Journal, April 3, 2002
-- In 1993, Alabama persuaded
Mercedes-Benz to build its first U.S.
auto plant here by offering the luxury-car maker $253 million worth of
incentives -- $169,000 for every job Mercedes promised the state.
Taxpayers considered the deal such a boondoggle that they voted
Gov. Jim Folsom out of office long before the first Mercedes sport-utility
vehicle rolled off the new assembly line in 1997. Today, the deal looks a
little more like a bargain -- suggesting that the controversial practice of
spending millions of taxpayer dollars to lure big employers can sometimes have
a big payoff.
Here in Vance, DaimlerChrysler AG's Mercedes unit surpassed its
pledge to create 1,500 jobs. The German company now plans to double the size of
its Alabama work force to 4,000
within about three years.
Last fall, Honda Motor Co. opened a factory in Lincoln,
75 miles northeast of the Mercedes plant, to build its fast-selling Odyssey
minivan. Toyota Motor Corp. has broken ground on a new plant near Huntsville,
where it plans to start producing engines next year. Those companies also received
incentives from the state.
And late Monday, in a decision that cements Alabama's
reputation as the South's hottest auto-making center, Hyundai Motor Co. of
South Korea picked a site near Montgomery
for its first U.S.
assembly plant. The factory is slated to begin production in 2005. It is
expected to employ 2,000 and make as many as 300,000 sedans and SUVs a year
when it reaches capacity.
For years, opponents ranging from state politicians to
economists have criticized the practice of courting corporate giants such as
Mercedes with big grants and tax breaks. They say the subsidies reduce the
funds available for other state programs and services. And, because everyone
wants the high-paying jobs that come with new corporate facilities or
relocations, competition between states and municipalities can easily ignite
bidding wars, escalating the cost of those jobs seemingly beyond reason.
In Alabama, the
rise of a new southern Motown -- at a cost of close to $700 million in
incentives over the past nine years -- is winning over some critics. For one
thing, the incentives have helped Alabama
reduce its traditional reliance on the shrinking U.S.
textile and apparel industries. More than 13,000 of the state's 60,000 textile
and apparel-production jobs have disappeared since 1997, according to the U.S.
Census Bureau. And as Mercedes has revved up its plant here, other high-profile
employers, including Boeing Co., have gotten more comfortable with the idea of
being in a state long outside the mainstream.
C.C. "Bo" Torbert, a former Alabama Supreme Court
chief justice, once argued that the money spent to bring Mercedes to the state
could have been better spent on schools. Now, he says, he regards Mercedes'
arrival as "Alabama's new
incentives have fueled pride and optimism in the state, it's hard to tell
whether the state has gotten its money's worth.
to suffer from serious economic and social woes. It ranks 43rd among U.S.
states in per capita income, second-lowest in the percentage of adults that
finish high school and worst in infant mortality. It has a tax structure that
hits the poor disproportionately hard, and its state constitution, enacted in
1901 to reverse gains made by blacks after the Civil War, is a relic of the
Providing tax breaks for Mercedes and others cost Alabama
some of the resources it might have used to address these problems. For
example, the state gave Mercedes a 20-year exemption from state income taxes,
sacrificing revenue that could have helped upgrade schools or fund other
programs. And when the company decided to double the size of its Vance plant,
it got another $115 million in incentives.
"They are giving away something they don't have," says
Matthew Murray, an economist at the University
of Tennessee. At least some of the
jobs brought in since Mercedes arrived probably would have come to the state
anyway, he adds. Others say the money the state has spent on a handful of auto
companies might have been better spent to attract companies in a variety of
For its part, Mercedes says it pays $1 million a year in sales
taxes and local property taxes used for education. Mercedes employees and
companies that do business with Mercedes generate another $14 million a year in
state income and sales taxes as a result of the company's presence, according
to economists at Auburn University
at Montgomery who studied the issue
for the industry-funded Economic Development Partnership of Alabama.
business and political leaders say the new car factories have increased the
state's resolve to tackle some of its problems. In the past few years, the
state has beefed up its high-school graduation requirements. Dozens of local
governments also are improving training for workers who hope to jump to the
better-paying jobs being created by new arrivals and existing companies.
Lester Garner, who pieces together seats for Mercedes at a Johnson
Controls Inc. plant here in Vance, would have lost his job had he stayed at the
underwear factory where he had put in 9 1/2 years. Instead, he now makes three
times as much as he did at that factory, which shut its doors last year. He
also has a 401(k) plan and is looking for a patch of land where he can build a
house. "People see these shirts and ask us to put in a good word" to
help them get jobs, the 34-year-old Mr. Garner says, pointing at his work
Alabama had never
had an auto-assembly plant before Mercedes. Andreas Renschler, the company
official put in charge of the plant, didn't even think of Alabama
until his site-selection team persuaded him to take a look. What he found were
leaders desperate to change the state's reputation as a racially divided
Paying 'a Little More'
He also found they were willing to outspend more than 20 other
states in the competition. "We were like that fella that has a poor credit
rating," says Marsha Folsom, the wife of the former governor and the head
of Alabama's Democratic Party.
"We had to pay a little more to get people to look at us."
DRIVEN TO ALABAMA
Large financial incentives have helped
lure four auto-industry giants to the state.
NUMBER OF EMPLOYEES
Makes sedans and
officials agreed to buy the plant site and turn it over to Mercedes for $100.
Gov. Folsom won legislative approval for a package of tax concessions that
allowed the German auto maker to pay for construction of its plant with money
it would have spent on state income taxes. On top of matching North Carolina's
offer to build a $35 million training center at the company's plant, Alabama
agreed to pay employees' salaries while they were in training, at a cost of $45
At the time, rival states blasted Alabama
for encouraging escalating corporate demands for incentives. Businesses already
in the state complained that the newcomers were getting unfair advantages
without having to prove their loyalty to the state. After using the controversy
to help defeat Gov. Folsom, new Republican Gov. Fob James scaled back the use
of tax breaks and put the brakes on aggressive industrial recruiting.
But things started to change as newly trained Mercedes workers
started cranking out M-class vehicles in 1997. Many of those workers were hired
from desk jobs or from textile factories and other facilities where they had
had nothing to do with cars. There were early quality problems to iron out, but
that didn't seem to hurt sales.
Mercedes has expanded the plant twice since then, increasing
annual production to 80,000 cars from its original goal of about 60,000. Now
construction cranes are piecing together the steel-beam skeleton of a third
expansion, which is set to double vehicle output and put the equivalent of 47
football fields under one roof. Mercedes says one reason it decided to keep
growing in Alabama is that
employees there work hard and are easy to train.
Paid about $25 an hour, Mercedes assembly workers, who aren't
unionized, earn more than twice Alabama's
average hourly production wage of $11.81, and they get a full range of health
and retirement benefits.
Like other Southern states that have lured auto plants in recent
years, Alabama offers lower costs
than the industrial North for everything from utilities to construction. And
because they are staffed by new hires, unlike older auto plants in the North, Alabama's
plants aren't burdened by benefit costs for retirees.
Mercedes has erased doubts about whether the vast auto-industry
supply chain would ever reach as far as the Deep South.
Eight of its suppliers have set up shop in Alabama
to meet the company's requirements for just-in-time delivery, creating at least
1,600 jobs and making everything from axles to gas tanks to bumpers. The latest
expansion will lure other Mercedes suppliers that haven't moved in yet, and Hyundai
is expected to help attract even more. The suppliers pay their workers about
half as much as do the auto-assembly plants.
The Auburn University
study found that the Mercedes plant and its suppliers have helped create nearly
10,000 jobs in the state, paying a total of $354 million a year. Mercedes
itself spends more than $1 billion a year on parts, supplies and services from Alabama
companies. Those figures don't include what Mercedes is spending on its current
In Tuscaloosa, a
city of 83,000 about 20 miles west of the plant, Mercedes-related economic
growth is changing daily life. Rush hour is busier, there's a new Target
discount store, and sushi is available at a Bruno's supermarket next to a
modern shopping mall. Made-in-Alabama SUVs zip around town, about 300 of them
driven by assembly-plant workers.
Lynn Simmons, 36 years old, was a Pizza Hut manager before he
joined the Mercedes assembly line. Since then, he has been able to move out of
his one-bedroom apartment and buy a three-bedroom house in one of Tuscaloosa's
best neighborhoods. "I used to wonder why [Mercedes] would want to come to
Alabama," he says. Now, he
says he tells his nieces and nephews "to get the best background"
they can so they have a shot at a job like his.
Frankie Thomas, a retired school teacher and librarian who
serves on the Tuscaloosa County School Board, says the jury is still out on
what impact the car plants will have on the quality of local education.
"Right now, we're at the stage where we're just hoping."
Shelley Jones, a retired teacher and principal who is chairwoman
of the Tuscaloosa city school
board, says Mercedes and its suppliers have forged partnerships with local
schools, brought in a more diverse population and provided jobs for graduating
seniors. Mrs. Jones adds that even if Mercedes hadn't received the big
incentive package, she doubts that the additional state money would have gone
Mercedes has become a rolling billboard for Alabama's
continuing economic development blitz. Dozens of companies, including Honda and
Toyota, have met with Mercedes
officials in deciding whether to come to Alabama.
"If the state has a prospect, they come and see us," says Linda
Paulmeno Sewell, a Mercedes spokeswoman. The Economic Development Partnership
tells the Mercedes story all over the world, including at Mercedes-sponsored
golf tournaments, where it woos site-selection consultants.
In 1997, Boeing decided to build a rocket plant in Decatur
after finding out about state-funded employee-training programs that took off
when Mercedes arrived. The auto maker "caused all of the site consultants
to come into Alabama and see what
Mercedes had done," says Mike Bunney, the rocket plant's general manager.
taken note of its neighbor's success. In late 2000, it outbid Alabama for a new
Nissan Motor Co. assembly plant. "Mercedes broke the barrier for deep
southern states," says Mississippi Gov. Ronnie Musgrove, who won over the
Japanese auto maker with a $295 million incentives package.
More important to some than all the jobs and money, the string
of economic-development prizes that started with Mercedes has spread optimism
that things in Alabama are slowly
getting better. Eating lunch Tuesday at a Montgomery
restaurant, Mark Turner, who works at a nearby water-heater factory, said his
colleagues already were talking about applying for work at the new Hyundai
plant. "Alabama is getting a
reputation for good-quality people who care about their jobs," he says.