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Inward Investment Guides

Creating a Win-Win Situation: Incentives Opportunities for Auto Companies in Transition

Larry Kramer, Incentis Group (Automotive Site Guide 2007)
(page 2 of 2)
How Should A Company Present Its Case?
But specifically, how does an automotive manufacturer or supplier convince a state or community that economic incentives will play a vital role in enhancing the competitiveness and long-term viability of its operations?

First, it must begin by demonstrating the global competitive realities of the automotive industry. Statistics pertaining to the out-migration of automotive plants and jobs are useful. But specific examples of the company's own offshore relocation of operations or that of its competitors drive the point home and show that the company is aware of its location options.

Second, public officials can only justify the use of incentives if there is a demonstrated benefit to the local or state economy. The direct jobs retained by a challenged facility comprise only part of such benefit. The true extent of the benefits to the economy goes well beyond the four walls of the plant. The economic impacts of automotive manufacturing operations and their suppliers are among the highest in the U.S. economy. Each automotive job typically creates between 2.5 and 6 other jobs within the economy. Likewise, the higher compensation of automotive employees drives additional indirect and induced earnings within the state or community. Automotive operations are also responsible for extensive secondary economic output in terms of real dollars. Presenting these impacts as well as the long-term positive fiscal effects upon the public treasury shows that there are mutual benefits to be shared by the company and community.

Finally, companies should be more active in seeking incentive package structures that provide immediate benefit to the community or state. Since new capital investment typically generates incremental tax revenues, even when job levels remain the same or are reduced, incentive packages can be structured to provide benefits to the company as well as to the public treasury. As an example, incentive structures can allow for added benefits to entities such as school districts while providing meaningful value to the company's operations through such mechanisms as payment-in-lieu-of taxes (PILOTs) or by integrating state school-funding formulas into the incentive structure. These tools were used in the automotive supplier example presented above.

Heightened Awareness
Global competition that has reduced jobs and earnings in many U.S. jurisdictions has impacted a far wider range of industries than automotive. State and local economic development officials, legislators, and administrators must continue to look at the use of economic development tools that address the retention needs of the highly valuable automotive industry along with corporations within all competitive industries well in advance of events that necessitate corporate decisions resulting in unfavorable jobs consequences. And companies, for their part, should be more aware of incentives opportunities that may aid them in retaining operations and their associated jobs.

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