Automotive Site Guide: The Automotive Industry Flies South
John Schuetz, Principal, The RHS Group (Automotive Site Guide 2006)
(page 2 of 2)
Maximize Your Move With Incentives
firms must find a way to balance the value of incentives being offered
by a community with the presence of requisite business conditions. Once
the site search has been narrowed down based on the required
conditions, it is time for the company to negotiate incentives.
developers use incentives to entice the profitable automotive industry
to locate to their regions. They offer two types of incentives:
short-term and long-term.
Short-term incentives involve tax
credits (e.g., for hiring, pollution control, etc.) and grants. They
can include reduced lands costs or even free land; they can offset
relocation or building costs and transportation/infrastructure
improvements. Empowerment zones, enterprise zones, and renewal zone
provide special incentives; and block grants or training and retraining
programs are available as well.
The long-term incentives
available to auto firms are often doled out over several years and can
amount to the greatest financial perks for the company if collected in
full. These incentives include tax abatements, sales and use tax
exemptions, sharing agreements, tax-increment financing, industrial
revenue bonds, and more. Both short- and long-term incentives are not
easy to obtain. Companies need to know whom to approach and what to ask
for. The negotiation is an arduous process, and results turn out best
when handled by a professional.
The majority of companies
neglect to collect more than 50 percent of all negotiated incentives.
Incentives are negotiated in multiple departments of the company that
often don't include each other in the process. They can involve
finance, real estate, contract, licensing, legal, and tax departments.
As a result, these departments can easily lose track of an incentive
that can take several years to collect. Most companies lack the
attention and organization that an outside source can offer.
example, one automotive parts distributor selected a site in Georgia
for a major facility without negotiating for personal property tax
abatement under a local option Freeport law. It wasn't until it got its
inventory tax bill for more than $300,000 that it realized that this
was not even an alternative at the chosen site. Moreover, simply moving
across the street from its current location put it into an area where
the Freeport law could be applied. This simple move saved the company
more than $300,000 per year in perpetuity.
In another case, a
major distributor of automobiles selected a site for a new $20 million
training facility adjacent to its corporate headquarters in Texas. The
company's management then discovered that the site it chose was
directly across the street from a New Market Tax Credit zone, which
could have provided it with a 39 percent federal tax credit on the cost
of this new facility had it selected an available parcel of real estate
at that location.
Therefore, it is imperative that the
incentives negotiator be informed on what a community has offered in
the past and what packages are currently available. The negotiator
needs this valuable information in order to know what to ask for. This
allows the automotive firm to obtain the best possible incentive
An incentives negotiator should also provide compliance
services. The negotiator should be knowledgeable in what contracts a
state requires, the conditions that apply to incentive packages, and
how to collect the incentives for the company. Not following through on
compliance commitments and requirements is one of the most common
errors a company can make. Since some incentives can take upwards of 15
years to collect and are dispersed throughout multiple areas of the
organization, collecting incentives can easily slip through the cracks.
An incentives management company can monitor and follow-up on the
requirements more proficiently than an in-house department to ensure
that the company receives all that it is due.
the negotiator should be paid for performance. That means that he or
she is only compensated when the company actually receives incentives
and tax credits. A negotiator that is paid on this basis is more likely
to fight for a company's incentive package and make sure that the
incentives are collected. Paying the negotiator on a performance basis
will allow the auto company to maximize its benefits.John Schuetz is the Vice President of Location Management Services (LMS), LLC (www.locationmgmt.com),
a Mission Viejo, CA-based site selection firm that specializes in
negotiating financial incentives and tax credits for Fortune 500
companies. He has been working with the automotive industry for 25
years and can be reached at (949) 472-4482.