- China increased import tax on American-made cars, including BMWs from Spartanburg, in July
- BMW looking for ways to curb rising costs of U.S.-China trade war
- BMW official warned ongoing trade war could undermine production, jobs at SC plant
- BMW-related manufacturing jobs contribute at least $2B to state's economy
GREENVILLE —These are nervous days for BMW Manufacturing and the tens of thousands of South Carolinians who depend on the luxury automaker for jobs, business and regional pride.
Eroding trade negotiations and tariff-driven increases in the cost of making cars in the United States could be a drag on operations at the sprawling Spartanburg plant, and — if worst-case conditions continue —could trigger job reductions there, a company official said last week. Hours earlier, BMW’s top executives announced they planned to open another SUV production line in China. The company already had begun producing some X3 SUVs in China for sale in that country.
SUV production was once the exclusive province of BMW's Spartanburg plant, which continues to churnout more than 1,000 of them a day.
The burning question is how the Upstate economy could weather a workforce reduction at the company that has helped generate 70,000 jobs across the state. More than half those jobs are at BMW itself or among its parts suppliers, manufacturing jobs with average salaries of morethan $60,000 per year that contribute more than $2 billion to the state economy.
The state’s top elected officials — Gov. Henry McMaster, Sen. Lindsey Graham and Sen. Tim Scott — declined to comment for this story. Grahamhas defended the president’s tariff actions and preached patience, and a McMasterspokesman also urged patience for the president's strategy.
Dawn Berridge, manager of Wild Ace Pizza and Pub on Depot Street in downtown Greer, was among a number of business owners who are concerned. Roughly a third of her business comes from BMW workers nearby.
"It would definitely affect us,” she said.
Mixed news
Paradoxically, 2018 has by some measures been a good year for BMW.
BMW's management board chairman,Harald Krueger, and head of finance, Nicolas Peter, last week affirmedthe company's ongoing 25-year manufacturing legacy in America and $9 billion investment in Spartanburg County. They repeatedlycited three of the plant's highly profitable production models, the X3, X5 and X7, as key to the company's recovery in 2019.
But while vehicle sales and revenue globally are up, so, too, are costs. In a big way.
BMW officials last week announced that profits in their automotive division so far this year are down nearly $1.4 billion compared withthe first nine months of 2017 (a 19 percent decline).
While company officials pointed broadly to stricter European emission standards, unfavorable currency exchange rates and rising raw material prices as among BMW’s rising cost factors in 2018, they provided very specific figures in one area: The U.S.-China trade war that launched July 6, they said, will cost the company $344 million by year’s end.
“You can easily, let's say, calculate in which magnitude we might see an impact in 2019,” Peter said.
There's one sure way to fix that: Make the cars in China.
Spartanburg County Councilman David Britttestified in Washington, D.C., in September and has sent multipleletters to President Donald Trump urging him to visit the Upstate and reconsider policies that would push BMW away. Trying topick winners and losers in a tariff war, he said, is a mistake.
"The president says he wants to focus on creating jobs," said Britt, who voted for Trump. "He's going to create a lot of jobs, but unfortunately they are going to be in China."
Upstate resilience
A disruption at BMW would perhaps be a body blow but “not a head shot” to an Upstateeconomy that is much more diverse and resilient than it was in the pre-millennial days of textiles, said Herb Dew, the CEO of Human Technologies Inc., one of the Upstate's largest staffing agencies. Dew's company employs more than 2,000 people a week in the Upstate's auto sector.
The region may be disproportionately dependent on the auto industry. But several experts point out thatsuppliers serve a wider range of manufacturers than just BMW.Volvo and Daimler have a presence in the state, and local tier-one suppliers such as ZF Transmissions, BorgWarner and Bosch also serve Detroit's Big Three. All told, the 11-county Upstate sustains more than 100,000 manufacturing jobs.
"You don't typically see a drop in all automotive," Dew said.
BMW, the catalyst for the Upstate's economic renaissance after decades of textile declines, also helped the region establisha foothold inadvanced manufacturing more broadly. New market entrants such as medical device makerArthrex in Anderson and aerospace carbon-fiber supplier Toray in Spartanburg arethe latest examples.
Still, BMW,a marquee brand and major charitable giver (to the tune of more than $50 million since the mid-1990s),has been the region's biggest industrial prize and a calling card for jobs recruitment for more than two decades.
It also has been the impetus behind major public infrastructure investments: Cargo tonnage tied to BMW has more than doubled at Greenville Spartanburg Airport since 2016, prompting a $30 million expansion there this year. Meanwhile, the inland port at Greer, which ships BMWs by rail to the port in Charleston daily, is undergoing a $5.3 million expansion.
"BMW is perhaps the single largest customer of the port when combining both manufactured vehicles and containers,"South Carolina Ports Authority president and CEO Jim Newsome said.
Small local businesses, too, have benefited: in downtown Greer, minutes from the BMW factory, Chris Durrah of South House Restaurantsaida third of his business comes from BMW, and Diana Merino at Los Portales said potential cutbacks at BMW are a source of worry for her.
"I think it's fair to say if BMW's down, it's going to affect everybody else," Dew said.
Tariffs and more tariffs
Multiple and ongoing rounds of U.S.tariffs and trade talks this year, a raft of revised trade deals andretaliatory tariffs are all increasing the cost — and uncertainty — of doing business here, multiple experts say.
As recently as Wednesday, The Associated Press reported the European Unionis preparing a target list of American products it will hit with punitive tariffs if the Trump administration goes through with a25 percent tax on imported cars and car parts. Imported EU parts include BMW drive trains and engines that gointo everySUV built in Spartanburg.
Slapping a tariff on those, BMW warned in a June letter to U.S. Commerce Secretary Wilbur Ross, would strengthen the case for moving production away fromSpartanburg.
"Companies don't like tariffs," said Bobby Hitt, head of the state Department of Commerce. "They don't like them because it's not a value added to anything.It increases the price of acar in any market."
Further complicating matters, said Clemson University economist Scott Baier, is the renegotiated NAFTA deal with Mexico and Canada (the so-called "USMCA"), whose provisions increase the costs of producing cars in North America and might trigger a separateauto-related trade war as automakers try to circumvent them.
"Itis going to make a company like BMW think, 'Where do we want to be two years, five years, 10 years down the road?" Baier said.
Meanwhile, China has since July 6slapped all American-made cars with a 40 percent tariff, a targeted, retaliatory response to U.S. tariffs on Chinese products, which to date have affected $250 billion worth of goods. This has been especially hard on the export-driven Upstate economy and its complex web of domestic and foreign supply chains, said Greenville Mayor Knox White.
"It has taken decades of hard work to diversify the Upstate economy and to build its global reach," White said. "Tariffs and obstacles to trade are definitely not in our economic interest."
BMW raised its suggested retail price for its best-selling X5 by 4 percent in China but still absorbed huge tariff-related losses there — which would increase more than $600 million in 2019 under the current U.S.-China trade environment, company officials said.
In an effort to hedge those losses, the German luxury automaker's top leaders signaled last week that they will pull more production of Asia-bound SUVs — mostlikely the X5 — from theirplant in Spartanburg and shiftit to a pair of rapidly expanding plants in Shenyang, China.
"This is what we have been saying since March," Britt said. "If you study the history of tariff wars, the U.S. has never won a tariff war going back to 1859."
BMWis one of the great exporting stories in America and is the typeof investment that "should be encouraged in spades,"said the ports' Newsome.
"They export far more than they import."
"Localization" strategy
Earlier this year, BMW relocated production of China-bound X3 SUVs to Shenyang, China, as part of a long-timestrategy to "localize" production within the markets it serves.That strategy has always aimed to avoidtariffs and makes even more sense in a growing market like China, said Hitt, a BMW spokesman for 18 years before joining the commerce department.
"It's not like they are moving production from Spartanburg to China, but there isgrowth in China and they will grow to give themselves the capability to meet that growth," Hitt said. "At some point it becomes more profitable to build more of the cars in China than to build them in the United States and ship them there."
BMW'sPeter said the launch of the X3 in China this past spring wentwell and the company will decide in coming weekswhich other models it will start making in Shenyang.
In October, BMWdoubled down on its commitment to China, becoming the first foreign manufacturer to take on a majority stake of a plant inside China. BMW will boost its50 percent stake in twoShenyang plants to 75 percent.China typically requires foreign investors maintain a just-under 50 percent stake along with a Chinese majority partner.
Last month, the company also announced it would invest 3 billion euro in the Shenyang plants over the next couple of years — five times its ongoing $600 million expansion of the Spartanburg plant. At full projected build-out in the early 2020s, the Shenyang plants will be able to produce 650,000 cars a year — 44 percent more than the Spartanburg plant.
Hitt said the German automaker's aggressive push into China mirrors what happened in the United States 25 years ago, when the Americanshad the biggestautomobile market worldwide and BMW decided to build a plant here.
Chinese buyers overtook the Americans in 2010, when the former bought roughly 14million vehicles, up from 10million the year before. The Chinese figure is now closer to 25 million (compared to 17 million in the U.S.) and a quarter of all BMWs — about 560,000 — are sold there.
"Guess what? The largest car market in the world now is China," Hitt said. "So when you hear that they are going to be producing some X5s in China, that's not a big surprise to me."
Job losses for the Upstate?
BMW's spokesman Kenn Sparks told media outlets last week that if BMW production and sales in the United States are undermined by tariffs, the result could be "strongly reduced export volumes with negative effects on investments and jobs in the U.S."
That is the worst-case scenario for South Carolina, where BMW suppliers are in 38 of the state's 46 counties and include several huge employers: Bosch(Anderson), ZF Transmissions (Laurens), Danfoss (Pickens), Magna (Greenville), Draexlmaier (Spartanburg) and Koyo Bearings (Oconee).
But, said Hitt, that scenario is also highly unlikely.
"BMW is healthy," Hitt said. "I think it will stay very healthy. We could see the (production) mix change. We could see them bring other cars here because of the way certain rules are. But there was never going to be a time that BMW would remain static."
In its early days, BMW Manufacturing in Spartanburg produced 3 Series sedans and roadsters. It is more likely, Hitt said, that BMW will again change the mix of exports from Spartanburg.
"The question is whether there would be an impact if the mix of exports were to change," Hitt said, "and the answer is very likely no."
Don Bockoven, CEO of third-tier supplier Leigh Fibers, said an economic cooldown might in any event be a blessing in disguise, with historic unemployment lows of around 3 percent and manufacturers struggling to fill skilled positions. The ratio of jobs to job seekers in Greenville County is roughly 1 to 1, according to the state employment agency.
"It would actually help the labor situation in the Upstate," Bockovensaid.
Experts say a slowdown was coming anyway — likely in the first or second quarter of next year — and that BMW's growth globally can sustain an expansion in China while maintaining its huge presence in Spartanburg.
Dew said his company supplies temporary, or"contingent," labor to many of the top auto suppliers in the Upstate. He said that his customers — the auto suppliers — have indicated a likely slowdown in the first or second quarter of next year. Maybe, he said, a customer who needed 100 workers this year will need only 70 or 80 in 2019.
Most manufacturers he works with pad their labor force with temps, maintaining contingent staffing in lesser-skilled jobs of about 10 percent as a way to prevent laying off any full-time workers during a slowdown, he said.
At BMW, Hitt said, no permanent employees were let goduring the Great Recession of 2008 when domestic automakers were shuttering plants for months at a time to reduce inventories. BMW builds cars to order and so was not sitting on excess inventory, he said.
"The beauty of a company like BMW is that when there is stress in the United States, there is still elasticity in other parts of the world," Hitt said.
Greenville News reporters Gabe Cavallaro and Tim Smith contributed to this story.
