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Mississippi's $68M Incentive Package Fuels $500M, 1,300-JobBy JACK LYNE Site Selection Executive Editor of Interactive Publishing
JACKSON, Miss. They've re-computed the math at Nissan Motor Co.'s (www.nissanmotors.com) mega-plant in Canton, Miss.(www.cityofcanton.net).
The project's new numbers: 5,300 new jobs, US$1.4 billion in capital investment and 3.5 million sq. ft. (315,000 sq. m.) of space.
Those figures, for those of you keeping score at home, considerably exceed Nissan's initial tallies when it picked the Mississippi site in November of 2000 -adding 1,300 jobs, $500 million and 1 million sq. ft. (315,000 sq. m.), in fact.
Bigger, too, are the Magnolia State's incentives for the project, located some 15 miles (28.5 kilometers) north of Jackson. The new total is $363 million - $68 million more than the incentive package that Mississippi first awarded the Tokyo-based automaker.
All this, and Nissan's Canton plant has yet to even come online.
Current and Projected Demand
In a word, demand, particularly for Nissan's hot-selling Altima sedan.
"We are working overtime to build the Altima in Tennessee, and we are still not meeting consumer demand," Senior Vice President for North American Manufacturing, Purchasing, Quality and Logistics Emil Hassan said in explaining the quick-draw Mississippi move. "Frankly, a year ago, we didn't think we would need to expand this facility. If we had, we would have designed it bigger at the time."
Nissan's new expansion will make the Canton plant 40 percent bigger, as well as swelling investment by 53 percent and jobs by 32 percent. But the linchpin larger number is the 60-percent increase in production capacity. That upsurge will come with the plant's adding 150,000 Altimas to its manufacturing mix in 2004.
Small wonder. In the year ending May 2002, U.S. Altima sales rose 35 percent, totaling 84,686 units. And the sedan's heady sales are coming without special financing or cash-back offers. Canton's Altima addition is part of Nissan's larger hyper-drive expansion. The Japanese automaker plans to raise total annual sales by 1 million vehicles by March of 2005. That's a whopping 40 percent increase from current sales, with the United States ticketed to supply one-third of that spike up.
"Building products that meet the needs of the North American market is a vital ingredient to profitable growth," CEO Carlos Ghosn said of the Mississippi expansion decision.
Incentives Emerge from One-Day
The impending expansion, in fact, was discussed at Nissan's June 19th annual shareholders' meeting. Japan's third-largest automaker was evaluating total North American production capacity, Chairman Yoshikazu Hanawa told the meeting. Hanawa (subbing for Ghosn, who was attending his father's funeral in Brazil) specifically mentioned Mississippi's upcoming special session. "After that has finished," he told shareholders in Tokyo, "we will be making an announcement."
Two days later in Jackson, MDA Executive Director Bob Rohrlack told the Senate Finance Committee that the new incentives were a must for Nissan's expansion.
Predictably, however, scattered opposition greeted the huge expansion's proposed incentives. Some legislators - including Democratic Sen. Tommy Gollot (D-Biloxi), who called the legislation "ludicrous" - fretted over long-term debt.
"We're going to come up here and pass more bonds to expand a plant that's not even built yet," Gollot contended. "That's going to take millions upon millions of dollars from the general fund to pay this back."
Each new manufacturing position, countered Gov. Ronnie Musgrove, would produce four spin-off jobs. And the Nissan-triggered job deluge was no distant dream, he emphasized. "The overwhelming bulk of the jobs will begin later this year and in the beginning of next year," Musgrove said. "You'll literally start seeing thousands of people employed."
Nissan would create 16,212 direct and indirect jobs in Mississippi by 2005, said the study, conducted by the Goodman Group at the University of Southern Mississippi and released on June 19th. The study - funded by the Musgrove administration - also found that the state's substantial Nissan investment would hit break-even by 2007. "The incentives to Nissan have been a very good investment for Mississippi," the report asserted.
That train of thought rumbled through the incentives vote. "If we're going to make Mississippi a better place to live," said Senate Finance Committee Chairman Bill Minor (D-Holly Springs), "it's time for us to get up off our rear ends and do it."
That they did. The Senate backed the subsidies by a 48-to-3 vote; the House approved by 114 to 6. The legislation authorizes the sale of $68 million in bonds to fund new Nissan incentives that include:
Not Risk-Free, Some Analysts Say The aggressive Mississippi expansion is emblematic of Nissan's economic rebound. Sagging sales spurred October 1999's three-year "revival plan." Drastic cost cuts followed, including plant closings and layoffs in Japan. The company didn't expand at all until the late-2000 Mississippi announcement.
Now, though, Nissan has rung up two years of record earnings and expects a third. Hanawa, in fact, said that Nissan's successful restructuring would allow an interim dividend pay-out for the first time since fiscal 1997-98. Nissan's stock has more than doubled in value since its 1999 alliance with Renault, which has a 44-percent stake in the Japanese automaker.
Canton's Altima addition also illustrates Nissan's turnaround. Introduced as a 1993 model, the midsize Altima long languished as an also-ran, distantly trailing Toyota's Camry and Honda's Accord.
The 2002 model's redesign altered all that. The revamped Altima abruptly began turning both consumers' and analysts' heads. The sedan, in fact, won "Car of the Year" honors at 2002's North American International Auto Show in Detroit. "Nissan will be building its recognized best in Mississippi," Musgrove said.
Emboldened by its rebound, Nissan now plans to roll out an eye-popping 28 new models over the next three years.
That assertive push, though, highlights the risks that some analysts see lurking in the Mississippi expansion. Nissan, they contend, already had enough capacity at its Canton and Smyrna, Tenn., plants for a three-year, 300,000-vehicle U.S. sales upsurge. Adding capacity for new models, and during a mild U.S. auto-market slump, entails significant risk, those analysts say.
Production Shuffle Boost FlexibilityOther analysts, however, see Nissan's Mississippi and Tennessee production shuffles adding potent flexibility, accommodating multiple market scenarios.
The Smyrna plant now manufactures the 225,000 Altimas that Nissan will produce this year in North America. But with 150,000 Altimas moving to Canton, the Smyrna plant can accommodate other products. The Tennessee facility, which also builds Xterra SUVs and Frontier pickups, is scheduled to begin making Maxima sedans in January 2003. And Pathfinder SUV production may now move to Smyrna, some analysts speculate.
On the other hand, if Altima demand further accelerates, the Mississippi and Tennessee plants could produce a combined 375,000 Altimas a year.
But if Altima demand plummets, Nissan could shift all Altima production to Canton, freeing the Smyrna lines to make other vehicles.
By any scenario, though, Nissan's Mississippi expansion underscores the automaker's vigorous North American strategy. By 2005, Nissan's North American capacity will roughly rival that of Honda and Toyota. Adding its plants in Aguascalientes and Cuernavacam, Mexico - which make Nissan Sentras and Renault Scenics and Clios - Nissan by 2005 will have enough North American capacity to annually build more than 1.15 million vehicles.
Back in Mississippi, Nissan's slam-bang grand expansion plan, the state is hoping, will position it as foreign automakers' next frontier.
"In the midst of a national recession and sluggish national economy, Mississippi is setting new standards and creating jobs and opportunities," Musgrove said in signing the incentives bill. "For too long, the world has looked at Mississippi and shaken its head. Today, the world looks at Mississippi and sees a dynamic, forward-thinking, innovative place to do business."
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