You may have seen news this week that Toyota and Mazda announced they will build a $1.6 billion joint assembly plant in Alabama, employing as many as 4,000 workers. The plant, which will be roughly 14 miles from Toyota’s engine plant in Huntsville, is expected to produce 300,000 vehicles annually. Toyota plans to build Corolla cars at the plant, while Mazda will build crossover SUVs.
The location wasn’t a complete surprise. When the two companies agreed last summer to form an alliance and establish a joint-venture plant, many industry observers speculated the new plant may be located near an existing facility, especially since it would provide an opportunity to leverage a pre-existing supplier network, along with a labor force and government incentives. Toyota has 10 U.S. plants in an arc running from West Virginia through Indiana and Kentucky, and continuing across Alabama, Mississippi and Texas.
The total incentives package that helped Alabama land the Toyota-Mazda automotive plant is expected to be between $800 and $900 million, according to Huntsville Mayor Tommy Battle, AL.com reports. However, the numbers remain somewhat fluid as various government entities work to get formal approval for the aid they plan to provide, and some incentives, such as from the Tennessee Valley Authority, are unknown.
“Incentives are the icing, but they aren’t the cake,” Chip Cherry, president and CEO of the Huntsville-Madison County Chamber of Commerce, says in the AL.com story. “From a company’s perspective, what makes a deal work or not work is can you get it to market on time? Will we be able to ramp up? Will they be our partners when the unforeseen issues pop up? We had the added benefit of having a history with Toyota of being able to solve problems when things pop up. The reality of a relationship is something is going to go wrong. They had to have faith that that something is going to be solved in a partnership with them.”
It’s also worth noting that Alabama is already home to 150 automotive companies and suppliers, providing more than 50,000 auto-related jobs, so there is a workforce well-versed in the automotive industry. What’s more, Huntsville lies close to existing auto suppliers in Tennessee, 21 miles from Toyota’s engine plant—which is currently undergoing a $106 million expansion—and isn’t far from the company’s plant in Mississippi.
Indeed, Alabama has become a hot bed of sorts for automotive production over the past 20 years or so. Made in Alabama explains that together, assembly plants operated by Mercedes, Honda and Hyundai in Alabama produced more than one million cars and light trucks, and set a record annual production tally. Toyota, Honda and Hyundai also produced nearly 1.7 million engines in 2016. Furthermore, vehicles have become Alabama’s top export, with shipments to more than 85 nations around the world every year.
It also helps that training programs from AIDT (Alabama’s workforce training agency) and others prepare a skilled workforce for the auto industry. Partners in the state’s automotive training program include the Alabama Community College System and the Alabama Robotics and Technology Park near Decatur, where technicians learn how to operate advanced robots and automation processes in a unique facility.
The result is that Alabama is already the fifth largest producer of cars and light trucks. Once the Toyota-Mazda factory begins output, the state is expected to pass Kentucky and become the South’s largest automaker, according to a forecast from IHS Markit. The following year, it is expected to edge out Indiana to become the state with the second largest automotive production, behind Michigan.
What are your thoughts on locating factories near existing supply chain networks? Secondly, how important are incentives in enticing a company to build a plant?