Foreign automaker investments in the South bring prosperity -- for now

Here's an interesting article about the contrasts between two auto manufacturing towns:

Twenty years ago, Livonia, Mich., was a prosperous Detroit suburb, with upscale neighborhoods and high-end stores in a new mall...

Three hundred miles to the south, drivers back then on Interstate 75 could zip right by Georgetown, Ky., and barely notice it...

[..]

Now, two decades later, the two cities have seemingly switched places economically.

Livonia is stumbling, as Detroit's automakers close factories and eliminate blue- and white-collar jobs. Just last week, Ford Motor announced that 30,000 workers had opted for deals worth up to $140,000 to leave. In all, with similar offers at General Motors, about 70,000 auto workers, or one-third of those in American plants, have decided this year to leave.

Georgetown, however, is booming because of Toyota, which has invested more than $5 billion in a sprawling manufacturing complex, leading to the construction of new schools, hotels and dozens of smaller factories run by suppliers to Toyota.

Their changing fortunes offer more than a tale of two auto cities. They provide a close-up look at the impact of a broader economic shift of the nation's auto industry from north to south, as Detroit falters and their surging Asian competitors invest in Southern states.

Read the whole thing, it's pretty interesting. The article notes that the Kentucky Legislature came up with $147 million in incentives to lure Toyota in the mid-eighties. According to the article, Toyota has invested more than $5 billion there, and employs 7800 workers. They have also just begun rolling out the new Camry Hybrid, which was formerly built in Japan and the plant has extra capacity that could be used to build other new models.

The article notes that Alabama granted twice that amount in incentives to lure Mercedes-Benz in 1992. More recently, Tennessee offered $200 million in incentives for Nissan to move their U.S. headquarters and 1300 jobs to Nashville, which is about $155,000 per job (spread out over twenty years). And the legislation was worked up in secret so as to not tip the state's hand as the fiercely competitive negotiations progressed.

Here's a recap of some of major automotive manufacturing deals around the South:
 

And this doesn't include the GM Saturn plant in Spring Hill TN or the Nissan plant in Smyrna TN.

In addition to incentives, the South's lower tax rates, lower cost of living, low-cost labor, and "right to work" laws are also attractions for auto manufacturers. There's plenty of debate as to whether the taxpayer funded "corporate welfare" incentives are worthwhile in states that consistently rank last in poverty, education, and health care.

But there's no denying they create jobs, including jobs created by suppliers and other supporting industries. And even though many of the big auto manufacturers are avoiding taxes due to incentive packages, there are other related payroll, business, and property taxes that benefit local and state governments.

A 2002 study (PDFformat) of BMW's operations in South Carolina by the Moore School of Business says that the total economic impact is $4.1 billion (as of 2001) for this one manufacturer, which includes 16,000 jobs, $691 million in payroll with an employment multiplier of 3.9. They estimate that the state government receives $27.6 million in net revenues (after cost of services) annually, the four-county region receives $2.4 million net, and that local school districts receive $3.2 million.

Yet South Carolina ranks 41st in household income, 42nd in high school graduation, 41st in number of residents with college degrees, 48th in overall health of its residents, and has the 11th highest number of people living in poverty.

And as the article about Georgetown mentions, these "company towns" struggle to manage the growth and the impact on local infrastructure, government services, and schools. There are also concerns about what happens when a region is dependent on one large employer who could decide to move their operations to Mexico, or even Canada where health care costs are significantly lower and there is a better trained workforce.

Or, as Livonia Michigan Mayor Jack Engebretson said, "We don't want to be tied in any significant way to any one industry because it's just not a healthy thing to do." That sounds like the voice of experience. According to the article, the city recently had to lay off 90 people, cut their budget by $5 million, and close seven schools.