June, 1999
  Incentives Deal of the Month
   from Site Selection's exclusive New Plant database

Alabama's $158 Million for Honda: Initial Embrace
Marks Dramatic Shift from 1993's Mercedes Tiff

What a huge difference seven years make: That's the dominant theme thus far in the aftermath of the $158 million incentive package that Alabama put together to land Honda's $400 million, 1,500-employee plant. Honda (www.honda.com), with a substantial assist from Alabama's incentives, will build a massive, 1.7-million-sq.-ft. auto production facility on a 1,350-acre tract in Lincoln, a city some 35 miles east of Birmingham.

The upbeat mood that's greeted the announcement stands in stark contrast to the brouhaha of 1993, when the state provided $253 million in incentives and tax breaks to land the DaimlerChrysler investment in Vance, Ala., some 30 miles west of Birmingham. Though it ultimately yielded the first U.S. Mercedes-Benz plant, which now employs 1,700, that deal landed in hot water only months after it was forged.

'Look at Mercedes'

While scattered rumblings over the Honda deal have surfaced, the initial reaction among the huge majority of Alabamans seems overwhelmingly positive. Most seem to agree that the new Honda plant will provide an infusion of robust economic health - the same kind that ultimately came from DaimlerChrysler's Alabama plant in Vance.

"Look at what Mercedes has done in Alabama, with Alabama workers. This plant will be even larger than Mercedes, and will end up costing the state less," County Commissioner Paul Manning said at a recent meeting of the St. Clair County Commission that was held shortly after Honda's Alabama announcement.

St. Clair County adjoins Talladega County, where the Honda facility will rise in Lincoln, a small town with a population of some 3,600. State economic development officials (www.ado.state.al.us) anticipate that Honda's plant will have its greatest economic impact in a five-county area encompassing Etowah, Calhoun, Jefferson, St. Clair and Talladega counties. (Representatives from all five counties signed confidentiality agreements during the final stases of the Honda negotiations). St. Clair County Commission Chairman Stan Batemon, for example, said in a commission meeting that he expects Honda's move-in to create some 450 new jobs in St. Clair County.

Predictably, positiveness also rules in Lincoln. Mayor Lew Watson says the Honda announcement has increased hits by more than 400 percent on the city's Web site (cityoflincoln.home.mindspring.com), where the site's home page now features a proclamation of thanks to Honda "for selecting our city to be your new home."

Similarly, Mayor Mack Abercrombie told a City Council meeting in Pell City (located some five miles west of Lincoln and on the Web as www.pell.net) that his office has been deluged with business prospects since Honda affirmed its Alabama-bound intentions.

Good for All of Alabama?

To land Honda, Alabama committed to a total of $102.7 million in incentives to buy the land and prepare the site for construction, plus training the plant's employees. In addition, Honda will receive $55.6 million in tax breaks, according to Gov. Don Siegelman's office.

While those are hefty subsidies, positive reactions in Alabama to the Honda deal aren't limited to the five-county area around Lincoln.

For example, The Daily Home (www.dailyhome.com), a newspaper based in east central Alabama, observed in an editorial, "The entire state benefits from the news, not just in terms of a major international industry locating here, but in terms of telling the rest of the world we're open for business in the automobile industry."

Samuel Addy, interim director of the University of Alabama's Center for Business and Economic Research, has calculated 20 years will pass before Alabama possibly beaks even if some large Honda suppliers follow the company to the region (which, given the just-in-time nature of auto manufacturing, seems likely). But despite the lengthy payoff, Addy calls the state's second auto plant "a great boon" for Alabama, which may establish it as an rising center for heavy industry locations.

In addition, the Alabama House of Representatives unanimously approved the incentive package for Honda shortly after it was announced by Gov. Siegelman.

1999's Big Differences

Things were quite different in 1993, when the state provided $253 million in incentives and tax breaks to land the DaimlerChrysler investment in Vance.

Soon after, state school officials refused to hand over education funds to bankroll the Mercedes incentives. As a result, Alabama was tardy with a $43 million incentive payout due Mercedes in the agreement forged by then-Gov. Jim Folsom. That forced the state to raid Alabama's pension fund to make good on the incentives, with Alabama taking out a loan, with a 9 percent interest rate, to recoup the pension funds.

Ultimately, voter backlash to the Mercedes deal cost Folsom his reelection bid, most state political analysts agreed. So why the big difference between the reaction to Mercedes and the reaction to Honda.

For one thing, Alabama's Honda incentives are some 30 percent lower than the package that landed DaimlerChrysler. And the Lincoln plant may hire as many as 3,000 workers over the long haul, Honda officials say.

In addition, state officials have wisely steered clear of any incentives-fueled raid on the Alabama's education coffers. Finally, Honda is a well-known local commodity, with 18 Honda dealers in the state, according to the U.S. Institute of Marketing. As such, the Japanese automaker isn't stuck with the "luxury car" label that opponents used to bash the Mercedes deal.

But the biggest difference seems to be what time and experience have done to most Alabamans' attitudes about foreign investment. Clearly, there seems to have been some sort of substantial evolution.

That sort of thing seems to happen, though, after a few years of watching employee rosters steadily lengthen as product keeps rolling off the line.



©1999 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.