After all of President Donald Trump’s bluster about building more cars in the U.S., the one new plant he can count on will come from a once American-owned Swedish brand flourishing under a Chinese parent.
Volvo Car Group opens its $500 million factory late next year and will employ 2,000 workers initially near Charleston, S.C. Trump’s unlikely ally has been on a tear since billionaire Li Shufu’s Zhejiang Geely Holding Group Co. bought the company from Ford Motor Co. in 2010 for just $1.5 billion.
“We are in a little bit of a strange situation, but that is the result of globalization,” said Lex Kerssemakers, chief executive officer for Volvo North America. “This is how the world is interacting with one another, and it’s unavoidable.”
Like deck furniture tossed to keep a ship from sinking, Volvo was discarded by Ford in its manic effort to stay afloat during the global financial crisis. Under Geely’s light-handed ownership, the brand known for its safety credentials has remained independent, keeping its base in Sweden and a traditional supervisory board – albeit one led by Chairman Li.
This has been a recipe for success: U.S. sales jumped 18 percent in last year’s mostly flat market, and Volvo has positioned itself among the leaders in self-driving technology. The South Carolina factory will be a crucial asset in an expected initial public offering of Volvo stock.
The anticipated economic benefits of Volvo’s investment in South Carolina help explain why Trump has fixated on the auto industry as he’s promised to deliver a “new industrial revolution.” While oil companies brag that every energy job creates two more positions in the economy, auto factories with their long supply chains and good wages have traditionally claimed a bigger jobs-multiplier effect.
The initial 2,000 jobs Volvo is adding in South Carolina will yield more than 8,000 in total for the region, according to Frank Hefner, an economics professor at the nearby College of Charleston. These manufacturing jobs pay well and add to demand for meals, medical care and furniture, producing further economic ripples, he said, noting that a 10,000-home subdivision is being constructed near the Volvo factory.
When BMW AG built its largest plant in the world upstate in Spartanburg, S.C., about 25 years ago, Hefner said he underestimated the number of suppliers that would enter the scene to support vehicle production.
“Another hotel isn’t going to have the same impact” on the region known as a tourist destination, Hefner said.
Volvo is spurring further growth for South Carolina’s manufacturing economy, which already includes Honda Motor Co.’s assembly of all-terrain vehicles and Daimler AG’s Sprinter van plant. The state also produces more than 100,000 tires a day at factories including those owned by global giants Michelin & Cie., Continental AG and Bridgestone Corp.
In all, 66,000 people work at more than 400 auto-related companies in South Carolina, according to the state’s commerce department.
Gestamp Automocion SA last month announced it’s investing $129 million to create 130 jobs at its site in Union County to supply Volvo and BMW. The Spanish company will do stamping work for Volvo, allowing the automaker to avoid some investments on site, said Katarina Fjording, vice president of purchasing and manufacturing for Volvo Car USA.
The Palmetto State is of two minds when it comes to globalism, said Hefner, the economics professor. There’s a strong strain of anti-trade sentiment steeled by the devastation of the apparel and textile industries in the 1980s. At the same time, the state has benefited tremendously from foreign investment, especially since BMW opened its factory in the ‘90s.
“We welcome foreign direct investment. At the same time, we vote for people who don’t want trade,” Hefner said. “That’s strange.”
Trump’s America First approach to economic policy has included withdrawing the U.S. from the Trans-Pacific Partnership and threatening a border tax on vehicles imported from Mexico. That said, he told workers near Detroit last month that he won’t discourage investment from overseas.
“Respect and place your faith in companies from foreign lands that come here to build their product,” Trump said in remarks near Ypsilanti, Mich. “We love them too, right?”
Volvo’s decision to establish its first North American factory in the U.S. was made without any concern about possible protectionist tariffs, Kerssemakers said.
As Ford sought to conserve cash by shedding assets and focusing on its namesake brand, executives including Kerssemakers and global CEO Hakan Samuelsson were stung by reports that Volvo would be leaving the U.S. market for good – something that wasn’t even on their radar. Samuelsson quickly ruled out Mexico and ordered his team to focus on the best possible site in the U.S.
“We need to give a clear signal towards our retailers and towards our customers that the U.S. is our market,” Kerssemakers said of his boss’s thinking. “And if that’s our market, we need to build a factory there, and not in Mexico. And that was far before President Trump came in.”
Midway between Myrtle Beach, S.C., and Savannah, Ga., Charleston is a port city – an appropriate location for a factory built to export half of its output. Should Congress and Trump adopt a border-adjusted tax, selling as many as 60,000 made-in-America vehicles in other countries each year would go a long way toward offsetting the 80,000 or more vehicles Volvo has been shipping into the U.S.
Bulldog Hiway Express, a Daseke Inc.-owned hauling company, will run 20 to 30 trucks non-stop between the plant and the port, about 35 miles to the southeast, according to CEO Phil Byrd.
“I understand the thought process of ‘Make American Great Again,' and who doesn’t want to see America be great in every way?” he said in a phone interview. “But we are a global economy, and we are not an island unto ourselves. So I think there is room to make America great again, while we at the same time incorporate global manufacturing partners.”
Even with offers to pay $23 to $27 an hour and health and retirement benefits, qualified drivers are “as scarce as hen’s teeth,” Byrd said.
Still, so many people are moving into the area – with many assuming a job will emerge even if they don’t have one yet – that wages in general have avoided much upward pressure, said Hefner, the economist.
South Carolina added more than 30,000 jobs and cut its unemployment rate by a full point to 4.4 percent during a yearlong period that ended in February.
While the first model rolling off the carmaker’s Charleston assembly line will be the S60 sedan, the starting point for an $11 billion investment in modernizing Volvo’s factories and overhauling its lineup was the XC90 sport utility vehicle in 2014.
With U.S. consumers showing no shortage of appetite for crossovers and SUVs – and especially higher-end models – Volvo is well-positioned to appeal to investors as it considers an initial public offering, said Joe Phillippi, principal at AutoTrends Consulting.
“Turnabout is fair play, right? If Apple can have their phones made by Foxconn in China, Volvo can have their cars made in North America,” Phillippi said. “This is a company that’s clearly going to grow in the two major markets – meaning North America as well as China.”