Honda Plant Location Not Dependent on Incentives

Honda, along with Toyota, is sensitive to reports suggesting tax breaks would take away funding from schools.

The location of Honda Motor Co. Ltd.’s new $400 million Midwest vehicle-assembly plant announced today will not be influenced by a hefty incentives package.

The auto maker, instead, will be more concerned with the proximity of rail lines and highways when selecting a location for the facility, expected to open in 2008, one industry analyst says.

Kim Hill, analyst for the Center for Automotive Research in Ann Arbor, MI, says Honda, more than most other auto makers, values infrastructure over tax spiffs when deciding where to locate a new plant.

This runs counter to competitors such as Kia Motors Corp., which chose a site in West Point, GA, for its new U.S. vehicle-assembly plant after receiving more than $400 million in incentives from the state of Georgia.

“Somebody in one of these articles I saw (from Indiana) said this could get really expensive,” Hill says. “Kia got $400 million down in Georgia, (but) that won’t happen with Honda.”

That’s because Honda, along with Toyota Motor Corp., in part, is sensitive to any press reports suggesting such incentives take away funding from schools, Hill says.

The issue of states providing multi-million dollar incentive packages to lure manufacturers has become a hot topic within the U.S. business community.

The U.S. Supreme Court ruled this month Ohio taxpayers could not challenge the $300 million in tax breaks their state awarded Chrysler Group to build a $1.2 billion Jeep plant in Toledo, OH.

Companies argue that incentives are a necessary part of luring business to invest in the U.S.

“Congress and the states should seek legislation to reinforce the ability to use tax incentives as a tool to compete for investment and jobs,” says Frank Fountain, Chrysler senior vice president-external affairs and public policy, who is located in Washington.

“Such legislation would be an important step to make the U.S. a more attractive destination for capital investment in this intensely competitive global economy,” he adds.

Hill’s organization has been encouraging Midwestern states to talk up their skilled workforce to manufacturers, he says.

Based on economic-development sources he has spoken with, Hill says Honda likely will choose a site in southern Indiana or northern Ohio, not far from Fort Wayne, IN, and Lima, OH, for the 200,000-capacity plant.

This, along with Honda’s successful Ohio production operations in Anna, East Liberty and Marysville, likely contributed to the auto maker’s decision to pick the Midwest over the South.

Honda has about 13,000 direct employees in Ohio, and the outcome of that – vehicle quality – has remained very high, he says.

However, Hill also concedes Honda’s decision to locate a plant in the Midwest is “one more indicator that perhaps there is a finite amount of resources way down South.”

For example, he points out that Honda is assembling dashboards at its Lincoln, AL, plant. Typically, a supplier such as Johnson Controls Inc., Lear Corp. or Delphi Corp. builds such parts. “But (Honda is) doing it in the plant right from scratch,” Hill says.

An on-site supplier park at the new plant also is a high probability, he says, given gas prices are hovering near $3 a gallon in most of the U.S.

Charles Ernst, vice president and plant manager-Honda Mfg. of Alabama LLC, said at a manufacturing conference last summer the auto maker was rethinking its stance on supplier parks due to markedly higher fuel prices than when Honda’s Lincoln plant opened in 2001.

“With fuel prices up, I’m hearing from my purchasing and logistics side that we’re being hit with some fuel surcharges from some of our trucking firms – and of course that wasn’t in the budget,” Ernst said at the time.

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