the Arab oil embargo inspired consumers to eschew American-made cars they came to see as gas guzzlers for foreign-made models believed to be more fuel efficient.

Today, as then, most domestic automakers are cutting production in the short term, and Lucas predicted most of their supplier network would remain rooted in the Midwest.

As a result, economists like Jason Schenker, with Wachovia Securities in Charlotte, N.C., said they believe if automotive clustering is to occur in and around East Coast cities like Charleston, it’s going to be international companies following the lead of DaimlerChrysler and BMW into the region.

“A couple of factors bode well for the region, the first of which is that European automakers have found it increasingly desirable to be close to their American customers,” Schenker said. “Couple that with the relatively low cost of doing business in the southeastern United States, and its proximity to Europe thanks to the Port of Charleston, and you’ve got a good chance to develop an automotive cluster in your area.”

Lucas offered two other factors which may lead to automotive industry clustering in the Southeast: The amount of available developable land that exists outside of major Southern cities, and many Europeans’ desire to be in the Eastern time zone to stay in sync with counterparts in their home countries.

But if economic factors weigh in the Charleston region’s favor, whether it can become something of an automotive Mecca, and how fast anything like that could occur, are very much open questions.

A consolidation of suppliers around a manufacturing plant is a relatively slow process, Schenker said.

Lucas, on the other hand, said it has to occur quickly because the lean manufacturing ethos auto manufacturers strive for means they are constantly depending on just-in-time deliveries to keep production flowing.

“Most big facilities are designed to have suppliers nearby, and it doesn’t make good economic sense for them not to try and foster those proximate relationships,” he said.

Suppliers cluster to survive

Lean manufacturing, the drive to produce only what the customer needs when they need it, is one of the most significant factors in determining whether companies prosper here and whether their suppliers establish a presence to support them.

“In a perfect world, one in which we’re at our peak competitive advantage, the goal is to shrink inventories to a bare minimum and only produce today what General Motors needs tomorrow,” said Danny Hyman, vice president of manufacturing for the Robert Bosch Corp.’s North Charleston plant.

At Cummins, there is no inventory at any of its plants, according to Tim Solso, the company’s chairman and CEO.

“As a result, we rely on our suppliers to provide us with parts when we need them, no sooner and, obviously, no later,” he said. “Same applies to how and when we get our products to our customers. If you have a lot more slop in there, the more it costs. Inventory is waste, which is one of two things you want to eliminate from your manufacturing process. The other is variation.”

Bosch’s North Charleston facility, which runs three shifts a day, five days a week, relies on roughly 200 suppliers, Hyman said.

Today’s delivery system, what Hyman describes as “milk runs,” lends itself to clustering.

“Today, what I see happening, is a trucker visiting our facility, picking up our product, then moving on to another supplier, getting theirs, and so on, until they end up at a final location like the Nissan plant in New Smyrna, Tenn.,” he said.

There’s a real need then to have a host of support companies, whether they be suppliers, logistics firms or trucking companies closer at hand.

“A history in a market doesn’t dictate future opportunity unless I can compete on a global scale,” Hyman said. “You have to look at the total value stream. Knowing I can’t reduce wages, I have to look at how I can get the most out of investment, and that means increasing the velocity of production. What’s the quickest way for me to get the raw materials, mold it into a product and put that product into the customer’s hands? Have my suppliers close and customers even closer.”

But lean manufacturing that is carried through to all phases of the business, from its supply chain to its manufacturing and distribution processes, places heavy demands on a community’s infrastructure.

About 95% of what Bosch produces is intended for the North American market. As a result, a vast majority of the company’s cargo goes out by truck. “In the last three years, the number of 18-wheelers that have visited our site has actually tripled,” he said.

The question, then, is how will municipalities respond to the way the industry is evolving?

“We’re already having a major impact on Dorchester Road,” Hyman said. “What’s it going to be like when you have 12 Robert Bosch’s in the area? Automotive manufacturers are going to make decisions on locations for their facilities based on the infrastructure in place, and if you don’t have it, then they are going to want to hear that you have a plan in place.”

‘Local supply of labor’ needed

Solso cautioned that there’s a lot more to developing an automotive cluster than declaring that as a goal, even when you’ve already have a Cummins, Robert Bosch and BMW in the state.

“If you don’t have a way to grow a local supply of labor, then we’re all just competing against ourselves for the same workers, and that diminishes the odds that we’ll be successful in the global marketplace,” he explained.

“Charleston has many, many attributes from a business perspective, but if there’s one area that needs real, focused attention, it’s developing a public educational system that creates a pool of potential young workers, steeped in the subjects of math and science, and to the extent possible, skills that can be applied to engineering,” he said.

“Improving public education is one of those things that goes on the hard-to-do pile and, therefore, rarely gets addressed,” he continued. “Among other reasons for this is the institutional resistance to change is very difficult to overcome, but just because something is hard doesn’t mean it should be ignored.”

In Solso’s view the best way for business to play a role in revamping public education to meet its changing needs is to be involved, either by adopting schools and sponsoring business-related programs,, or by encouraging mentoring activities.

Hyman agreed.

“I think the most dangerous thing any of us could do is wait for someone else to address the issue of public education in South Carolina,” he said. “But it’s not just the academics we need to focus on. We also have to reach out to the teachers and the guidance counselors and the principles and encourage them to rethink the message that manufacturing isn’t a good area to work in.”

Other factors of clustering

Hyman would be hard-pressed to define what an automotive cluster is or should be, but said in terms of economic development in the region, the things that made the Charleston area attractive to Bosch 30 years ago remain today, he said.

“The Port of Charleston was extremely important to us and I think it remains so for every auto-related manufacture. From the start it gave us the ability to very efficiently get material in and out of our facility.”

Another factor, Hyman said, was the well-established interstate system that connects Charleston to the rest of the country.

“You can leave the city and within a matter of minutes be on the interstate, that’s been important,” he said. “And of course, the other important factor for us has been the availability of the technical college system.

“When you manufacture in Charleston, which hasn’t historically been dominated by precision manufacturing, you have to effectively grow your own work force. Trident Technical College has been a good resource in that regard. They’ve trained our workers and as a result, we didn’t have to allocate time and resources on duplicative programs.”

Lastly, but no less important, Hyman credited South Carolinian’s can-do attitude as a factor in the company’s decision to set up shop here and in the success it has achieved in the Lowcountry.

Proximity breeds opportunity

The tri-county region’s effort to attract automotive companies is helped by its proximity, both in terms of geography and transportation infrastructure, to automotive plants in other Southern states.

DaimlerChrysler, which is about to begin production at an assembly plant in Ladson, also has a plant in Alabama, as does Hyundai. Ford has long had a plant in Georgia, and Nissan in Tennessee. Honda operates a plant in Mississippi, and Kia recently announced its intention to open a plant outside of LaGrange, Ga.

“The South, as a region, has become the new automotive hub, if you will, and most of our suppliers also supply other automotive companies,” said Bunny Richardson, a company spokeswoman for BMW. “That’s a trend that I expect will continue to grow.”

Richardson hastened to add that while to some minds Charleston might seem quite distant from some of these facilities, it is “close enough to be a reasonable location for someone in the auto industry supplier base.”

She pointed out that initially, BMW wanted its suppliers to be located within a few hours or less of the plant, but as the facility established itself, its supplier base extended to include even companies in California, Canada and Mexico.

“The other thing to remember is that the Port of Charleston is a key piece of the infrastructure that makes people want to locate in the South, along with the interstate and the rail connections,” Richardson said.

Cluster to grow

Everyone from economists to educators to industry insiders expects the automotive industry’s presence in the Lowcountry and the state as a whole will continue to grow.

Bob Geolas, director of the Clemson University International Center for Automotive Research, for instance, predicts that both China and India will enter the U.S. auto market by 2010.

The high volume of cargo from both countries that now surges through the Port of Charleston suggests they too may in the next decade be looking to set up shop here.

At the Autodata Corp., Lucas is making the same assumption.

“I certainly think that within a few years the Chinese, like the Japanese in the 1970s and 1980s, are going to buy their way into the U.S. market and the best way to do that is to establish a manufacturing or assembly plant here,” Lucas said.

And they have ample reason to do so. While other industries, textiles, for instance, view the United States as a mature, relatively slow-growth market, there are still opportunities for good growth in the auto industry, he said.

“It depends on the company, but generally speaking, because consumer preferences change over time, the auto industry keeps being rejuvenated,” he said.

Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@charlestonbusiness.com.

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