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The Sunday Tennessean has a story, headlined Can Tenn. outbid Ala. for VW plant?, which examines whether Alabama will out-bid Tennessee in the battle to land a new Volkswagen assembly plant. (Michigan is also on the short list but few observers expect Volkswagen to pick a high-cost union-labor state like Michigan).

Alabama has a recent history of throwing hundreds of millions of dollars to attract major economic development projects. Tennessee Gov. Phil Bredesen is requesting the legislature set aside $100 million to attract Volkswagen, a lot of money, but nowhere near the huge sums Alabama often pays out.

The story looks at whether incentives or other criteria will be the deciding factor for Volkswagen. It's worth knowing - and should have been in the story - that Volkswagen, Europe's biggest carmaker by sales, is hugely profitable right now. The company banked a $1.5 billion in profit in the first quarter of 2008 on global sales of $43.01 billion, a 25 percent increase in net profit over the first quarter of 2007.

Alabama will be throwing money at a company that's already rolling in it. I have a hunch - and it's just a hunch - that cash won't be the prime factor in Volkswagen's decision. Let's hope I'm right, because Tennessee state government can't really afford to get in a bidding war right now. (Which begs another question - can Alabama?)

Heard you on the radio the other day on a 'nationally syndicated talk show.'

Good job on the Obama commercial follow-up. Well-presented.

If Tennessee gets it, it will be a disaster for VW - for a bunch of reasons that will show during hte selection process.

Let's face it, there are good ole boys, and then there are really good ole boys ... like they have in Alabama.

Bredesen just doesn't have enough time skinny dippin' in the stream to pull off the down home, we got your back in Dixie, now let's eat some grits and sip mint juleps mindset.

Posted by: Drinkin' the Franklin Kool Aid at May 18, 2008 2:29 PM

Most incentives are designed to help with capital costs. Providing a free or tax protected property investment plus being able to move into a location where infrastructure already exists is thought to be what pulls businesses in. In manufacturing however, capital costs, on average, only represents about 4% of the final product costs. What industry needs help on and what government is least able to help with is people related costs. Estimates of the future are rarely as accurate as plus or minus 4 percent so the real question will be: Which is the environment in which the business is most likely to survive and compete.

Many years ago Alabama massed the largest incentive per job in the country to get a foreign auto plant to come to Alabama. Like Tennessee, Alabama is also collecting large Mega Sites to buy their ticket to the auto or large manufacturer lottery. It looks like most of them are away from hurricane zones and close in to TVA supplied areas. Any car manufacturer that can spend a Billion dollars on an assembly plant is not going to need 100 Million dollars in incentives. This money only keeps the perception in the public mind that bribery funded out of the state treasury is good public policy.

The growth of gross state product in Alabama is slightly better than Tennessee but so close are the two annual growth rates that Alabama will overtake Tennessee in Gross State Product in 356.2 years using rates from 1997 to 2006 as a baseline. If they get the car plant we still have plenty of time to make and drink more economic development Kool-Aid.

Posted by: Danny L. Newton at May 19, 2008 12:28 PM

May 18, 2008

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