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OM in the News: And the Winner of Volvo’s New $500 Million Plant is— S. Carolina

May 14, 2015
A Volvo plant in China. The automaker is hoping to increase its American sales volume, which fell 8% last year.

A Volvo plant in China. The automaker is hoping to increase its American sales volume, which fell 8% last year.

Volvo just announced that it will build a $500 million factory near Charleston, South Carolina, making it the first time a Chinese-owned automaker will have an auto assembly plant in the U.S. The company said that the plant — its first in the U.S. since entering the market 60 years ago — would eventually employ 4,000 and will open in 2018. The factory will initially be capable of making 100,000 vehicles a year.

Volvo already operates two plants in Europe and two in China. It is hoping to increase its American sales volume. Globally, the company is growing, up 9% last year to nearly 470,000 vehicles — helped by surging demand in China.

Volvo will receive about $200 million in combined incentives, reports The New York Times (May 12, 2015). That includes $120 million in economic development bonds, $30 million in state grants and an additional $50 million of incentives from a state-owned utility company. The firm said it chose the S. Carolina site for its proximity to seaports and the quality of autoworkers and facilities in the region. “One of the main criteria for us was infrastructure,” said the CEO. “South Carolina has people who know the industry, can work in the factory, and who understand our business.” He added that the company was looking long-term at its first production on American soil. “A commitment like this you don’t make for 10 or 15 years,” he said. “It’s designed for decades.”

Volvo’s announcement is the latest in a series of production expansions by foreign automakers in the U.S. In July, VW announced it would spend $600 million to expand its plant in Chattanooga.

Classroom discussion questions:

1. How do these incentives compare to prior offers to automakers?

2. Why is Volvo opening the U.S. plant in S. Carolina?

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