New wave of European suppliers hits South

Expansions follow automakers' lead

Sewell: Case is convincing

BIRMINGHAM, Ala. -- Call it The Great Migration, Part 2.

As European automakers Mercedes, BMW, Volkswagen and Volvo build or expand their assembly plants in the Southeast, a new wave of Tier 2 and Tier 3 European suppliers are coming to set up their first North American factories.

The companies typically are small, often family-owned and frequently German. And in some cases, they come because their customers -- including European mega-suppliers Continental AG, Robert Bosch GmbH and ZF -- ask them to.

"We are seeing another wave of European suppliers," said Steve Sewell, executive vice president of the Economic Development Partnership of Alabama. "It's the increase in North American vehicle production that really made a convincing case for those companies to be here."

One such company is Rausch & Pausch -- also known as RAPA -- a supplier of high-precision powertrain components, such as a canister that injects lubricant into the transmission for stop-start systems.

In 2012, the company accepted ZF's invitation to build a U.S. factory, and after considering dozens of sites in the South, it settled in Auburn, Ala.

Why Auburn? The town has a growing German ex-pat community, now that eight German suppliers are located there. And Auburn University's engineering school caters to the auto industry, says Kelly Nelson, RAPA's plant manager.

"There is a nice German footprint in Auburn already, and the university's engineering department has taken off," Nelson said.

The region's prevailing wages are not an important factor, says Nelson, since RAPA's $20 million factory is highly automated. The plant ships its components to ZF in South Carolina and to a Fiat Chrysler plant in Kokomo, Ind., which produces ZF transmissions. Other customers include Tesla, Continental and Thyssenkrupp.

From 2006 through 2015, suppliers spent $44.4 billion on new plants and expansions in the United States, according to the Book of Deals, a database maintained by the Center for Automotive Research in Ann Arbor, Mich.

Consider the ripple effect caused by Mercedes-Benz in late 2009 when it announced that its assembly plant in Vance, Ala., would add the C-class sedan to its production of crossovers. In response to Mercedes' plan to invest $2 billion there over five years, its Alabama suppliers spent $1.2 billion to expand their own factories plus $298 million to build parts plants in the area.

One of the expansions came from Inteva Products, which already was producing instrument panels and door modules for Mercedes in Gadsden, 96 miles northeast of Vance. But with news of the coming C class, the supplier spent nearly $32 million to expand production of panoramic sunroofs, instrument panels and window regulators.

Sunroofs are now the biggest revenue producer of the portfolio. To make room for sunroof production, the plant cleared out half of its floor space, built a warehouse for raw materials and assigned nearly half of its 580 employees to produce the roofs.

Inteva's sunroof is only one on a long list of components that were needed to transform the Mercedes plant to build both crossovers and sedans. To glimpse the river of parts required to keep Vance humming, one might consult BLG Logistics Inc., the Bremen, Germany-based logistics provider that runs three on-site warehouses in Vance.

To prepare for the C class and other new models, BLG hired 250 additional employees and spent $22.9 million on new facilities. The nerve center of its network is the Mercedes logistics center inside the assembly plant, where 500 trucks and shipping containers are unloaded daily.

There, BLG employees take delivery of 30,000 types of parts and prepare them for final assembly. Some C-class parts are shipped from Bremen to Charleston, S.C., and then trucked to Vance -- a four-week journey.

But BLG handles 57 sequenced components -- such as steering wheels, seats and instrument panels -- that must be produced in factories within 10 miles of Vance, says Maike Sievers, BLG's director of logistics.

"There are millions of variations for seats," Sievers noted, "so you have to manufacture them in sequence. There is no warehouse big enough to store them all."

That's why just-in-time factories clustered around any given assembly plant are "sticky" -- that is, not easily moved to another region.

That's not so true for Tier 2 factories that serve multiple customers, says Jay Baron, president of the Center for Automotive Research.

The Great Lakes region already has a concentration of such suppliers, along with tool-and-die makers and raw material producers. Now Mexico and the southern states are trying to build their own networks, Baron says.

"I think the real battleground will be the development of new supply chains of Tier 2 and Tier 3 manufacturers," he said. "Going forward, that's where the growth will come."

You can reach David Sedgwick at dsedgwick@crain.com

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