Incentives Deal of the Month
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New Kentucky Incentives Vie to Keep Ford'sby JACK LYNE, Site Selection
Executive Editor of Interactive Publishing
LOUISVILLE, Ky. Appropriately, Kentucky Gov. Paul Patton's (D) necktie bore a Ford Motor Co. (www.ford.com) logo when he stepped to the podium of the United Auto Workers' (UAW) hall in Louisville (www.greaterlouisville.com).
"Make no mistake about it. The most important jobs in Kentucky are the ones we already have," Patton told a cheering crowd, made of UAW Local 862 members working for Ford.
The crowd had a good reason to cheer. Patton had come to sign into law a new state incentive that focuses squarely on Kentucky's existing corporate clients - particularly large operations like Ford's five-million-sq.-ft. (450,000-sq.-m.) Fern Valley Road plant in Louisville. The new law will provide qualifying projects with tax credits of at least $1 million a year for 10 years. Companies can qualify by investing at least $100 million in a facility that's already located in Kentucky and employs at least 1,000 workers.
"We need to keep the good jobs that are already in Kentucky," Patton said.
Passed in late March by the Kentucky General Assembly, the incentives bill is specifically focused on one particular group of good jobs: the 5,600 UAW workers and 400 managers at Ford's Fern Valley Road plant. That 6,000-employee cluster makes up Ford's largest concentration outside of southeast Michigan.
But whether Ford's huge Louisville constellation continues to exist - even with the state's new incentive program - is not yet etched in stone. Like many Ford plants, the Louisville production operation is shadowed by an uncertain future. After losing $6.4 billion over two years, Ford in early 2002 announced a decidedly aggressive cost-cutting drive.
That initiative is slashing 35,000 jobs - 10 percent of the automaker's worldwide work force - and closing seven plants. Ford Motor Company Chairman and CEO William Clay Ford Jr. called the cutbacks "painful but necessary steps to make us competitive going forward."
Ford Will Spend As Much as
The legislation provides that approved companies can receive 10-year credits against the Kentucky income tax or the state license tax - or against both taxes. The law specifically authorizes each qualifying firm that invests $100 million to receive at least $1 million a year in tax credits for a 10-year period. Annual tax credits would increase proportionally for investments exceeding $100 million.
The law's direct tie-in with Ford traces back to the automaker's announcement last year that it was going to close its St. Louis plant in 2005. The Missouri plant makes the Explorer Sport and the Mercury Mountaineer. Ford in Louisville produces Explorers and Super Duty pickups - both high-volume vehicles with high profit margins - as well as the Mountaineer.
When the St. Louis plant closes in two years, the automaker will relocate to an existing plant production of a four-door version of the Explorer Sport, as well as and the Mountaineer. That move won't create any new jobs, Ford has said. It could save thousands, though, by triggering a substantial investment ensuring that a Ford plant stays online.
The obvious multimillion-dollar question is where the St. Louis production goes. One of Ford's existing plants will require a large expenditure, likely in the hundreds of millions of dollars, to install the equipment needed to add the four-door Explorer Sport to the production mix.
Significantly, Kentucky's new incentives would take effect on June 1, 2004. Patton in October announced that the state was negotiating with Ford on a financial package to assist the world's No. 2 automaker in upgrading its Louisville plant.
Patton emphasized in Louisville, though, that the new incentives will also apply to other in-state operations. The governor made particular mention of two other existing production facilities - Toyota's plant in Georgetown and General Motors' production operation in Bowling Green - that have helped make the Bluegrass State No. 3 in U.S. auto production.
Early Signs Strong for LouisvilleBut Ford - the company for which the incentives were custom-built - hasn't yet divulged its plan for relocating the Missouri production.
Early indications, though, seem to bode well for the Louisville plant.
Ford officials wouldn't specifically comment on the impact of Kentucky's new incentives. The automaker did, though, take the unusual step of generally commenting on the new law, saying that it "would make Kentucky more competitive in attracting business investment." The new incentives add Kentucky to the ranks of U.S. states that offer subsidies for job retention - rather than limiting support to companies that establish new operations.
At least one shoe of Ford's production-relocation plan may have dropped.
In October, Ford announced that it was going to spend $50 million at the Louisville plant on Fern Valley Road, expanding its paint shop, overhauling the body shop and renovating the chassis line.
And the automaker is following through on its promise. Ford in early April installed a two-tone paint system at the Louisville plant to produce a limited-edition Harley-Davidson Super Duty pickup. The paint system also allows the plant to meet increasing demand for two-tone versions of its other trucks.
Ford didn't disclose its capital investment in the paint system. But UAW 862 President Rocky Comito's comment to The Louisville Courier-Journal sounded the same rationale that stimulated Kentucky's new incentives.
"Any kind of investment in the plant," said Comito, "is good for job security."
(For further coverage of recent projects in the Bluegrass State, see
the Kentucky Spotlight in the May 2003 issue of Site Selection.)
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