Incentives: What Auto Suppliers Should Look for when Expanding or Choosing a New Site?

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Last year, the top automotive states were unwilling to consider financial incentives for spare parts supplier’s development projects. Automotive components manufacturing was not on the list.

The projects based on advanced manufacturing and the ones that reduced the use of automotive parts were considered earlier. Now, due to the rapid growth in vehicle sales, automotive parts sector is now considered by the industries.

The communities and automotive states are trying to get supplier projects of all descriptions and sizes. If advanced manufacturing, R&D, and light weighting are part of the project, this raises interest and value of local and state incentives.

Incentives are based on jobs and investment. You might be confused with lots of queries like full time and permanent jobs availability, intended capital investment, creation of job and investment phasing for next five years.

Usually, incentives will be scaled on total economic basis. Job retention is hardly ever rewarded unswervingly, but it can be one of the subjective factors.

Incentive Benefits

With the help of incentives, an automotive supplier’s project can be benefited in number of ways, including:

  • Cost reduction, cost avoidance
  • Work force training, development, and recruitment.
  • Assistance in R&D and product Improvement
  • Better public infrastructure

Loans and grants will reduce the upfront costs, inturn enabling the supplier to retain precious capital at the initial stages during negative cash flow.

The saved capital is meant for supplementary investment in equipment and machinery; it can be added to the working capital, whenever there is a need for additional growth.

Statutory or Discretionary

Incentives can be of two types- discretionary or statutory. Statutory awards recognize adequate industry sectors in descriptive form or by NAICS/SIC codes, such as R&D facilities, headquarters, etc. There are capital expenditure and job creation thresholds.

Rewards are objective; the supplier should be awarded if his project meets appropriate requirements and application is produced in time. Some examples of statutory awards are

  • Abatements of property tax
  • Abatements of sales tax on utilities and project construction materials
  • Job training
  • A competitive drawback at the favoured location vs. a feasible alternative

Discretionary incentives are within limits and vary in structure, based on type, and mainly on the company’s particular need and good reason for incentives to overcome the inconvenience in the location or obstacles to the project.

Discretionary awards are based on the supplier’s performance. The supplier is awarded benefits after investment commitments and job creation is met.

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