published Friday, October 4th, 2013

Brookings Institution report: Auto sector future key for Tennessee

New Volkswagen Passats are seen behind the Chattanooga assembly plant's building front.
New Volkswagen Passats are seen behind the Chattanooga assembly plant's building front.
Photo by Dan Henry.

Tennessee has a lot of momentum in the automotive sector, but it needs to better its workforce and do more to encourage innovation, says a new report released today by the Brookings Institution.

"The state needs to reset for a very competitive new period," said Mark Muro, a co-author of "Drive! -- Moving Tennessee's Automotive Sector Up the Value Chain."

For Chattanooga, which is a key part of Tennessee's auto segment after landing the Volkswagen assembly plant, the stakes are high, a local official said.

"The report puts down in black and white important figures we suspected for a long time," said Ron Harr, the Chattanooga Area Chamber of Commerce's chief executive. "It proves that in the auto sector in Tennessee and Chattanooga, there's a huge opportunity in the future."

Harr, who is taking part in an economic development conference in Nashville today convened by Tennessee Gov. Bill Haslam, added that growing the Chattanooga area's supplier base is a key for the region. Muro said that the best prospect for growth is in the supply chain.

"It's 80 percent of the jobs," he said. "It's the best place to look."

The report said the auto sector's strength in Tennessee has traditionally been because of its competitive cost structure, strategic geographical location, and strong transportation infrastructure.

However, the study says other states and countries such as Mexico can compete on factors such as cost.

Muro said that new auto industry labor contracts in the Midwest states, including in now right-to-work Michigan, are making them more cost competitive.

"And you have the Mexico challenge," he said.

The report said Tennessee's auto sector has led the state's post-recession economic recovery, having generated more than 12 percent of all job creation since then and more than one-third of the manufacturing sector's output growth since 2010.

Tennessee's auto sector is the largest in the South in terms of employment, and its share of North American motor vehicle

manufacturing employment increased from 2.9 percent in 2010 to 3.3 percent, an all-time high, in 2012, the study said. The report said the industry grew even more competitive as it weathered the economic crisis.

"It's a leaner industry," Muro said.

The Brookings report recommends targeted efforts to address specific challenges facing the industry in Tennessee, calling on the private sector to take the lead in growing the automotive industry.

Brooking recommends Tenessee develop an industry association, seeking out opportunities for expansion in new markets and adjacent industries, and work on collaborative solutions to workforce development needs.

Harr said the Chattanooga area needs to work on improving worker skills.

"We've got good activity underway," he said. "We can't let up."

The report also mentioned boosting innovative activity through increased research and development investment and greater engagement in innovation.

Brookings said the public sector, particularly state government, must create a supportive environment in which automakers and their suppliers can flourish.

The report recommends placing greater attention on the auto supply chain and renewed emphasis on international trade. It also cited creating a skills challenge grant to strengthen the Tennessee advanced industries workforce and encouraging technology development.

On the federal level, the report said government should promote trade liberalization and expanded market access to increase exports, create a "Race to the Shop" competition challenging states and regions to develop cohesive programs to develop the manufacturing workforce, and invest in research and development.

Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318.

about Mike Pare...

Mike Pare, the deputy Business editor at the Chattanooga Times Free Press, has worked at the paper for 27 years. In addition to editing, Mike also writes Business stories and covers Volkswagen, economic development and manufacturing in Chattanooga and the surrounding area. In the past he also has covered higher education. Mike, a native of Fort Lauderdale, Fla., received a bachelor’s degree in communications from Florida Atlantic University. he worked at the Rome News-Tribune before ...

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