It's coming down to cash, deal-making experience and style in Hyundai's decision on where to locate a $1 billion automaking plant.

        After months of considering five U.S. sites, the South Korean automaker's choice of location for the 2,000-employee factory now hinges on those three factors, say experts on the process.

The Glendale, Ky., farms of Frankie Cecil (left) and John Brown will be used to lure a Hyundai plant. (Associated Press photo) | ZOOM |

        “Both states have passed the major tests,” said Mike Flynn, director at the University of Michigan's Office for the Study of Automotive Transportation. “At this point, Hyundai is looking for the best deal.”

        Officials from Alabama and Kentucky have made moves over the last two days to try to tip the scales in their favor.

        On Thursday the Alabama legislature authorized incentives of up to $118 million for Hyundai. Meanwhile, on Wednesday, Kentucky economic development officials flew out for the second time to meet with Hyundai executives in Los Angeles, the base of the company's domestic operations.

        An Enquirer analysis of public records, closely guarded economic development packages, site specifications, local business costs and state “sales” teams shows Glendale, Ky., and Montgomery, Ala., are neck-and-neck on:

        • Operating costs. Kentucky's lower electricity cost is balanced by Alabama's lower labor costs.

        • Building sites. Both are rural, available, and near interstate highways and rail lines.

        • Training dollars. Alabama has committed $75 million through a public bond issue for an employee-training program, and Kentucky's poised to up the ante.

        “It's now coming to the lobbying effort and the financial incentives put on the table” by both states, said Dr. Doug Woodward, an economics professor at University of South Carolina and an expert on foreign investment in the United States.

        A decision is expected by early April 2002. By 2005, Hyundai wants to be making 300,000 Santa Fe SUVs and Sonata sedans a year.

        States want the factory not only for the jobs and the tax money it will generate.

        And even if Kentucky lands the prized plant, there are great benefits for Ohio, including Greater Cincinnati counties. For each of the 2,000 jobs at the Hyundai factory another, as many as five jobs would be created at parts and service providers to the plants, retailers, home builders and other businesses, said Steve Kelley, a senior economist at the Ohio Department of Development.

        Mr. Kelley has studied the spin-off of jobs at the four plants Japanese automaker Honda operates in central Ohio. Those plants do business with more than 150 Ohio parts suppliers, assemblers and other vendors.

        Should Hyundai choose Kentucky the company would likely do business with many of those same Ohio companies because of the experience and products they offer an auto manufacturer, Dr. Woodward said.

        Auto plants also generate property and income tax dollars. The four central Ohio plants - which today employ 13,800 — have paid $176 million in property taxes alone since the first one opened in 1979.

        Kentucky and Alabama are still in the hunt for Hyundai because foreign automakers have thrived in those states, said economics professor Semoon Chang of the University of South Alabama.

        Dr. Chang, a native of Korea, is head of the university's Center for Business and Economic Research. He also is the author of several books and articles on international businesses and the Gulf Coast economy.

        “Mercedes-Benz has performed better than expected. So has Toyota,” said Dr. Chang of automakers that already have plants in Alabama and Kentucky. “That has surely weighed heavily on the Hyundai people.”

        Two Ohio sites — Mount Orab east of Cincinnati and Wapakoneta north of Dayton — and one in Mississippi had been in the running for the plant but were dropped in February.
       

Experience counts

        In 1985, amid heavy in-state criticism for giving away too much in cash, land and tax incentives, Kentucky set the standard for going after foreign automakers.

        The Bluegrass State lavished a $125 million incentive package on Toyota. The Japanese automaker built a $800 million plant employing 3,000 people when it opened in 1988.

        Since then, Toyota's invested more than $2 billion in expansions, creating another 4,700 jobs. The plant produces nearly 500,000 vehicles — Camry and Avalon sedans and Sienna minivans — a year. The company later moved its North American manufacturing headquarters to Erlanger.

        Because of the long-term presence of auto plants in Kentucky — Toyota, two Ford plants in Louisville and the General Motors Corvette factory in Bowling Green — Kentucky has far more auto suppliers, Dr. Woodward said.

        Alabama first got into the foreign automotive arena in 1993. An incentive package totaling $253 million convinced Mercedes- Benz to build a plant in Vance. It opened two years later with about 2,000 workers.

        Mercedes-Benz also has also grown. In late 2000, the German company announced a $600 million expansion that will double employment. The state offered more incentives of almost $120 million to prepare land for the expansions, and for tax breaks and worker training.

        “Here we are in 2002, and the bidding wars for automotive plants have been going on since the mid-1980s,” Dr. Woodward said. “That continues to show what many economists think, that incentives do make a difference.

        “States get involved in these bidding wars because with these big auto plants, the benefits of people working and increased tax revenue outweigh the costs,” he said.
       

Incentives count more

        Neither Kentucky nor Alabama officials will say much about how they are trying to attract Hyundai.

        But Alabama's most recent deal luring Mercedes-Benz was estimated at more than $250 million. Kentucky officials say they are keeping step in the incentive war.

        Neither state will reveal the contents of their Hyundai proposals until the entire deal is final. Both states are offering Hyundai millions in tax breaks, worker training and other incentives.

        However, Alabama recently was forced to play part of its hand. The legislation passed Thursday would raise $75 million for worker training and authorizes the transfer of $43.5 million from a bond issue approved to pay for incentives to Mercedes-Benz.

        Hyundai was not mentioned in the bill, but the money is “for the benefit of companies engaged in the business of manufacturing or assembling complete passenger automobiles, trucks, trailers, buses and accessories.”

        Kentucky can be more secretive about financial incentives. State law lets the Kentucky Economic Development Cabinet withhold information about companies using tax breaks or incentives to locate or expand. (The law has been challenged in state court, but a ruling has not yet been issued.)

        Despite the state's efforts at secrecy, Kentucky and the federal government have agreed to spend $26 million to improve Interstate 65, near the site in Glendale.

        CSX Transportation is joining with the state to buy the 1,600-acre parcel — and will secure the lucrative rail shipping business, if the plant is built.

        Kentucky officials have talked generally about job training money. Last month at a lunch with Hyundai officials at the Governor's Mansion, Gov. Paul Patton said the incentive package is similar to the $125 million deal used to lure Toyota in 1985.

        That $125 million would be worth about $205 million in today's dollars.

        Despite unsourced Korea Herald reports — denied by the company late last week — that said that Alabama was Hyundai's choice, experts say Kentucky has a slight advantage at this stage.

        Alabama eventually has to make most of its incentives public. Kentucky can sit back, see what Alabama is offering and then privately up the ante.

        “It's a bidding war going on right now,” Dr. Woodward said. “And at this stage what a state is offering financially can be very influential. It can make the difference.”
       

A magical ingredient

        Harder to quantify is the important personal touch involved in the courting of the company.

        Both states have sent delegations — including members of Congress — to Asia to meet with Hyundai. Meetings have been held in Washington, Los Angeles, Birmingham and Frankfort.

        Alabama has hired a Birmingham law firm to handle final negotiations with Hyundai. It is the same firm — Bradley Arant Rose & White — that negotiated the Mercedes-Benz deal.

        Kentucky's negotiator is Economic Development Secretary Gene Strong, a veteran known for his ability to close a deal.

        Mr. Strong, the former vice president of the Webb brothers' dynamic Lexington development company, has been the state's top job and business recruiter since 1993. Since then, business investment in the state has increased by $2.2 billion.

        If needed, Mr. Patton will also jump in. He once served as Kentucky's Economic Development director and aided deals bringing Fidelity Investments, Citibank, Delta Air Lines and Toyota to Kentucky.

        “You can never say too much about personal lobbying,” Dr. Woodward said. “It can go a long way with making a company feel comfortable with a location and with the political environment.”

        Alabama officials have also been known to throw in some special touches. While going after Mercedes-Benz, state officials agreed to name a highway for the company and then promised to buy 2,500 of the company's luxury SUVs, which angered many Alabama lawmakers.

Who will win?

        Both sides continue to make last minute adjustments to make sure their packages are right.

        Last week, 76-year-old farmer Kenneth Floyd, one of two final landowner holdouts at the Glendale site, came to an agreement to sell 135 acres after the offer was increased.

        The state has moved forward with eminent domain to secure the final parcel. The owners have been offered $1 million for about 150 acres, but say they won't sell for less than $10 million.

        Hardin Circuit Clerk Ralph Baskett said Wednesday that three court-appointed commissioners have placed a value on land the state seeks to condemn so it can be added to the proposed Hyundai site.

        Mr. Baskett said records in his office show the commissioners valued the land owned by Norma Howlett at $948,000.

        Mr. Baskett's office said the next step in a condemnation procedure to take the land against the owner's wishes is serving summonses on them. Office workers said the summonses have been sent to the sheriff's office for service.

        Mr. Chang called the land disputes “a headache, not a deal killer.” Kentucky will not let the project go over one parcel of property, he said.

        But when it comes to handicapping which state finally will win the Hyundai sweepstakes, Mr. Chang is betting on Alabama — he says it's “hotter” when it comes to attracting foreign auto plants.

        “Kentucky is more established in auto manufacturing but Alabama is on a roll,” he said. “Hyundai may want to be a part of what a lot of people are seeing as the South's new identity as a hub of auto manufacturing.”

        Yet Kentucky officials think they have an edge with the University of Kentucky's Center for Robotics and Manufacturing. Located about 80 miles from Elizabethtown in Lexington, the center helps industrial companies devise efficient manufacturing systems. It has worked with Toyota's Georgetown plant.

        “We could actually help Hyundai in two areas,” said Dr. Alan Male, the center's director. “Day-to-day problem-solving and education for their employees.”

        Those could be important because Hyundai has never operated a factory in the United States.

        “When it's all said and done, this is going to be a pure business decision,” Mr. Chang said. “The company is making a huge investment. They look at everything, but it comes down to where can they make the most money.

        “That's what will drive the final decision.”

        The Associated Press contributed.

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