It was 4 years ago when the Mississippi governor doled out some big incentives to get Toyota to locate its next plant in Tupelo. The offer (see USA Today,Mar.5,2007) included $294 million to build out a factory infrastructure, add a 2-mile RR spur, and run 11 miles of natural gas lines. Not enough? How about closing the deal with a 20-year corporate tax holiday? Toyota signed on, promised 2,000 jobs, and the state finished the plant in 2008. Mississippi forecast a 10-year ROI, but hoped that more models would be one day added to the large SUV (Toyota Highlander) line, with dreams of new suppliers and spinoffs setting up nearby…meaning even more jobs in the future.
The problem, as The Wall Street Journal reports (Dec.27, 2010), is that the buildings have sat as empty shells for the past 2 years, thanks to the recession. Will the governor’s decision pay off? Toyota announced 
last year that it planned to proceed…but with the Prius gas-electric model instead. Then in June, it decided that the cheaper Toyota Corolla would be the product that rolls out—at the rate of 140,000 per year.
This decision, not discussed in the WSJ piece, is the latest setback for the beleaguered UAW union.The Corolla was previously built in a unionized plant—NUMMI, in Fremont CA that Toyota shut down in March,2010. The car has been built for the US market in Japan since that date. Mississippi is, of course, a “right-to-work” state and happy to have the $20/hour jobs.
As a side note, Toyota’s utilization of production capacity (Ch.1) at existing North American plants fell to 60% last year after peaking at 106% in 2006. The company expects 2010 capacity to climb back to 90% as sales pick up.
This is our 4th blog on incentives being used in location decisions. To see the others, type “incentives” in the search box on the right.
Discussion questions:
1. Discuss the incentives given to Toyota? How do they compare with offers to other auto firms?
2. Will the investment pay off for the state one day? Why?
3. Read the Ethical Dilemma in Ch.8, regarding UAL. What happens when a firm moves out, or in this case, if Toyota had never opened?
Today’s Wall Street Journal(January 18,2011) has an editorial that illustrates the fallacy of incentives. Mass. gave $58 million to Evergreen Solar to open a solar panel plant employing 800 workers. Evergreen just announced it is shutting the palnt because of heavy competition from Chinese competitors who receive tremendous support from their government.But Evergreen got big support as well and taxpayers are now stuck with the losses–while the company announces it will outsource jobs to its plant in China! Maybe the firm should have not opened in a high-cost, union-labor state.