Car Wars: Honda's $450M Alabama Expansion Will Create 2,000 New Jobs

Week of July 15, 2002
Blockbuster Deal of the Week
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$90M More in Incentives

Honda's 2,000-employee, $425-million expansion will create a virtual clone of its existing plant in Lincoln, Ala. (pictured).

Car Wars: Honda's $450M Alabama Expansion Will Create 2,000 New Jobs

By JACK LYNE,
Site Selection Executive Editor of Interactive Publishing

LINCOLN, Ala. – First, Nissan late last month whoppingly upped the production-capacity ante. Now, Honda (www.honda.com) has essentially called that humongous bid.
Coming hot on the heels of Nissan's 1,300-job, US$500-million expansion in Canton, Miss. (see July 2002 "Incentives Deal of the Month"), Honda last week announced a 2,000-employee, $425-million expansion of its plant in Lincoln, Ala. (www.lincolnalabama.com).
And that's not to mention the $40 million more that Honda's spending in expanding operations in Anna, Ohio and Toronto.

By the Numbers:
Honda's New Alabama Incentives

Honda site
Honda received $158 million in incentives when the Lincoln, Ala., plant (pictured during construction) was announced in 1999. By comparison, the automaker's 2,000-employee, $425-million expansion is getting an $89.7-million incentive package that includes:
• $45.1 million from the state for employee training, and road, sewer and water improvements;
• $33.1 million from the state and local area for various tax breaks, which will be allocated over a 20-year period; and
• $11.5 million from the city of Talladega and Talladega County for site preparation, and sewer and water improvements.

Source: Alabama Dept. of Finance

The Alabama expansion, however, is clearly the big bopper in the Tokyo-based giant's strategy to muscle up North American production capacity. The Lincoln expansion, in fact, will practically be a newly hatched twin of Honda's current sprawling structure.
The automaker will create an entirely new, physically separate unit adjacent to its existing operation, which went online in November 2001. The additional 1.1 million sq. ft. (90,000 sq. m.) will double Honda Manufacturing of Alabama's total floor space, while the 2,000 new workers will increase total employment by 87 percent.
For Honda, though, the most important number is the plant's bulked-up production. The huge infusion of money and manpower will double annual capacity to 300,000 vehicles, engine blocks and engine heads.
The Lincoln plant's strong track record prompted Honda to give Alabama (www.ado.state.al.us) the expansion nod, according to company officials.
"Our associates have certainly embodied Honda's challenging spirit in the many milestones we have already achieved," Honda Manufacturing of Alabama President and CEO Masaaki Kato said at the press conference in Lincoln announcing the expansion. "With demand continuing to increase for Honda products, the dedication and commitment of our associates to build quality products for our customers is what has made further expansion in Alabama the right choice for Honda. We have forged a strong bond with the Alabama community, and we are excited that this bond will now grow even stronger."

Gov. Don Siegelman, left
The $89.7-million incentive package is "a good deal for Honda, but it's an extraordinary deal for Alabama," said Gov. Don Siegelman (pictured above left after the first Odyssey minivan rolled off the line in Lincoln last December). Photo: Thinh Nguyen, Alabama Governor's Office

Siegelman: $90M Incentive Package 'An Extraordinary
Deal for Alabama'

Some $90 million in incentives certainly strengthened the Honda-Alabama bond. (For incentive details, see accompanying "By the Numbers" chart.)
Comparatively speaking, though, Honda's new incentives are modest.
"It's a good deal for Honda, but it's an extraordinary deal for Alabama," Gov. Don Siegelman asserted at the press conference.
The $89.7 million, Siegelman explained, works out to $44,870 for each of Honda's 2,000 new jobs. That's considerably less, he added, than the $105,580-per-job figure for Alabama's $158-million incentive package when Honda's Lincoln plant was announced in 1999.
The $89.7 million is also considerably smaller than other high-profile packages that Alabama has parceled out in landing major auto projects. The $253 million that Mercedes-Benz received in 1993 for its plant near Tuscaloosa, for example, equals some $168,000 per job, according to State Finance Director Henry Mabry. And the $118.5 million in incentives for the $1 billion Hyundai plant in Montgomery that was announced in April equals $117,317 per job, Mabry added. (See April 1, 2002, "Blockbuster Deal of the Week" for more details on the Hyundai project.) Existing budgets should cover the state's share of the incentives, negating the need to sell bonds, Siegelman and Mabry said.

Auburn Study: 3,300 Indirect Jobs

The Honda project will also trigger broader job-generating ripples, Siegelman asserted late last week in releasing an economic impact study.
The study, conducted by the Auburn University School of Business, reported that Honda's expansion would create 5,300 direct and indirect jobs. The automaker's 2,000 new employees will draw annual average wages of $49,000 a year, while indirect jobs will average $29,000 a year, the study estimated.
"The conclusions of this study indicate that Alabama's continued investment in Honda will produce very favorable returns," Siegelman said at a press conference releasing the study. "But this announcement is about more than numbers. It's about greater opportunity and improved quality of life for thousands of Alabama families."

New Output 'Determined by
Market Demand Closer to Startup'

Expansion construction could begin as early as fall 2002, with completion projected for early 2004, Honda officials said. Massive dimensions notwithstanding, however, the project won't create a new entity, they emphasized.
"Though we are adding another building, creating another line and hiring another 2,000 associates, we are still one company, one plant, one team," Kato noted.
Just what will roll off the new line, though, remains a question mark. The Alabama plant currently makes Odyssey minivans. But that won't necessarily have anything to do with the new facility's output.
"Because we will have flexibility in terms of future model production, the decision of what to build will be determined by market demand closer to the startup," Kato said.
The new space in Lincoln could produce the Acura MDX SUV or the Honda Pilot SUV, some auto industry analysts surmise. Or, they say, the Odyssey could be added to the mix, with all three vehicles produced as demand warranted.

Canada, Ohio Expansions
Bolster Manufacturing Flexibility

Demand, of course, makes or breaks expansions of such gargantuan scale. Like Nissan, Honda is currently faring well in the North American market, which has remained relatively strong through the downturn. American Honda Motor Co. had its fifth straight record year in 2001, selling 1,207,639 vehicles.
The automaker clearly expects continued strong demand, as evidenced by its total expansion investment of almost half a billion dollars. That expectation similarly drove the expansions in Canada and Ohio.
Honda's $20-million expansion in Alliston, Ontario, will increase the plant's capacity from 360,000 to 390,000 vehicles. The Ohio expansion, also a $20-million project, will increase the Anna plant's capacity from 1.04 million to 1.16 million engines a year.
Neither expansion will produce new Honda jobs in Canada or Ohio. New assembly lines in each, however, will increase the operations' flexibility to manufacture a broader product line, company officials said.
The three projects are part of Honda's plan to increase its annual North America production capacity from 1.22 million to 1.4 million vehicles by late 2004. Nissan and Toyota are also in the midst of expansion programs that will give them virtually the same capacity by 2004.

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