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Labor pool may drive new industry

Business First of Buffalo - February 16, 2007

by Thomas Hartley

Business First

The downsizing that made several thousand Western New York workers ex-employees of the auto industry in 2006 ultimately could benefit the region.

Ironically, an available, sizable skilled labor pool is one of the key criteria that a company considers before deciding to move into an area, says Thomas Kucharski, president/CEO of Buffalo Niagara Enterprise.

"When we promote the fact that a facility is closing or rightsizing, some think we are advertising bad news. But corporate real estate or site selectors see it as we have a site and a qualified work force already in place," he says.

Those factors usually are a prospect's two most important considerations, says Kucharski, who heads the region's private business development and marketing organization.

As a result of the auto industry's troubles, three industry-related businesses are looking at the eight-county region as a possible site for their operation, he says.

Though the three were not identified, he described them as "a U.S. company, a non-U.S. company and a joint venture." One was conducting a "serious" study, he says.

One of the three is an entrepreneurial venture launched by "a bunch of guys" who formerly worked in the region's auto parts industry.

General Motors Corp., Delphi Corp., Ford Motor Co. and American Axle & Manufacturing Holdings Inc., shed about 3,000 production jobs and several hundred white-collar personnel in 2006 by offering buyouts, retirement incentives and job eliminations. Many of them, still in their 50s, are too young to retire on what they received and are looking for work.

"There is an assumption that many of them are still here, hoping for (a new company to open) or an expansion of an existing facility," Kucharski says. "This area has a strong automotive heritage and it would make sense for a company in that sector to look here. They wouldn't have to recruit."

The U.S. auto industry's troubles reached a head in 2006. Foreign automakers continued to grab larger and larger shares of the North American and global markets; GM and Ford, the major customers of Western New York's suppliers, saw their sales fall.

Toyota Motor Corp., which is driving to become the world's No. 1 automaker, was a major reason. Now it has become a victim of its own success. The Japanese automaker says it needs more U.S. plants if it is to keep pace with sales.

How many locations and within what time frame, officials won't say.

But industry reports indicate that as many as seven new assembly plants and engine-making facilities will be necessary by 2015 - eight years down the road.

Undoubtedly the scramble has begun to see which areas of the country and which states land one of the prizes. Most likely, the winners will have made advance preparations several years ago.

But incentive packages, despite the headlines they make, might not be as important as generally believed.

A Toyota spokesman said key elements of a successful bid will be availability of large tracts of level land, highway, road and utilities infrastructures in place, access to rail transportation and sizable, available work forces.

Large lists of potential sites will be winnowed to a small group - probably ones with locations that can be visited immediately.

"This is not a game of inclusion; it's a game of exclusion," Kucharski says. "The first thing is to compile enough acreage. Seventy-five percent of prospects ask if you have a building or a site. If you can't provide them with that, you can't get in the door to tell the rest of your story."

In 2002, when Hyundai Motor Co. announced it would build a $1.1 billion assembly plant in Alabama, a key element of the state's $252.8 million incentive package included 1,700 acres of land, which the state agreed to purchase. The plant went into production in 2005 and now has 2,800 employees.

Presently, says Kucharski, Western New York has no sites big enough - 1,000 to 2,000 acres with an infrastructure already in place - to offer as a potential site for a project the size of a Toyota assembly plant.

But efforts are under way involving a number of agencies to identify and create parcels away from the region's more populated areas. He believes that a basic package can be created within six months if a serious opportunity arose.

The problem with this kind of planning is that only so much can be done ahead of time, development experts say. There is no one-size-fits-all variety.

Dean Sallak, a financial and economic consultant and former financial officer of the Erie County Industrial Development Agency, said it is even too difficult to put a hypothetical development package together without knowing beforehand a company's specific needs with respect to size and purpose of the site and building, workforce, production requirements and other specifics.

Some see Toyota as an opportunity for the state as American companies scale back. In his campaign, Gov. Eliot Spitzer promised to improve the economy.

But there are major hurdles. High taxes, high workers' comp and health insurance costs, environmental regulations and - not the least - image. Foreign companies perceive New York as tough for business, a view that has to change. New York leaders need to cooperate and concentrate on formulating an incentive package that will top or at least equal the offers that other states will put forth, the experts say.

This can be done, says Kenneth Schoetz, chief operating officer for Upstate Development Corp., He was tapped by Spitzer to help spur economic growth upstate.

"When you are talking about a plant like Toyota, you are talking about a home run. Home runs are great and obviously we would see whatever possibilities lie there. At the same time, we need to be hitting doubles and singles and will look to do that as well with smaller operations and in retaining what we have here," Schoetz says.

University at Buffalo professor Nallan Suresh says Western New York definitely is a viable location for the auto industry. To attract a manufacturer, it needs to copy some of what has worked for Alabama and South Carolina.

From 1993 through 2005, five foreign automakers - Mercedes-Benz, Honda, Hyundai, Toyota and BMW - were lured to those two states where four assembly plants and an engine plant were opened and thousands of jobs created.

The first was Mercedes-Benz, which in 1993 accepted Alabama's $253 million incentive package to open an assembly plant southwest of Birmingham. The offer, which factored in 1,500 new jobs, equaled $169,000 per new job. The plant now has almost 4,000 jobs.

Suresh, chair of the Department of Operations Management and Strategy in the UB School of Management, says Western New York offers several distinct advantages for foreign automakers:

• An international border location with access to U.S. and Canadian markets.
• A good transportation system and other infrastructure elements.
• Skilled labor availability.
• An existing cluster of automotive suppliers in Erie and Niagara counties, and Canada.
• Cheap land.

With Spitzer as governor, union leader Kevin Donovan thinks positive change is in the offing.

Reducing workers' compensation costs would greatly help, he says.

"Workers haven't gotten a raise in (compensation in) eight to nine years, but the cost to the companies has risen dramatically," says Donovan, assistant regional director of the United Auto Workers union. "You are actually seeing business and labor at the table trying to work this out."

Bringing down the cost of health insurance also would help, he says.

"The difference between what an employer would pay in health insurance in the United Staes and what they would pay in Canada is drastic," Donovan says. "For a U.S. family of four, it is $9,000 a year compared to $800 in Canada."