(cheerful music) - [Announcer] This is "Carolina Business Review."

Major support provided by Colonial Life, providing benefits to employees to help them protect their families, their finances, and their futures, High Point University, the Premier Life Skills University, focused on preparing students for the world as it is going to be, Sunoco, a global manufacturer of consumer and industrial packaging products and services with more than 300 operations in 35 countries.

- We like to mix it up here on "Carolina Business Review," and obviously in the background, we are on location, and we are in Charlotte at a place called Community Matters Cafe.

It is part of the Charlotte Rescue Mission.

What does that have to do with business?

Well, everything and nothing.

It's more about being in the community and being at a nonprofit, in this case called the Charlotte Rescue Mission.

Welcome again to the most widely watched and longest running program on Carolina business, policy, and public affairs seen every week across North and South Carolina.

In a moment, we will kick off this week's dialogue, what is going on in what is called a rolling recession here in the Carolinas.

Is that going on?

And later on the program, one of the largest automotive partners in the state of South Carolina, ZF Corp from Germany, has a major footprint in the Lowcountry.

We will meet Martin Fischer later, but right now we start the dialogue.

- [Announcer] Major funding also by Blue Cross Blue Shield of South Carolina, an independent licensee of the Blue Cross and Blue Shield Association, and Martin Marietta, a leading provider of natural resource-based building materials, providing the foundation on which our communities improve and grow.

On this edition of "Carolina Business Review," Jason Thomas from "SC Biz News," Tony Mecia of "The Charlotte Ledger," and special guest Martin Fischer, president of ZF North America and member of the board of management.

(upbeat music) - Hello and welcome again.

In case you're wondering where I am, I'm at a place called Community Matters Cafe.

It's part of the Charlotte Rescue Mission, so I'm clearly in Charlotte.

Tony, welcome.

Jason, Welcome.

Good to have you both here.

Tony, you get the first pitch for better or for worse.

Tony, I'm gonna call what's going on here a little paradoxical, confusing economic data.

On one hand, we see that the economy's good, the stock market is up, interest rates are fairly low, or at least back to normal historic averages.

But then we've got this jobs number that says that we're fully employed, but yet we hear about tens of thousands, maybe even hundreds of thousands of layoffs.

And then we've got inflation that's threatening to be hot again.

And then we've heard this term now for several months called rolling recession.

So help us unpack this.

How would you read this?

- Yeah, I mean, as you know, Chris, a lot of times this economic data doesn't always row in the same direction.

You know, you have a lot of the, you know... On the one hand, you have some good signs.

On the other hand, you have some negative signs.

I think it was President Truman who said he would prefer to have one-handed economists.

You know, we don't always know exactly where things are going.

There's some things that are very encouraging, I think.

I mean, the unemployment rate is still low.

Although, you know, at the start of the year, you have had a number of announced layoffs in a number of different fields.

You have some sectors that are struggling relative to where they've been in the last couple years.

Commercial real estate is a little bit cooler.

Hospitality still seems pretty strong, you know.

I think people, still see going out to the restaurants and vacationing along the coast.

So it is a little bit hard to know.

I think that it does seem like the confidence, American's confidence in the economy is not as strong maybe as some of the economic numbers.

So it's a kind of a mixed bag.

- Yeah, same thing, Jason, and not just what you see in the Palmetto state, but what's the sense that you see it differently or the same?

- Yeah, you kind of need a Rorschach test to figure out what's going on with the economy these days with the wind blowing.

But you know, in South Carolina, we're seeing, you know, a lot of jobs coming here.

We're seeing a lot of investment, particularly in the electric vehicle, electric vehicle battery manufacturing.

You know, it seems like there's a new announcement almost every week with 150 jobs there, 500 jobs, 1,000 jobs.

So, you know, it's a lot different than maybe what we're seeing from a national perspective.

South Carolina might be a little bit of an outlier with all the action we're seeing.

The unemployment rate remains pretty low.

So it's a pretty interesting story here in the Palmetto State.

- Yeah, Tony, you mentioned commercial real estate, and in markets like Charlotte, like Greenville, like Raleigh, like Charleston, obviously the momentum and the wind is still at their back when it comes to urban core growth.

However, on a panel recently, a major real estate person in Charlotte said he thought that the city center vacancy rate was 40%, four-zero, and that part of that vacancy rate was being funded because while employees weren't in the space, the employers were still paying for the space.

And I don't wanna be too cute of a phrase here, but are we whistling past the graveyard in some ways around commercial real estate and vacancies?

- There's a little bit.

I think there's a little bit of that.

I mean, certainly the industry has always been, and it's kind of like residential realtors, tend to be very upbeat and very optimistic.

Somebody told me the other day that commercial, what was it?

Pessimistic commercial real estate brokers have skinny kids, and so a lot of them are very optimistic about where things are going.

But yes, it is certainly the case that office vacancies in downtowns are higher than they have been.

This is a nationwide phenomenon, but there are high vacancy rates.

The number I've seen in Charlotte is closer to 20%, maybe 25%, somewhere around there.

But it's not gonna resolve itself I think anytime soon, this problem with office.

You have, as you mentioned, a lot of these leases are gonna be coming up, and companies are gonna probably be taking less space.

So you're not building as much office.

You're not renovating as much office.

Companies aren't taking as much office.

That's made up for a little bit you know, by some of the economic development announcements and new companies coming in, but it's not to the extent that it was.

And so that's, I think that's a real problem.

You have other sectors of commercial real estate I think that are doing relatively better.

You know, apartment building is still going strong all over the place because of all this population growth throughout the Carolinas.

So you know, you have some ups and some downs.

- Yeah, you know, Jason, how much of that, and I'm not asking you to be a financial analyst or a bank analyst, but how much of that is, the growth in real estate as Tony just talked about, apartment homes, and the in-migration, of course, to the Carolinas is a big factor in that.

But the precipitous lower rates, and it's probably not, it's probably lost on some people.

We are actually at average interest rates now, not even high rates, but that's still fueling some growth.

How much of that is being fueled by still the fairly low-cost sense in cost of money or that there's just in-migration still piling in here?

- Yeah, you know, migration coming in here, it's crazy.

You know, I've lived here about a year and a half, and I still haven't bought a house 'cause I haven't found something that fits our family needs and what we want.

You know, what, last year, South Carolina, more people moved to South Carolina than any other state.

It's growing like crazy, and with those people, you know, are jobs, and those positions need to be filled and office space is coming in line.

You know, vacancy is increasing a little bit just because more square footage is coming available in places like, you know, Greenville and down in Charleston.

You know, they're growing like crazy, especially in the Upstate and the Lowcountry.

So to Tony's point, you know, there are some places in commercial real estate that are struggling, but you know, overall in South Carolina, it remains a really healthy, strong market, I think.

- When you talk about Greenville and the Upstate, when you talk about the Lowcountry in Charleston, it's easy to see the bookends there.

- Yes.

- The growth and development.

But of course the Midlands has lagged that growth.

Two questions, Jason.

Is this an opportunity for Columbia and the Midlands to leverage the fact that they've had some space available?

Or will it be even worse in Columbia based on vacancy rates?

- I think Columbia is like the, it's the golden opportunity, right?

It's kind of like the little brother to the Greenville and Charleston with all the growth that's happened.

But you know, obviously, in Columbia, we're actually really seeing a lot more traction and action there with even manufacturing.

You know, Columbia and the Midlands hasn't really been known for manufacturing, but you know, Scout Motors is building their, you know, $2.5 billion plant in Blythewood in the Midlands.

And you know, that hasn't happened before.

That's the first huge auto plant in the Midlands.

You know, and we're seeing a lot more multifamily, a lot more, you know, single-family developments popping up in Columbia.

So I think, and they know this, it's a great opportunity for them to really put themselves on the map with what's happening all across the state.

- Tony, in about a minute and a half, so as Jason talked about, Scout Motors, big announcement, of course, big groundbreaking within the last couple of weeks.

Are the urban cores, are places like the Charlotte region, do they have a good solution for jobs and filling some of those big announcements that happen around these center cities?

- Yeah, I think so.

I mean, you know, I think the urban areas are telling the same story that you're seeing in the rural areas.

Great place to live, affordable relative to the rest of the country.

We have a trained workforce.

You know, we have people who can do the jobs.

I mean, so you are seeing some job announcements, I know, you know, around Charlotte and certainly, you know, around Columbia, you know.

And so, I mean, I think you're gonna see that continue.

It seems to me the pace might've slowed a little bit.

And I know we're gonna talk in a little bit about, you know, electric vehicles.

We've seen some pullback in some of those announcements.

You know, some of them are announced, and you had Arrival I think here in Charlotte was pulling back on some of what it's planning to do.

So some of those, you have a phenomenon where you have some things are announced, and then they don't always 100% come to fruition.

But certainly, you know, economic developers here are very optimistic about the way things are heading.

- ZF is a global technology company.

It supplies systems for passenger cars, commercial vehicles, industrial technology.

Consolidated ZF Group represents about 170 or so production facilities in 32 countries, reported sales of about $47 billion and has 165,000 employees, a major force, not just globally, but here in the Carolinas and specifically in the Palmetto State.

Joining us now is a member of the board of management as well as the president of ZF North America.

We welcome Martin Fischer.

Director Fisher, welcome to the dialogue and thanks for joining us.

- Yeah, hi, Chris.

Happy to be on the program.

- Thank you, sir, and thank you for taking the time.

So not just transmissions for automotive, but Mr. Fischer, talk a little bit about...

There's been a major announcement with the Gray Court South Carolina facility, and you are specific about calling, saying, calling out, rather, ICE and e-mobility technologies for passenger commercial vehicles.

Is that next-gen EV?

Explain to us, if you will, sir, why that's an important development, not just for you but for automotive.

- Very good question, Chris, because we are in a big transformation when it comes to our South Carolina facility in Gray Court.

We opened that up a little bit more than 10 years ago, and at the get-go, we really worked on transmissions for internal combustion engine cars.

And that has been a real success story.

So we have been growing in South Carolina to a workforce of 1,900 people in the meanwhile.

But the question for us was how is that gonna develop with the trend that we see towards electric vehicles.

And we see that coming also in the US market, and that drove us to consider South Carolina and Gray Court for also being a location to manufacture the latest product technology.

So with that investment that we just announced, we are now pushing forward, and we will have e-mobility solutions, drive train solutions, not only for internal combustion engine cars, but also for plug-in hybrid electric vehicles and for fully battery electric vehicles.

So we paved the way into the future and gave security both to the business and the location that way.

- Martin, no doubt that you have been privy to probably much more than has been released around the Scout Motors announcement, a very big groundbreaking recently in the last couple of weeks, and Scout, a lot of promise behind that.

You know how it is in talent acquisition and getting workers.

And now that Scout and others have announced major economic development initiatives not just in South Carolina but in the Carolinas, the competition for talent is already key, and this makes it even more key.

How do you hope to fill the gap?

How do you hope to get the 400 or 500 workers in addition that you need now in Gray Court and beyond, quite frankly?

- Yeah, I think it's good to be established.

So we have been there, as I said, for more than 10 years, and we have really developed fine routes into the community, into the workforce.

So for us, it's all about first attracting.

You mentioned there's gonna be a new 400 jobs to be filled, but then it's also about development of the workforce and therefore retaining the workforce.

And I give you a couple of ingredients that have worked very well for us and that I'm confident will bring us these employees on board.

First of all, we start early.

So we are going as a team out into the high schools, and we advertise technical careers, engineering careers.

We even give internships to high schoolers, which is a bit earlier than what other companies start.

And then from high schools, we also focus obviously on the colleges.

So we have very good relationships with Clemson, with the University of South Carolina.

We're into the technical colleges as well.

So there's Piedmont Technical College.

There's Greenville Technical College and others to attract workforce early.

So we explain what we stand for.

We explain, "Hey, here's a tech company investing into the future, and here's what we need in terms of roles, proficiencies, capabilities."

And I think that's a strong menu that we can offer to, again, initially attract workforce.

And to start with ZF, we'll be here for a longer time, so we want to develop our employees, our workforce.

And we have enough cases and a really good educational system in place that people start at material handlers, and they develop over the years to technical personnel and technical staff.

And you can see that really creates an attractiveness and also really a good retention force.

So we develop, retain our workforce, and attract new.

- Tony, question.

- Yeah, my question's about electric vehicles 'cause you're seeing a lot of these announcements in North and South Carolina about people in the industry get into all kinds of different parts of EVs, hybrids.

Certainly that seems like that's the way things are going, and you know, the government is incentivizing that.

It seems like lately you have had a little bit of a pullback in EV sales, and I'm just wondering what you're hearing from your customers about what they see about the pace of future electric vehicle sales as well as what needs to happen in order to, you know, to move that a little bit faster.

- Yeah, you're right on.

I mean, we believe in that trend definitely on a global basis and also here for the US North America.

But the last couple of quarters have slowed down in that market a little bit, and the public discussion even goes in the direction is that really the means of propulsion, that's gonna come short term in the quantities that we assumed maybe a year or two ago.

And one of the major discussion points is how's the infrastructure?

If I'm driving an electric vehicle, how versatile is that gonna be for me?

And I think it does take investment, in particular into the global and here, regional infrastructure, to make sure consumers can ride their vehicles without too much of a charging hassle.

So I think it's coming.

Might be a little bit of a slowdown, but we believe in that trend, and we invest into that trend.

- Jason.

- Yeah, piggybacking off of Chris's question a second ago about filling those positions, especially those highly technical positions, what does automation play in your strategy as you look in the future as these positions evolve?

You know, I just saw a report that BMW, which obviously you all have a relationship with, is employing robots in Spartanburg in their facility.

So where do you see yourself going in terms of automation with what you're doing here in South Carolina?

- Yeah, that is a very important trend for us because, in the end, we wanna have really efficient assembly of these transmissions, efficient manufacturing, and automation plays a crucial role.

So when you visit us in that South Carolina facility, you will see the same thing.

There is robots handling materials, in particular, the very heavy ones.

So we are right on it.

And the other trend that we really drive forward is about artificial intelligence.

Also that is entering our facilities to say, hey, how can retrieve the best possible information from all the data that is generated around operations and manufacturing, and how can we use that data to, again, optimize the flow we produce and optimize the quality of the product?

So both automation and introduction of artificial intelligence are important for us, and it's happening in Gray Court.

- Martin, let me go back to something and appeal to the engineer in you, both electrical engineer but also mechanical engineer.

So you're a member of, of course, management of the board.

And I wanna ask the engineer, when it comes to EVs, is there... Maybe a concern is too strong, but I'm assuming there's a sensitivity to how EVs are based now on the energy cell, and that is lithium batteries.

But how quickly do you need to be, I'm sorry, does the industry need to be able to pivot away from the challenges environmentally around lithium and the next generation of fuel cells?

And when do you see that kind of deploying and advancing?

- Yeah, personally I think the mainstream is gonna be the battery-based systems for quite a while.

We have been working obviously into the fuel systems as well, but really the implementation of that in a vehicle remains technically challenging and remains also to be a cost challenge with that.

So when we look into our strategy and think about the next 10, 15 years, we put our bets on battery electric vehicles more than on the hybrid ones.

Story is different on the commercial vehicle side.

That's a different business case, different use case.

So we see the introduction of fuel cells more there.

- Tony.

- Yeah, you know, when COVID hit, that threw a huge wrench into global supply chains, and I know a lot of manufacturers struggled with that.

You saw shortages.

You saw higher prices.

I haven't heard a lot about that lately.

At ZF, what sort of things are you doing on supply chain, and how would you characterize, you know, the supply chain and the resiliency that you have there?

- One of the answers that we have even emphasized through COVID and those experiences is local for local.

So we definitely wanna be close with our manufacturing plants to our customers.

We can see that in Gray Court, right, and how close we are to Spartanburg and our friends in BMW, but it goes through the entire supply chain.

So when it comes to sourcing materials and components for our transmissions or electric drives, have high aspirations to get that here in the country in the region and avoid dependency on other regions and also avoid the risk that comes from overly long supply chains.

We have seen strikes and limitation at ports, right?

We have geopolitical discussions, and all that motivates us to say it's local for local.

- Yeah, if I can just follow up.

So what sort of, I mean, what kind of trends are you seeing as far as shifts?

I mean, obviously you'd like them local to your plants, but I mean are there different countries you're moving into, or what sort of trends are you seeing there?

- Yeah, no, we are where the customers are.

That's the simple answer.

So when we look here into the North American region, we have a widespread footprint over Canada, the US, and Mexico, even stretch a little bit further south now in search of labor because that is a limitation right now both in the US, but it's also getting tighter in Mexico.

So that's some of the trends that we see, talent, labor, being a driver for us to make decisions on sites and locations.

- Jason.

- Martin, you mentioned infrastructure a second ago.

Guys, you did that, you know... South Carolina ranks 23rd in terms of public charging stations.

So it's, you know, middle of the road in terms of ranking across the country, 37th for market share for new EV purchases.

So, you know, we have this massive amount of investment, but the public sentiment might not be quite there yet.

And so my question is what is kind of your strategy as you look to be fully carbon-free by 2040?

Is that realistic with the public sentiment?

And how do you feel like you're gonna be able to accomplish that?

- Yeah, we take that very serious.

That's our firm commitment, being carbon-neutral by 2040 as ZF and then global corporation.

And we work the different scopes of that carbon-neutrality.

So it starts with our own consumption of energy.

All of our plants, the facility in Gray Court, have annual energy consumption-reduction targets.

So that's the best thing we can do.

Any piece of energy that we don't utilize is a saving.

The second one is a clear commitment to green energy.

So we are really working with the utility providers to see, can we buy green power?

So that is the second scope.

And the third one that goes to your question, it's obviously also about the product that we serve.

And giving a transmission to an internal combustion-engine car comes at a higher CO2 use overall than going into a battery electric vehicle.

So you can see with the transformation that also our plant in Gray Court undergoes, we serve that purpose too.

So all three scopes taken together will help us to become climate-neutral by 2040.

- You know, Martin, to listen to you talk about kind of the business model and the way forward for ZF, you'd almost think you've gotta be superhuman.

You've got to understand the technology, which clearly you do.

You've got to corporately be a strategist, which you seem to be good at.

But you also have to be responsible for the income and the balance sheet for ZF North America.

So when you do that and when you plan and deploy assets, how do you look forward, I would say the next three to five years, not even that far, knowing that there's this thing called a rolling recession possibly going on in the US?

And you've got to plan and tactically deploy your assets given your reporting country is Germany that's having a different economy than the US.

So how does all this come into play, and how do you model out where the economy might be and how to make sure that you're there and protected and taking advantage of it?

- You hit on a really important point here, Chris, because I can say from my career, it is the most interesting, most demanding time in getting all that optimized between the transformation towards new technologies, the investment we can and wanna afford today, and then the shorter-term regulation, right?

How much capacity do we build on which technology, in which place?

So the way we go about it is we try to hedge our bets.

We talked about the transition from internal combustion engine to fully electric vehicles.

There is uncertainty in it, and any scenario we think of for the next three to five years is gonna be off the reality later on.

So hedging in our case means in a facility like in Gray Court, we now do products for internal combustion engine, hybrids, and electric vehicles.

So depending on how the market goes, we'll always have a solution to provide.

So that hedging is a very important aspect and answer to your question.

And the second one, in terms of investment- - And we have about a minute left, Martin, I'm sorry, just to let you know.

- With regard to investment, we go in waves and careful steps.

So we try to look a year ahead, two years ahead, and then put the necessary capacities and investment in place not to overdo it.

- Yeah, okay.

And just quick follow up to that, and it's probably a long answer for this, but would AI play any role in helping you strategize even in the short term?

Would that be an issue?

- We use it for many productivity purposes.

We haven't used it heavily in our strategizing process.

So it's more about really getting efficiencies out of our work than really for strategizing.

I think that's still a resort that the human being is quite well suited for.

- For the time being.

Director, President Martin, thank you for joining us.

You've been a great sport.

Congratulations on the announcement, of course.

- Thank you, Chris.

- Good to see you, Tony.

Welcome to the program, Jason.

I know this is the first time.

Hope we didn't scare you off.

Hope you'll come back.

(Jason laughs) - No, I enjoyed it.

Thanks for having me.

- Okay, thank you all, and if you're watching us, and you wanna catch the full length of this program, carolinabusinessreview.org.

If not, we are on all your PBS stations in the Carolinas.

Until next week, I'm Chris William.

Have a good weekend.

Thanks again for the support.

Goodnight.

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