Buoyed by industrial training programs and incentives, a flurry of foreign automotive manufacturers have set up in Alabama over the last three decades, developing a diverse supplier network and resilient industry in the Yellowhammer state.

When counting active projects, automotive original equipment manufacturers (OEMs) – including Mercedes-Benz, Honda and Hyundai – have invested around $11bn in the south-eastern US state, according to the Alabama Department of Commerce.


Mercedes, Honda and Hyundai produced a combined total of one million vehicles in 2019, ranking Alabama as the fifth largest US state producer of cars and light trucks. 

Japanese carmakers Toyota and Mazda recently pledged a further $1.6bn of investment to set up a joint assembly plant in Huntsville, Alabama, which upon completion will have an annual production capacity of 300,000 vehicles and create 4000 direct jobs.

Prior to the outbreak of coronavirus, the Alabama Department of Commerce projected that Alabama could become the second largest auto-producing US state by 2022.

Supplier network

Alabama’s centrality within the US’ major automotive corridor, that spans along the Interstate 65, the north-south highway running from the Great Lakes to the Gulf of Mexico, makes it an “ideal launching pad” for automotive suppliers, says Dennis Donovan, a principal consultant at corporate location strategy and site selection firm WDG Consulting.

In fact, Alabama ranks second across all US states for automotive components investments – attracting more than 150 projects since 2003 – according to fDi Markets, an FT data service which has tracked greenfield investments since 2003.

South Korea-based auto part manufacturers Hanwha and Halla Group, as well as Germany-based Eissmann Automotive, are among some of the many manufacturers that have invested to supply OEMs in Alabama and adjoining southern states.

The entire automotive sector – including component manufacturers and OEMs – has accounted for more than 40% of Alabama’s total number of greenfield investment projects since 2003, according to fDi Markets.

As many automotive companies use either just-in-time or just-in-sequence production methods, which require expeditious supply of parts and components, Alabama has a “significant advantage” over other locations from a logistics perspective, says Didi Caldwell, who founded and runs site selection consultancy Global Location Strategies. 

The influx of major automotive companies has helped develop “a strong and diverse supplier network” in Alabama benefitting all automakers in the state, says Mike Oatridge, senior vice president of Honda Manufacturing of Alabama (HMA).

Since breaking ground on its manufacturing plant in Lincoln 20 years ago, Honda has invested almost $3bn in Alabama and grown its direct workforce to more than 4500. 

An economic impact study released in September 2019 estimated that Honda and its supply chain contributed $12bn to Alabama’s economy in 2018, and was responsible for more than 45,000 jobs.

“Honda is grateful for the support that we have experienced with our communities, our local and state leaders and our supply partners [in Alabama],” says Mr Oatridge. 

Competitive assistance

Compared to neighbouring states, Alabama is attractive for manufacturing operations due to its “very competitive” cost structure and “excellent” industrial workforce training programme, says Mrs Caldwell.

Alabama’s history as a “right to work” state – that is not heavily unionised – and favourable business climate are other positive attributes, says Chris Grissom, a Birmingham-based partner at national law firm Bradley focused on tax planning and incentives. 

Alabama is also among three US states that gives cities and counties statutory rights to act as their own taxing entity, providing flexibility with the incentives offered to foreign investors, says Mr Grissom.

“Most other states don’t have this structure, making Alabama’s tax rules something unique,” he adds.

While generating some controversy due to concerns about foreign companies not sticking to their investment promises, fiscal and non-fiscal incentives helped to kickstart Alabama’s auto industry in the 1990s, as other industries such as textiles were moved overseas.

“Incentives that were given to Mercedes have worked out well,” says James Cochran, an associate dean for research at the University of Alabama’s Culverhouse College of Commerce.

Following an initial investment pledge to set up its first US-based assembly plant in 1993, Mercedes Benz has expanded its Alabama operations several times.

In 2015 the German automaker announced plans to invest $1.3bn to expand its operations in Tuscaloosa county, followed by a further $1bn expansion in 2017 to begin production of electric vehicles, according to fDi Markets.

Hyundai has also announced several capacity expansions, most recently in November 2019 to invest $410m to expand its Montgomery plant, which will create 200 jobs. 

Separate from its joint venture with Mazda, Japanese carmaker Toyota announced a $288m investment in March 2019. It will create 450 additional jobs and increase its annual production capacity to 900,000 engines.  

Exports of Alabama-made automobiles exceeded $6.7bn in 2019, while exports of Alabama-made auto parts and products totalled nearly $750m.

Team training

Similar to other southern US states, Alabama has been a “victim of its own success” in attracting foreign companies, says Mr Grissom. 

Manufacturers intending to set up operations that require a large number of workers, particularly in urban economic centres, have had to grapple with labour shortages as the market has become more saturated.

However, Alabama has dealt with this issue head on with its industrial workforce development programme, AIDT, which trains and recruits workforce to meet investing company requirements, and public-private training partnerships such as Alabama Works. 

While other southern states, such as Louisiana, South Carolina and Georgia, have similar training programmes, prospective investors regularly cite that Alabama stands out due to the “cohesive team effort from both the state and local authorities”, says Mr Grissom.

The coordinated efforts across Alabama is embodied by the state’s collaboration with Honda through its AIDT programme.

Two jointly designed facilities, one in Lincoln near to Honda’s plant, and another in Pell City, provide recruitment and training for both Honda’s workforce and other Alabama-based companies.

Honda’s Mike Oatridge asserts that Alabama’s workforce, which is “dedicated and capable of producing high quality products”, has been key to the success of their operations and investments.

Other key parts of Alabama’s workforce development infrastructure is the Robotics Technology Park which is situated between Huntsville and Decatur, and the Center for Advanced Vehicle Technologies in Tuscaloosa.

“The Huntsville-Decatur region is pretty diverse,” says Didi Caldwell, who contends that the presence of automotive, chemical, aerospace and metal industries make for a well developed ecosystem.

Covid-19 potential

As coronavirus lockdowns have tested the resiliency of global automotive supply chains, many companies may reassess their footprints, choosing to reshore operations and move closer to major production hubs.

Due to a well established infrastructure network and available sites, Alabama is “well positioned to take advantage of this trend,” says Commerce Secretary Greg Canfield.

However, it is still unclear and too early to tell how well Alabama’s manufacturing sector is adjusting to Covid-19 disruption, says Mr Cochran.

While construction of some ongoing automotive projects has been slowed by lockdowns, Alabama’s well-established automotive supply chain and workforce puts it in a good position to attract further automotive investment in the future.