From 2006: Distance may dash Valley’s chances for Kia plant

    McALLEN - Automotive industry experts disagree on the importance of Kia Motors Corp. locating its first North American assembly factory close to suppliers that serve its parent company.
    It's a key question as local and state officials are trying to woo South Korea's second-largest automaker to a site bordering McAllen and Mission.
    Mike Randle, editor and publisher of Birmingham, Ala.-based
Southern Business & Development, a trade magazine, has said the Sharyland Plantation industrial park's distance from suppliers to Hyundai Motor Co.'s plant in Montgomery, Ala, is a deal-breaker.
    But David Cole, chairman of the nonprofit Ann Arbor, Mich.- based Center for Automotive Research, believes proximity to Hyundai's plant is "reasonably important" but not essential to Kia as it decides where to put its plant. "Is it absolutely critical?" Cole said. "I don't necessarily think so." Seoul-based Hyundai, South Korea's No. 1 auto manufacturer, and Kia operate separately in the marketplace but share research and development facilities and parts-distribution networks.
    The Hyundai suppliers are not at full capacity, Randle said, meaning they can produce more product than they do now.
    Randle has said Kia officials visited South Texas in December, but McAllen Economic Development Corp. officials haven't heard of the trip, said president and CEO Keith Patridge.
    They have had trouble getting the top Kia site decision-maker to look at the Sharyland location, said Mike Allen, executive vice president for special projects, which include automaker recruitment.
    Mississippi had been an early favorite to win the Kia site, but the company reportedly had concerns with the area's relatively low population.
    "The main reason for them leaning toward Mississippi is that the Hyundai suppliers are putting a tremendous amount of pressure on Kia to locate their assembly plant there," Allen told people involved in the recruitment process in a September e-mail that included the signature of Pat Townsend Jr., president and CEO of the Mission Economic Development Authority.
    A fully operational auto production plant in Hidalgo County would take about two years to build and be a roughly $1 billion investment in the area, Patridge said.
    The plant itself - which would produce 300,000 vehicles a year - would need about 2,000 workers. Suppliers would create another 4,000 to 6,000 jobs in the McAllen and Reynosa areas, and spin-off employment could bring the newjob total to 26,000 to 30,000.
    "The economic value of each job ... is four times that of the average job in the community," Cole said, speaking generally of auto plants. "For every worker in an assembly plant, there are probably 10 other workers elsewhere, either in the community or in suppliers."
    Korean, Chinese and European automakers have similar criteria for site selection, Cole said.
    The companies look for an educated work force, and they want to be the highest-paying employer in the region so they can "cherrypick" from the labor force, he said.
    "If you have a good work force, you'll have a good plant," Cole said. "They'd be looking for, say, a community college and very close cooperation with the school system in the community. They like to see workers that have a fairly high level of basic education, and they won't locate in a region that doesn't have that. If you have great incentives and don't have a good work force, the incentives don't mean anything."
    Allen told people involved in the auto plant recruitment process in the September e-mail that the area has more than 50,000 high school students who will be available for work in the next few years. "The labor supply on the border is more than ample," he wrote.
    While Hidalgo County's relatively young population will likely ensure a large workforce in coming years, quantity does not make for quality.
    Allen said education is the key economic development factor for the area, which will not survive economically unless it improves the education level of students graduating high school. Many of them, Allen said, still need basic skills before going to McAllen's community school, South Texas College.
    Companies thinking of locating in the area often complain that students "can't count change, they don't know how to write," Allen said.
    Even though the region's workforce is not particularly well-educated, MEDC executives think the sheer size of the McAllen and Reynosa areas' labor force could be just the thing to snatch a deal with Kia or another automaker away from competing states.
    Texas has a vast amount of labor, Southern Businesses' Randle said. And South Texas is a low-cost location.
    McAllen's close proximity to Mexico is also a selling point because companies can supply the U.S. market by truck and rail across the border and the rest of the world through Mexican ports, Patridge said. Also, components can be manufactured on one side of the border and assembled on the other, saving on labor costs.
    Putting suppliers in Reynosa would allow an automaker to take advantage of cheap Mexican labor.
    The Sharyland site - south of Military Highway between Bentsen Road and Farm-to-Market Road 494 - also offers infrastructural advantages that include already built access roads, a rail line and a reliable electricity system.
    Patridge said other states might have to offer millions of dollars in incentives to an automaker to pay for attributes the Sharyland site already has.
    In late December, Automotive News, a trade publication, reported that Kia is also considering Chattanooga, Tenn., Decatur, Ala., Hopkinsville, Ky., and Aiken. S.C., as well as reviewing sites in Mississippi. Southern Business & Development reported that a Crestview, Fla., site also had been in the mix. In mid-December, Kia officials contacted Georgia about an available site in its West Point city, Southern Business reported.
    The Center for Automotive Research's Cole said competition among communities for auto plants is fierce as they tout incentives ranging from tax abatements to roadway improvements to training funds.
    "Every region is so aggressive in trying to attract a plant that it's a seller's market in a sense that (the automaker) is selling the plant and everybody is trying to get that plant to come into the area," Cole said. "So it's a big challenge, but it's a real plum. If you can get a plant, the value of that is very large."
    The United States continues to be one of Kia's most strategically important markets, with steady sales growth realized in recent years, spokesman Michael Choo wrote in an e-mail from Seoul. The company expects unit sales growth of about 18 percent in the United States in 2006. There are about 640 Kia dealers nationwide that are "trying hard to keep up with rising demand for Kia products," Choo wrote.
    Kia considering a plant site in the Southeast follows a trend of automakers locating in that area rather than in the traditional auto country of the Midwest.
    "This is the only place the automotive industry is growing is in the South," Randle said. But that trend is jogging westward, with San Antonio now on the map.
    Toyota Motor Corp. deciding to build its sixth North American assembly plant in the Alamo City has helped generate more interest in South Texas and made it more prominent as far as recruitment opportunities, Townsend said.
    The McAllen-Mission group didn't have a chance to bid on the Toyota plant, Patridge said, but the group then wasn't marketing the Sharyland site as aggressively as it is now.
    "At that point, we really weren't ready to put it out there," Patridge said.
    He said the group was still working on infrastructure, especially focusing on the Anzalduas International Trade Bridge. Officials are now more confident of an expected completion date of about 2008. The bridge is a boon for the Sharyland site because it will link to Reynosa, which has a 16,000-acre industrial park that would be good for automotive supplier facilities, Patridge said.
    The Reynosa site could accommodate a truck plant Allen said the Hyundai-Kia Automotive Group intends to build somewhere in Mexico.
    "Obviously we would prefer it to be in or near the border as this will benefit employment in the border communities," Allen wrote in an e-mail to people involved in the Kia recruitment process.
    Gov. Rick Perry told Tamaulipas Gov. Eugenio Hernández Flores in a letter that many states in Mexico will be competing for that plant.
    Kia's Choo did not immediately respond to an e-mailed question about the possible truck plant.
    The bridge will also offer an international highway running through the Sharyland area, which Patridge said more than makes up for lack of an officially designated Interstate connecting to the Valley. Randle had said that, in addition to its distance from Hyundai's Montgomery plant, the site isn't a likely option for Kia because of its lack of an Interstate highway.