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Kentucky lies in the heart of America’s “Automotive Alley,” hosting almost 500 Tier I-IVs

Automotive Industries caught up with Paul Pilkauskas to find out what Kentucky has to offer European automotive companies.

The US state of Kentucky aggressively pursues foreign investors. In 2005, Kentucky attracted nearly 15 billion USD in investment from foreign companies. Currently, the state is home to 350 international companies representing 26 countries.

The Kentucky Cabinet for Economic Development is the primary agency responsible for creating new jobs and new investment in the state, including the attraction of foreign investment. The agency operates international offices in Europe, Asia, Mexico, China and South America.

Companies find the state attractive for numerous reasons including it offers the lowest industrial electric power costs in the US and its workforce training programs are continuously ranked among the best in the nation. Plus, a number of tax benefits are offered by Kentucky to both new and expanding companies.

With its prime central location, Kentucky is perfectly positioned for just-in-time delivery. Situated where the South and the Midwest come together, its borders are within 600 miles of 60 percent of the nation’s population, personal income, and manufacturing business establishments.

The state is especially attractive for automotive companies – Kentucky ranks fourth in total light vehicle production and is located in the center of “auto alley,” with four major auto assembly plants within its borders and many others nearby. Ford’s Super-Duty F-series trucks are made in Kentucky, as are Ford Explorers, as well as the nation’s top-selling passenger car, the Toyota Camry, and the top-selling premium sports car, the Chevrolet Corvette.

In addition, nearly 500 automotive suppliers have made their home in Kentucky, employing nearly 91,000 people.

One recent example of this activity is the location of Nippon Piston Rings to Kentucky this past May. The company announced it would locate its 48.7 million USD facility, NPR Manufacturing Kentucky (NMKY), in Bardstown, Kentucky . The company, which will produce steel piston rings, one of the key automotive engine components at the new Bardstown operation, was preliminarily approved for up to $4 million in tax benefits.

Toyota started production in Kentucky in 1988, and its $4 billion Georgetown plant is the company’s largest production facility outside Japan. With two vehicle production lines and a powertrain engine and axle facility, more than 7,400 team members build about 500,000 vehicles and over 400,000 engines each year. The company was so delighted with its success here that Kentucky rose to the top twice more when Toyota built its North American manufacturing headquarters and its North American Parts Center. The headquarters is in Erlanger, and the parts center is in nearby Hebron. Together they employ another 1,000 people.

“We built our Georgetown, Kentucky, assembly plant 17 years ago and it’s been one of the smartest decisions we’ve ever made. The Georgetown plant has been recognized four times by J.D. Power and Associates as the best-quality automotive plant in America. That speaks volumes about the hard-working, can-do attitude of Kentuckians. Their efforts have made the Toyota Camry the best-selling car in America for seven of the last eight years. The state’s central location can’t be beat either. It makes coast-to-coast shipping more economical, and it puts us close to our suppliers. It’s one of the reasons we chose Kentucky for both our North American manufacturing headquarters and our North American parts center,” said Jim Wiseman, vice president for corporate affairs at Toyota Motor Engineering & Manufacturing North America, Inc.

The Kentucky legislature enacted Governor Ernie Fletcher’s across-the-board tax modernization plan in 2005, eliminating some corporate taxes and reducing others to make the state even more business-friendly than before. One aspect of the legislation provides tax credits to environmentally friendly companies, which Toyota cited as a major factor in choosing its growing Georgetown plant to begin producing the hybrid Camry.

“Now, the tax structure is making Kentucky even more attractive to us. A new tax modernization law eliminates some taxes and lowers others. It also provides financial incentives to manufacturers that make environmentally friendly products. So it was easy for Toyota to choose Kentucky to produce the first gasoline-electric hybrid Camrys,” Wiseman added.

Last year, UGN, Inc. was approved for up to 5.6 million USD in tax incentives to locate a new, 16 million dollar facility in Pulaski County, Kentucky. The 314,000 square-foot Somerset plant, which celebrated its grand opening earlier this year, will produce the company’s first acoustical carpet system for 2007 production year vehicles. UGN Inc. is a recognized leader for acoustic, interior trim and thermal management products serving the Japanese transplant automotive industry in North America.

Apart from tax incentives in Kentucky, many companies are drawn to the state because of its training programs. “The Bluegrass State Skills Corporation is a particularly good program,” said Carl Lay, vice-president of corporate relations at Akebono Corporation. “Our associates undergo pre-employment training for two weeks, and through BSSC’s funding, Kentucky helped make this training possible. Kentucky also helped send some of our associates to Japan for a ‘train the trainers’ program.”

In March of this year, Akebono Corporation, which had been making automotive brakes and related components in Kentucky for nearly two decades, chose Elizabethtown, Kentucky for its North American headquarters, bringing its Kentucky workforce to nearly 2,000.

Kentucky continues to attract more investments from European automotive companies. One prime success story is that of Webasto Roof Systems. The sunroof maker said Kentucky’s staff has continued to prove it can accomplish what the business executive wants. “Kentucky didn’t roll out the red tape, they rolled out the red carpet,” said Fred Olson, Webasto’s president and CEO. “Their people are extremely cooperative, they provided a lot of assistance, and they helped us get a lot of things get done quickly.”

Which is why Webasto started with a plant in Lexington in 1998 and has since added two more facilities. “We’ve had nothing but good experience after good experience after good experience,” Olson said. “The people there take economic development in the state of Kentucky extremely seriously. They don’t pay it lip service; they work hard to make it a fact.”

The European Representative Office of the Kentucky Cabinet for Economic Development, is headquartered in Belgium. Paul P. Pilkauskas, is the director of the Belgium office and Automotive Industries caught up with him to find out what Kentucky has to offer European automotive companies.

AI: Why should European automotive companies set up manufacturing facilities in Kentucky?

Kentucky lies in the heart of America’s “Automotive Alley,” already hosting almost 500 Tier I-IV automotive facilities. Kentucky is within 600 miles of 69 OEM assembly plants and 4,800 automotive suppliers, making just in time logistics a given. Kentucky is a UPS hub for the U.S., adding to its logistics strength. The Commonwealth enjoys the lowest industrial power rates in the U.S., and based on its abundant coal reserves, will continue in this position. Kentucky’s workforce continually outperforms the national average for productivity, and has the eighth best rated state supported training program in the U.S. Kentucky has the fourth lowest cost of doing business in the U.S. and the lowest in the Eastern region. The tax burden is 12% below the national average. European investors can receive tax credits and other incentives, including a new sales tax refund on construction materials and building fixtures. The cost of living is 16% below the national average, with housing and land costs lower than the national averages. The quality of life for employees is very high, with endless recreational opportunities.

AI: How do costs of manufacturing compare between Europe and Kentucky?

Manufacturing costs on average are lower than in traditional Western European manufacturing areas. Based on 2003 data, average manufacturing weekly wages in Kentucky were $796. Kentucky ranks fourth among the top U.S. auto producing states in average motor vehicle industry wages. Kentucky leads the sector in value added per dollar of production wages paid. In addition, the work year is longer than in Europe. When one adds in the low energy cost, the reduced transport costs due to Kentucky’s geographic advantages and the flexibility of the labor force, Kentucky costs compare favorably to those in Europe.

AI: What has the response been from European automotive companies to investing in Kentucky?

There are some 160 European companies manufacturing products in Kentucky. Many of these investors supply the automotive industry as well as other sectors. Among pure automotive suppliers are half a dozen each from France, the United Kingdom and Sweden, with some such as Fauricia having two plants. Some twenty German automotive companies operate in Kentucky, with several such as ZF, Thyssen Krupp and Webasto having three plants each. Webasto for instance has seen its market share climb from 32% to 47% in the eight years they have been making automotive sun roofs in Kentucky, to some two million pieces per year. In recent times Kentucky has been successful in attracting machine tool, industrial equipment, automation specialists and general equipment suppliers that provide the equipment going into automotive assembly and component supplier factories. The fact that European companies continue to expand in Kentucky leads one to assume they are reasonably content and profitable.

AI: What is most attractive to European auto companies about Kentucky – its tax incentives, work force or location? Please give details.

Our central location plays a key role in attracting automotive component suppliers to Kentucky. The state’s efficient, safe and reliable freight distribution network enables just in time delivery. Kentucky ranks sixth among all American states on logistics and fourth best in rail freight utilization. Cincinnati/Northern Kentucky international airport with its direct flights to European cities makes managing a Kentucky plant relatively easy. The presence of the UPS Worldport in Louisville, Kentucky means companies can meet customer demands in North America on almost a same day basis. The Bluegrass State Skills Corporation (BSSC), within the Kentucky Cabinet for Economic Development, provides a wide range of training assistance to European investors. This worker-training program is ranked the eighth best in the U.S. Tax incentives are the icing on an attractive investment cake, and depending on the nature of the investment, can be considerable. The incentives are investor performance driven, and continue for 10 or 15 years.

AI: Please tell us about some of the European automotive companies that have set up base in Kentucky and about some of the future investments the state is likely to get from automotive manufacturers.

Among the largest European companies supplying the automotive sector now operating in Kentucky are:

Arkema of France making refrigerants and plastics, established in 1958, with 510 employees and continuing to grow.

Montaplast of Germany, doing plastic injection molding of wheel covers, center caps and intake manifolds, opened in 1992 with 100 workers and now with 651 employees and growing.

Thyssen Krupp of Germany, with three plant investments in 1988 and 1999 and now employing 1,385.

Grupo Antolin of Spain, making foam headliners, started in 1995 and now at 585 employees.

Webasto of Germany, automobile sunroofs, first plant in 1998, now employing 550 in three plants.

Other European investors employing more than 100 each include the TI Group (refrigeration coil and steel tubing), Mubea (automotive springs and spring hose clamps), Ticona Polymers (plastic materials, regional headquarters, R&D), ZF Sachs and ZF Steering Systems (suspension components, struts and steering gears for cars and light trucks), SKF (Hub bearings), NACAM (ZF) (automotive steering columns), ZF Boge Elastamental (rubber and metal bushings), Freudenberg Nonwovens (nonwoven textiles, air and particle filtration filters), Eckart (metallic paint pigments), Faurecia (Exhaust systems and seats)Ahlstrom Engine Filtration (filters),Autoliv (seat belts), Continental (rubber preparation for tires), Trelleborg (ball joint seals, rubber bumpers, electric connectors and molded rubber products), Bekaert (wire products).

In the last six months Bonfiglioli (Italy-speed changers, high speed drives and gear manufacturing), Fischbach (Germany – plastic injection moldings) have undertaken expansions of their Kentucky operations.

We expect a continued steady expansion of European facilities in Kentucky, particularly as these companies secure closer relationships with the now long established Japanese investors in the sector, both in Kentucky and in other states. The plant and equipment suppliers to the automotive industry are a growth area for investment in Kentucky as the skills are available to support this investment, both for manufacturing, assembly, sales and service, as well as reducing exchange rate risks to this sector.

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