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OM in the News: The Incentives Needed to Land an Auto Factory

August 14, 2017

Toyota and Mazda’s CEOs make the announcement

Toyota and Mazda’s recent announcement that they have joined together to develop a $1.6 billion factory in the U.S. set off cheers among auto-parts manufacturers and other businesses. But officials in the states and cities that are in hot pursuit of the 1,000 acre plant are holding off on celebrating until the venture makes the critical decision of where to locate the facility and 4,000 jobs. The shortlist includes: Alabama, Florida, Kentucky, Illinois, Indiana, Iowa, Michigan, Mississippi, N. Carolina, S. Carolina and Texas.

Foreign automobile manufacturers have been making cars in the U.S. for more than 30 years, writes The Wall Street Journal (Aug.9, 2017). The southeast has become the preferred location for many because of the business-friendly labor laws of many of the region’s states. Suppliers set up facilities near some of the region’s early plants, like the BMW factory in S. Carolina. “The assembly operations are saying we want suppliers close by,” said a site location expert. “When Toyota comes into a market, they’ll already be there.”

The Toyota-Mazda venture is likely to make its decision in part based on labor force and government incentives. Over the years, state and local governments have provided foreign auto makers a wide range of tax breaks, free land, infrastructure, training programs and other inducements that can be worth hundreds of millions of dollars. Toyota and Mazda are hoping to open the new plant, which will have an estimated production capacity of 300,000 units, in 2021.

Classroom discussion questions:
1. What incentives are usually offered auto manufacturers?

2. List the many factors that auto manufacturers consider in their location decisions.

 

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