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Making the Most of Auto Industry Incentives

Automotive Site Guide 2008
(page 2 of 2)
Handling Mergers and Acquisitions
As the consolidation of the automotive supply chain reaches its peak, mergers and acquisitions have a big impact - especially to previously negotiated incentive agreements. Incentive agreements are often viewed as insignificant to acquisition due diligence; however, early timing is critical and incentive agreements should be reviewed prior to acquisition in order to identify opportunities for continuation and the proper process of transferring the incentive agreement when possible. When consolidations are on the table, while due diligence up front is preferred, at a minimum, the first 60 days post-acquisition are critical. Active incentive agreements must be identified and evaluated for transfer options and compliance requirements. Pending decisions of consolidation, plant closure, or reduction in force may alter government incentive agreements and require renegotiating terms and compliance extensions in order to prevent closure or even to retain a percentage of the work force.

Extension requests or amendments can be made in the event of a planned downsizing or relocation. In a situation such as downsizing for economic reasons, government agencies are often willing to waive clawbacks. However, if a decision is to relocate operations to another location, the firm should have an exit strategy that includes compliance with clawback provisions. In some instances, claw backs can be waived in the case of a relocation if the company operates other facilities in the jurisdiction.

Post-Award Compliance
Incentive awards are only effective toward reducing project costs if the company meets the minimum eligibility and compliance requirements - whether legislatively required or mandated through the negotiation process. Incentive awards, particularly in the case of multiple incentives, require due diligence and management. Each program has a different reporting requirement. A company must meet the minimum term negotiated in its reporting - including investment, job creation, and employment - and must document expenditures in order for cash to be disbursed. In all cases, the terms and reporting requirements must be tracked, documented, and reported timely. Incentive terms are subject to audit and reporting should be thoroughly reviewed for accuracy, often by more than one person. For instance, if a company has an incentive award that requires wages to be 150 percent of federal minimum wage, the compliance team should be aware of and communicate the recent increases in the minimum wage; if wages are not increased to meet the requirement, then the company risks losing the incentive.

A company awarded an incentive package or accessing statutory incentives should also be prepared to manage the compliance process. Many companies spend innumerable man hours to negotiate a lucrative incentive package only to neglect its compliance. Firms that have no compliance team to track and organize compliance reporting requirements may find they lose their eligibility for the incentive award due to lack of due diligence or compliance violations -or, more often, inability to meet investment, employment, and wage requirements.

Overall Good News
There is an abundance of government incentives available to automotive suppliers, whether the company seeking the incentives is a manufacturing concern, warehouse, distribution, headquarters, R&D, or back-office operation. These incentives are there to encourage investment and contribute to lowering project costs. A company should not ignore these opportunities when making strategic decisions that impact capital investment or work force.

Dawn Baetsen and Kathy Mussio are managing partners at Atlas Insight, LLC, a global provider of site selection, credit and incentive consulting, and economic development consulting services. Visit the company's website at

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