With $730 million in assembly plant upgrades announced and under way, and scores of suppliers investing $600 million more into modernization, Kentucky’s multibillion-dollar vehicle manufacturing industry has regained traction the past couple of years.
“The battle is whether you’re going to be part of the auto manufacturing industry of the future,” said Larry Hayes, secretary of the state Cabinet for Economic Development. Kentucky is faring well in the fight. “We were in uncharted waters in 2009.”
From January 2010 and through April this year, 85 companies in the commonwealth’s vehicle manufacturing sector announced investment projects. Around 10 will be new state operations, but upgrades and expansion of existing Kentucky manufacturers are the lion’s share.
“We continue to get the reinvestment,” Hayes said. “That’s what you hope for.”
The state has four assembly plants – in Bowling Green, Georgetown and two in Louisville. As of April 11, according to the Cabinet for Economic Development, another 429 operations all over the state build parts and products those suppliers require.
Together they produce 64,175 full-time Kentucky jobs and steady paychecks.
Ford’s decision to spend $600 million rebuilding the Louisville Assembly Plant made Site Selection magazine’s list of the top 10 projects of any type for 2010. General Motors made it official May 4 that it will spend $131 million to upgrade its Corvette plant in Bowling Green for the next generation of the iconic sports car in two years.
Ford CEO Alan Mulally and GM North American President Mark Reuss each told Kentucky audiences their companies’ nine-figure investments reflect a strong commitment to economic partnership with the state. Ford will add 1,800 assembly plant jobs later this year, and GM expects to add 250.
Surviving industry overcapacity
This key state commerce sector’s future looks reliably rosy today, but that was far from certain two years ago.
When the Great Recession erupted in fall 2008 and sales quickly collapsed, the nation’s automakers soon found themselves trying to steer through a white-knuckle, existential crisis. The federal government reluctantly jumped in with multiple bailouts rather than let U.S. automakers collapse, taking legions of suppliers with them. GM and Chrysler entered government-controlled bankruptcy; Ford Motor Co. had enough cash reserves to go it alone.
The industry had 40-50 percent production overcapacity, and Kentucky had aging assembly plants and supply operations.
Competition among states that formerly focused more on trying to land new business became all about trying to hold onto the jobs they had. Kentucky perhaps got ahead of the curve and established its willingness to do business by extending flexible economic incentives during months of negotiations that had convinced Ford in November 2008 to announce a $200 million investment at its Kentucky Truck Plant.
Shortly afterward, Gov. Steve Beshear’s administration announced a retooling of its incentive program so the state could offer enhancements for project bottom lines not only to new prospects but to established Kentucky operations – targeting especially those needing more efficient equipment and support systems to remain competitive. [See “Retooling Kentucky’s Automotive Industry,” February 2009, The Lane Report]
The Incentives for a New Kentucky package was enacted in a June 2009 special session of the General Assembly. At the recent GM announcement in Bowling Green, Beshear said the Kentucky Economic Development Finance Authority board has approved more than 290 INK projects involving potential investment of $2.9 billion, and creating or preserving more than 19,000 jobs. Vehicle manufacturing projects represent a big chunk of those totals.
INK has 12 separate programs, but the basic transaction is that a company is promised cuts in future Kentucky tax bills if it fulfills agreed-to investment, employment and salary levels. No cash changes hands, but companies running the numbers up front see cheaper overall costs and better returns on investment. Tax incentives typically are spread across multiple years.
For example, GM will get up to $937,500 in annual cuts to state and local taxes it pays on workers’ wages – state wage assessment participation is 3 percent and local participation is 1 percent, according to KEDFA information – for eight years. In addition to investing $131 million, it must maintain a minimum of 449 full-time Kentucky resident employees, but GM told state officials it expects to add 250 jobs over those eight years at a targeted wage of $42 hourly including benefits.
Reuss said the deal will keep production of “GM’s most iconic car … America’s most iconic car” in Kentucky for the foreseeable future.
Quality work ethic counts
That’s good news beyond the automotive sector because GM’s Corvette Museum in Bowling Green attracts 20,000 visitors from around the world. Some of those, Reuss said, are GM’s European rivals from Germany and Italy whose comparable vehicles cannot compete on a cost basis with the Corvettes that workers hand-craft in Bowling Green.
“People come to see how America can build a car that meets and beats the top performance vehicles in the world,” Reuss said, but cost many thousands less per vehicle.
Beshear credited the quality of Kentucky’s automotive sector workforce as the reason the GM deal occurred and had the crowd at the announcement give an ovation to plant workers and the United Auto Workers (UAW).
Like Ford in Louisville, Bowling Green is a union workplace. Toyota workers in Georgetown are non-union.
Kentucky’s “proven workforce” is a strong selling point when the state talks to vehicle manufacturing industry members, Hayes said. The fact that many auto plant workers have commuted an hour or more each way to work for decades is an indication of a strong work ethic.
The product output of Kentucky’s vehicle plants is selling tool, too.
Top-selling vehicles, modern facilities
In fact, Hayes believes the state is emerging with “the cream of the crop” of U.S. vehicle manufacturing.
In addition to the Corvette, there is the Ford Heavy Duty pickup lineup, which has been the top-selling vehicle in the world for more than two decades, and the Toyota Camry, which is the top seller in its category.
Georgetown is Toyota’s largest production facility in the world and underwent a $400 million upgrade as a result of one of the first INK projects in 2009; in addition to Camrys, its 6,800 workers build the Avalon and the Venza crossover introduced in 2009 and 4- and 6-cylinder engines used in several of its vehicles. Toyota located its North American manufacturing and engineering headquarters in Northern Kentucky in Erlanger in 1996 and employs 1,300 there.
Ford’s $600 million total retooling of the 56-year-old Louisville Assembly Plant (LAP), on track for completion later this year, will turn it into the most advanced, most flexible vehicle production facility in the world, according to CEO Mulally. It will make the next generation of the Escape compact SUV, part of Ford’s strategic world-vehicle lineup, and be capable of building up to six separate vehicles simultaneously. LAP is being rebuilt specifically for swift retooling for quick response to changing market conditions.
Meanwhile, there is the advanced-battery sector of the world’s automotive industry, which will require an untold number of energy storage units as the just-emerging hybrid and electric vehicle market grows. Kentucky has no advanced-battery manufacturing now, but there is speculation the state is well placed.
Toyota produces hybrid Camrys in Georgetown and is a world leader in battery production from facilities outside the United States. State officials in 2009 persuaded Argonne National Laboratory in Chicago to open its first-ever satellite research facility just north of Lexington in collaboration with the University of Kentucky and University of Louisville to perform research into advanced battery manufacturing techniques.
Additionally, Hayes said, another of the world’s top advanced-battery makers is Hitachi, which has had a major Hitachi Automotive Systems Americas manufacturing site in Harrodsburg since 1985. It has a focus on electrical components and just announced a $49 million expansion in April
“We’re going to be in the right place at the right time,” Hayes said.