What’s Driving Today’s Location Decisions in the Auto Industry?
A healthy recovery in the auto sector is leading suppliers to consider new facility and expansion plans; smart decisions today will give them an edge over the competition in the years to come.
Larry Gigerich, Managing Director , Ginovus (2013 Auto/Aero Site Guide)
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Incentives Come Into Play
In view of the fact that automotive projects are capital-intensive, it is important to identify appropriate and available economic development incentives to offset both start-up and ongoing operating costs. A key component in the MAGNA project was the availability of local and state governmental financial assistance to support the project.
The Indiana Department of Commerce (now known as the Indiana Economic Development Corp.) offered several types of economic development incentives to support the project. These included the Skills Enhancement Fund (SEF) to help defray the costs of training new employees, the Industrial Development Infrastructure Assistance Program to pay for infrastructure improvements, the Economic Development for a Growing Economy (EDGE) job creation tax credits, and the Hoosier Business Investment (HBI) capital investment tax credits.
In addition, the Indiana Department of Workforce Development provided funding to match job-seekers’ skill levels to particular company job requirements, which helped MAGNA put together its new team in a very efficient manner. The local incentive package also included funding for the purchase of land, environmental testing of property, public infrastructure improvements, and Tax Increment Financing (TIF). Of considerable advantage to MAGNA was the selection of a site within a Community Revitalization Enhancement District (CReED). This economic development incentive program allowed the company to receive significant financial benefits in the form of tax incentives tied to qualified capital expenditures and job creation related to the generation of new taxes from the project.
Labor Is Still Paramount
Demand for the right kind of labor for the right price will continue to be a driving factor, more important than the aggressive incentives offered by a city or state. The aforementioned shift in automotive plants to southern states occurred for a number of reasons: low wage rates, lower cost utilities, non-unionized labor, less expensive land, lower freight costs, lower taxes, and market share redistribution from traditional domestic manufacturers to Asian and European companies that manufacture in the South. The traditional automotive industry unions have not been embraced by employees in the South’s right-to-work states. Recently approved right-to-work legislation in Indiana and Michigan has also positioned these states for more success with domestic and foreign automotive manufacturing facilities.
Training and human resources in any industry can and should be shared whenever possible, especially where employees with technical expertise are required. The availability and ease of such shared resources is an important factor in the site selection process. The automobile industry has growing concerns about finding, hiring, and retaining qualified employees for today and for the next 10 to 20 years. The October 2012 Original Equipment Suppliers Association (OESA) newsletter noted that the number-one risk for suppliers meeting short- and long-term business objectives is human resource-related issues.
Seeking new labor pools, competing against non-automotive industries for talent, accommodating flexibility and diversity work force requirements, and identifying and filling the talent gaps are all issues that the automobile industry is facing. As the industry grows, and as additional technology solutions are implemented, there will be a continued growing need for a highly trained work force. Innovative fuel cell technologies, mechanical engineering, biofuels, and advanced battery technologies will require a new breed of worker to support an every-changing automotive industry. The need for flexibility and the ability to adapt and respond to new technologies as they develop will become increasingly important as global competition increases.
Flexibility and Foresight
Automobile manufacturing is still big business and thanks to a healthy recovery, vehicles in operation globally exceeded one billion in 2012. Six large companies, rather than three, now dominate the industry: Chrysler, GM, Ford, Honda, Nissan, and Toyota. These global companies represent an overwhelming majority of automotive sales in the U.S. marketplace. In the coming years, these companies will continue to face challenges and uncertainties. Flexibility, innovation, and foresight will be needed to deal with new issues that affect manufacturers and suppliers. Smart site selection decisions today will give companies an edge over their competition and allow them to draw on an array of resources available to take them into the next wave of automotive production and distribution.