Forty years ago, American Honda Motor Co. built an assembly plant in rural Marysville, Ohio, and began a trend that would alter the trajectory of the U.S. auto industry — and contribute to a modern-day problem.
It wasn’t just that company founder Soichiro Honda had chosen to build an assembly plant in the U.S. — the first Asian automaker to do so, following earlier and less successful European efforts from Rolls-Royce in the 1920s and Volkswagen in the 1970s. It was where he chose to do it: in rural central Ohio, where cornfields far outnumbered subdivisions and land was cheap and plentiful.
Honda’s pioneering new factory meant that many of his cars would no longer have to be imported. But its location 30 miles outside Columbus also meant that many employees would commute long distances from cities and towns across a vast region.
It worked, and since the first Honda Accord rolled off the line in 1982, that strategy has been replicated by automakers across the Southeast and Midwest.
But recent events have exposed a weakness. Record-high gasoline prices, the lowest unemployment rate in decades, a lingering pandemic and long-term demographic trends have left geographically isolated plants scrambling to find enough workers to fill their assembly lines.
Automakers are being forced to raise starting wages on these once- coveted jobs just to stay ahead of other employers such as Amazon warehouses and fast-food franchises, as well as their own nearby suppliers and manufacturers in other industries.
The shortage of labor has made it harder for automakers to restock depleted dealer inventories and shown some of the downsides of building factories in far-flung locations.
“We’re looking under rocks for people to go to work right now,” said Alex Sadler, who specializes in training and development for the economic development arm of the Tennessee Valley Authority and has worked on several automakers’ developments, most recently Ford Motor Co.’s Blue Oval City project.
Just a few years ago, an automaker announcing a factory and thousands of resulting jobs would automatically see a flood of applications and resumes. That’s no longer the case, Sadler said, and automakers and other large employers are having to adjust to attract more talent. One example: helping with transportation to and from work, she said.
The economics of small-town plants “don’t work as powerfully as they did, for a couple of reasons,” said Chris Reynolds, Toyota Motor North America’s chief administrative officer for corporate resources. “One — and the various state economic development agencies would disagree with me — there’s only so many sites that are available for auto companies to build, and I actually think we’re getting near sort of the bottom of the barrel. We’re beginning to run out of sites, unless somebody sells a lot more farmland.”
The other reasons are a change in workers and far greater competition to employ them, said Reynolds.
“We’re just dealing with a very different generation of workers — be it white collar, blue collar, gray collar — they’re no longer attracted to the notion of, ‘Hey, I should work for a great company. I’ll stay employed forever,’ ” Reynolds said. He also cited Toyota’s powertrain plant in Huntsville, Ala., where the Japanese automaker used to “be a significant employer. Now, you throw a stick and you hit [another] significant employer in Huntsville.”
This “magic circle” around the proposed facility must have at least a couple of significant population centers within it from which the automaker can draw the first employees, said Chris Berryman, a veteran automotive specialist with the economic development arm of the Tennessee Valley Authority.
Berryman, who most recently helped lure Ford to western Tennessee for its Blue Oval City and previously landed investments from General Motors, Toyota and Volkswagen to the seven-state TVA region, said what was contained in the resulting 120-mile wide circle was a first requirement for any site, regardless of manufacturer.
“They all had a 60-mile radius that they wanted to look at during the site selection process, and it’s a direct correlation to that initial work force of 1,500 or so that they need to kick off their first phase of manufacturing,” Berryman said.
“Every OEM is going through a work force challenge right now trying to retain what they have and also trying to recruit [new workers] if they’ve announced an expansion,” Berryman said. But “what’s changed is the issue of COVID on OEMs. The worker of today has a little bit different mindset than the worker that was pre-COVID,” requiring automakers and suppliers to offer better wages, better benefits and more flexibility in shift work if they want to keep their factories humming.
Sadler said companies are having to be creative in order to get sufficient bodies into the application pipeline.
“You’re starting to see companies look at those barriers to employment, like child care, housing burdens, transportation burdens, shift timing and how can they work to be more flexible in eliminating some of those barriers, so that people have the option to go to work,” she said.
The tight labor market is also helping to erase some of the historical wage advantages that the Southeast used to lure so many auto factories there. “I don’t know if it’s fair to say [the wage gap] is gone. There’s still some differential there between a metro area and a rural area,” Berryman said. “But I think the gap could be closing in just a little bit.”
Leaders at both plants have rewritten their recruiting playbooks trying to fill positions — about 1,000 for localized production of the VW ID4 and 1,400 for the upcoming Toyota Grand Highlander and Lexus TX. If that weren’t enough, both plants are trying to backfill positions lost to attrition, meaning both will have to add hundreds of workers beyond the production expansions.
Local unemployment rates, which are around 3 percent in their regions, have put them both behind.
The plants have significantly increased their starting wages and other parts of their compensation packages to compete with other employers.
“Everybody’s upping their game, so of course, we’ve had to increase our starting wage,” said Leah Curry, president of Toyota’s Indiana plant. “We’ve increased our hiring bonus; when you get on, if you’re here for six months, you get a certain amount of money, and after a year, you get a certain amount of money. And then we’ve also increased our top-end wage to stay competitive.”
Johan de Nysschen, COO at Volkswagen of America, said starting wages at the Chattanooga plant have climbed to $21.50 an hour — up from $14.50 an hour when it opened in 2011, and well above the rate of inflation over that period.
In addition to the wage package, the German automaker’s benefits package for new employees “includes things like subsidized child care, which I think is a very important consideration for single parents to bring them back into economic activity,” de Nysschen said.
But in the current labor market, exacerbated by COVID-19 and high fuel prices, wages and benefit packages on their own aren’t enough, Curry and de Nysschen said. Transportation — either the high cost of commuting long distances or access to a reliable vehicle to get to and from work — can be an impediment for prospective employees. Some automakers are trying to knock that expense down as best they can.
“For the first time, we cast our net a little bit wider [into the surrounding area], and so for some of the outlying towns around here, we actually even set up busing services to bring folks in,” de Nysschen said. “The extent to which those were utilized remains to be seen. I don’t know yet exactly how many of the 1,600 people (1,000 new positions and 600 backfills) will be coming from those areas, but it’s a first for us.”
Curry said Toyota is also mining for new hires farther out than the magic 60-mile radius for the first time in the Indiana plant’s 25-year history. The company is sending out mobile units to conduct interviews and do testing — and even same-day hiring — across a multistate region to find sufficient numbers of applicants to fill its jobs by the end of 2022.
“One of the things we’ve done, in addition to taking the mobile unit for hiring to them, we’re offering relocation packages for our production and our skilled team members,” Curry said. “So if they’re over 75 miles away, if they move within 45 miles of the plant, we offer them a relocation package, and we’ve had at least 150 people take advantage of that program.” The same package was offered to existing employees.
Despite the extra efforts, Curry said in mid-June that the plant’s hiring pace “was probably about 80 [new employees] behind where I want it to be” to hit the goal of getting everyone on board by the end of the year.
It’s possible, of course, that the current labor market is simply a weird economic side effect from the pandemic and could revert to something closer to normal if there’s a recession in the U.S. and other employers start cutting jobs. Or the impact could be longer lasting: According to the Centers for Disease Control and Prevention, about 2.16 million working-age adults 18 to 64 died in the U.S. between the start of the pandemic and mid-July 2022. That includes those who died from COVID-19, pneumonia and influenza, and represents about 1 percent of the total population in that age group. Not huge, but certainly large enough to make an impact.
“I would say that hiring is probably as big a challenge as it’s ever been,” said Norm Bafunno, senior vice president for unit manufacturing and engineering at Toyota Motor North America. “We’re still seeing good applicants. We’re still finding good people to join the team — that’s been the exciting news. But there’s no doubt about it that it is a tighter labor market than it’s ever been.”
For automakers trying to attract workers to keep factories running, the sledding has been tough and might only get tougher.
Subaru of America, for example, struggled to keep up with demand from its sole U.S. factory, outside Lafayette, Ind., even before the COVID-19 outbreak. The pandemic only made the situation worse and caused delays both in-house and at nearby suppliers as Subaru had to lend out some of its team members to keep local suppliers running.
“We’re making up ground on being understaffed, but we’re still higher than [pre-COVID-19] attrition and absenteeism as well,” said Melissa Hubler, senior manager for human resources with the Subaru of Indiana Automotive plant.
“Until the market stabilizes to the point where we can predict attrition with accuracy, we’re going to continue to recruit talent because, again, it’s just such an unstable market. We just don’t know when that attrition is going to normalize.”
What this all means for dealers is that, even when microchips and other supplier parts start flowing again, it might take longer to get U.S. assembly and component plants back up to speed.
“We are able to meet the attrition at the plant level right now,” cautions Toyota’s Bafunno, “but as we look in the future and as we continue to grow, how are we going to do that successfully is what we’re working on.”