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Location Notebook: Kentucky Keeps Its Economy On Track

As states throughout the nation struggled during the recession, Kentucky quickly acted to help its economy not only recover but also grow.

Steve Stackhouse-Kaelble (Q2 2014)
The more the domestic auto industry grows and changes, the better-positioned Kentucky seems to be for serving the industry. One site selection consultant says the state may well be “the epicenter for where an auto parts supplier serving multiple companies should locate.”

Automotive Epicenter
To begin with, the Bluegrass State is an easy drive down the interstate from the traditional capital of American motor vehicle manufacturing, Michigan, with its wealth of final assembly operations. Then consider that on that easy drive to Kentucky, you pass through either Ohio, home of assembly plants for each of the Big Three plus Honda, or Indiana, where there are assembly plants run by General Motors, Toyota, Honda, and Subaru. Illinois and Missouri have assembly plants, too.

Then to the south, there’s a growing list of assembly operations within easy reach of suppliers in Kentucky. To name a few: GM, Nissan, and Volkswagen in Tennessee; Toyota and Nissan in Mississippi; Honda, Hyundai, and Mercedes-Benz in Alabama; Kia in Georgia; BMW and Daimler in South Carolina. The resurgence of the automotive industry has been a key driver to Kentucky’s economic growth...In the past five years, close to 300 motor vehicle-related projects have been announced in Kentucky, representing more than 17,000 new jobs and $4 billion in new investment. That’s a third of all announced investment and new jobs during that time Mandy Lambert,acting commissioner of the Department for Business Development in the Kentucky Cabinet for Economic Development

Of course, in Kentucky itself, Toyota, GM, and Ford have assembly operations. And beyond all of the final assembly, Kentucky and nearby states have countless operations focused on engines, transmissions, and other key components. An epicenter? Indeed, Kentucky is more so all the time.

“The resurgence of the automotive industry has been a key driver to Kentucky’s economic growth,” according to Mandy Lambert, acting commissioner of the Department for Business Development in the Kentucky Cabinet for Economic Development. “In the past five years, close to 300 motor vehicle-related projects have been announced in Kentucky, representing more than 17,000 new jobs and $4 billion in new investment. That’s a third of all announced investment and new jobs during that time,” says Lambert.

The auto industry, she says, represents 15 percent of the state’s manufacturing GDP, and employs more than 82,000 people. “Kentucky is now the third-largest vehicle-producing state in the U.S. and has the highest output of any state on a per capita basis,” Lambert adds. “More than 11 percent of all light vehicles made in the U.S. are produced right here in Kentucky.”

Retention and Other Incentives
Helping make that happen is the Kentucky Jobs Retention Act, an incentive program created in 2007 with Ford investment in mind and expanded in 2012 to benefit others. As a result, the good headlines keep showing up. “Last year we witnessed that effort result in Toyota’s decision to locate its first-ever Lexus line production in the U.S.,” Lambert says. “Construction is currently under way to expand the company’s Georgetown, Ky., plant, where it will add a separate line specifically for the Lexus ES 350. The company is also doing other plant refurbishments that collectively will create 750 new jobs and entail a $531 million investment.”

Ford, meanwhile, announced that it would produce its all-new 2015 Lincoln MKC in Louisville, while also boosting the capacity of its truck plant. “Ford has been manufacturing in Kentucky for more than 100 years,” according to Ford President of The Americas Joe Hinrichs, who notes that there is growing customer demand for Kentucky-made F-Series trucks. And the GM plant in Bowling Green happens to make the sleek Chevrolet Corvette Stingray, recently honored as Car of the Year at the North American International Auto Show.

The positive headlines are certainly a relief, as recent years haven’t exactly been a cakewalk, from an economic perspective. Note the name of that incentive package passed just as the U.S. economy was heading down the tubes: “Kentucky Jobs Retention Act.” Employers all over the country, including in Kentucky, were struggling, Lambert observes. “Kentucky quickly recognized that it was no longer about adding new jobs, but about keeping the ones you had,” she says. That wasn’t always easy, and the state jobless rate approached 11 percent in mid-2009, while in Louisville it hit 12 percent in early 2010.

The solution was to create incentive programs that allowed the state to work aggressively to support existing employers, not just new ones. The Incentives for a New Kentucky program debuted in 2009 and brought more tools to the toolbox, helping the state weather the downturn. The jobless rate has been inching downward, still higher than the national average, but heading in the right direction. Meanwhile, the U.S. Bureau of Labor Statistics announced earlier this year that Kentucky’s new business creation is on a hot streak. In the second quarter of last year, it led the nation, up a spot from the previous quarter.

Outsiders have lauded Kentucky’s collaborative atmosphere when it comes to business development. Economic development is often a regional endeavor, not just local, with communities working together for the common good. Other Targeted Sectors
Beyond automotive, state economic development officials are targeting such sectors as distribution and logistics, food and beverage, healthcare, data centers, life sciences, sustainable manufacturing, and batteries/energy storage. Distribution, for example, benefits from the central location and the presence of UPS Worldport and DHL’s global hub. That helped persuade CafePress to expand its fulfillment and manufacturing operation and move its headquarters from California, and played a role as Groupon opened a distribution center in Kentucky.

As for the $5 billion food products industry, it’s no secret that Kentucky makes nearly all of the world’s bourbon — there are actually more barrels of bourbon currently aging in Kentucky than there are humans there. Beyond the many other kinds of food that originate in Kentucky, there also are plenty of other kinds of adult beverages, notes Cabinet for Economic Development Secretary Larry Hayes. “We’ve exported wine to France and rum to the Caribbean. It tells you we have great craftsmanship.”

Outsiders have lauded Kentucky’s collaborative atmosphere when it comes to business development. Economic development is often a regional endeavor, not just local, with communities working together for the common good. Lambert adds that collaboration also involves new and prospective businesses. “We’re not just about creating programs and making companies fit in what we’ve created,” she says, “but rather Kentucky is a collaborative state that works to truly listen to the needs of business and then find creative ways to meet or exceed those needs.”
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