The lure of an auto manufacturer to states, especially those with struggling economies, is huge. It’s not just the jobs they offer and their high paying salaries. It’s also the collateral impact on the economy. Suppliers and services emerge that create even more jobs. Housing booms. Retail moves in. Roads get built. They can transform the economy and landscape of entire regions. Just ask South Carolina’s Upstate.
A little over twenty years ago, South Carolina lured BMW to the Greenville-Spartanburg area with hundreds of millions of dollars in incentives. The company promised to bring 2,000 jobs. Today, they have more than 7,000 employees and are still expanding. Suppliers brought another 16,000 jobs. The area that was once known for textiles is now known for building high-end automobiles.
After South Carolina landed BMW, North Carolina and other southern states decided they wanted to jump into the auto industry. Quickly, the incentives game got very pricey. In 1993, North Carolina was in the running for a Mercedes plant shortly after BMW opened in South Carolina. Alabama, though, got the plant after offering a $100 million incentive package, an amount that raised eyebrows and dwarfed North Carolina’s $78 million offer.
And that was about it for North Carolina. We never seriously pursued another auto manufacturer until now. The auto incentive game was too rich for our blood.
Instead, our economic developers focused on expanding industries that were already here like banking and pharmaceuticals. However, most of those companies were urban based and by the early 2000s, trade policies were wiping out traditional industries like textiles and furniture that were located in small towns and rural areas. Combine those losses with the decline of tobacco and much of rural North Carolina was essentially in a depression for a almost decade before the Great Recession hit.
So as North Carolina tries to climb out of the recession and bring rural areas along, too, McCrory, Skvarla, and company are looking at the auto companies again. They’re finding out that the game hasn’t changed much. It still takes big bucks to compete and a lot of North Carolina’s political class doesn’t have the stomach to subsidize multi-national corporations at that level.
The Senate, in particular, is reluctant to get into the big incentives game. They’re more interested in providing tax breaks to lure companies instead of offering incentives. They’ve got a much more ideological perspective than the administration’s pragmatists.
The overall success of auto makers in states has been somewhat mixed. Per capita income remains below the national average and the poverty rate is above it in both South Carolina and Alabama. The states also got hit just as hard by the recession and have had trouble recovering. They auto plants aren’t necessarily a panacea.
To win a car maker, North Carolina is going to need a unified commitment and be willing to spend big bucks. The payoff is long term, not short term. Ten years after Mercedes announced its Alabama plant, feeling were mixed. Twenty years after the announcement, it’s considered a huge success with Honda and Hyundai setting up shop in the state, too. Volvo’s decision to locate in South Carolina was also influenced by the presence of other auto makers in the state.
If we’re going to get into the game, we need to charge ahead full steam. If not, we should drop it and look for other, less expensive options for building our rural economy. There are certainly other ways to do it. All, though, will take some kind of investment, commitment, and nurturing. There is no silver bullet.
Thomas Mills is the founder and publisher of PoliticsNC.com. Before beginning PoliticsNC, Thomas spent twenty years as a political and public affairs consultant. Learn more >
Given the tremendous cost of building a new manufacturing plant, one has to assume that the auto executives who make the decision to build here or elsewhere are well informed. In that case they very likely know that we are cutting our educational funding, underpaying our public school teachers, and creating a hostile environment in a few other ways. Why would they want to move middle- and upper-level management to such a state? The recent North Carolina story is “out there” for all to see. When “Moral Mondays” are a major news story, you know you’re in trouble.
I have a question regards the continued belief that low income taxes will attract businesses. Does the factory’s location or the corporate address’s location establish the state where business income tax on taxable profits are determined and paid? If it is the latter, the idea that low state income tax rates will influence where a large, multi-state, possibly multi-national firm will locate a manufacturing facility is folly on its face. A large company would not even considering locating a facility based on lower personal income taxes; the company does not pay those.
What does it mean when Tesla is alienated by the stance of NC which works at disrupting their business method? What does it mean when a Solar Farm Company is run out of town by the neighbors who want a different view.
Then the news and the leadership ignores their successes, like Honda, and Hondajet, and the building of the engines. Why not build on your strengths? Why always does NC look at another state, like South Carolina, and go for what they have?
Fact is, what will make the State of NC competitive regardless of what it gives away will pivot on Wilmington and Morehead City. A town, City, State, or Nation will live and die in direct relationship to its ports.
The future will be electric cars, and if you want a car company, I suggest you aim for the premier electric car company.
If you want to succeed it is important to build on your strengths, and do what is easy for you. GE is in the State building jet engines. Build on that.
Honda is building corporate jets, celebrate, and build on that.
For them and the rest of ever industry, make sure your port system is second to none, really.