Boomtown on hold: Recession delays Honda's full impact on Greensburg

June 22, 2009

GREENSBURG, Ind.—This small town between Indianapolis and Cincinnati was hardly ailing when it landed the economic development prize of the decade—a new Honda plant.

Back in June 2006, Decatur County's unemployment rate was a healthy 4.2 percent, lower than the state's as a whole. With Honda's promise of 2,000 jobs by 2010, a boom seemed just around the corner.

Instead, the recession wiped out hundreds of jobs at other factories. Despite Honda's hiring 1,000 people in 2008, Decatur County's numbers moved in the wrong direction. Unemployment hit 12.1 percent in April, up from 5 percent a year earlier and above the statewide average 9.9 percent.

Yet people in Greensburg still feel fortunate—even optimistic—because Honda built its $550 million plant here.

"It's really kept us stable," said Steve Freeman, president of Shirk's International, a truck sales and service company.

Freeman, who serves construction and agricultural clients, said he netted a lot of business as Honda's gigantic factory was being built. Now that Honda produces 300 of its four-door Civic sedans a day, Shirk's has regular work with the trucking company that hauls cars from factory to market.

Honda began full production in October 2008 but is nowhere near capacity. The first shift could produce 400 cars, and Honda had hoped in 2006 to add a second full shift in 2009.

That was before U.S. auto sales—even for the fuel-efficient Civic—plunged. Spokesman Bill Todd said Honda has no plans at this point to add a shift before the end of the fiscal year that ends in March 2010.

The state and Decatur County put together $42.5 million in tax incentives and spent $44 million on infrastructure to draw Honda—investments government officials say they don't regret making.

"We're optimistic that Honda will expand when volume picks back up again," Commerce Secretary Mitch Roob said. "But as long as Americans are buying 10 million vehicles a year, as opposed to a higher number—I don't think you will see any of those [automakers] hire significantly new people when sales are down."

A large chunk of Honda's $23 million in income tax breaks will hinge on the creation of jobs. The rest of the package includes an $18 million property tax abatement over 10 years and a $1.5 million grant for training employees.

The company now plans to have 1,246 full-time Indiana employees by the end of 2009, according to the Indiana Economic Development Corp. At that level, it would qualify for a $1.4 million tax credit.

Honda's first-year tax credit was about $331,000, based on its 1,084 employees at the end of 2008.

There is no deadline for Honda to reach 2,000 employees. But to avoid having to repay incentives, the company has to maintain its presence in Greensburg until December 2019.

Honda's impact

Before Honda, State Road 421 was completely rural. The nearest landmark to the modern factory is a hilltop orchard. Now, Greensburg has a new $27 million interchange at I-74.

New industries are not yet taking up the industrial plots around Honda. One Indianapolis developer, Street Corner Group, built a new Hampton Inn & Suites just south of the interchange.

The 113-room hotel has suffered from a lack of corporate travel since opening last July, General Manager Sandi Robeson said. She said the hotel relies on Honda's visiting engineers and vendors for much of its business.

"They're probably our biggest client," she said.

Honda attracted three suppliers to southeast Indiana, but one, auto glass maker Belletech, is having second thoughts.

The Ohio-based company had agreed to build a plant employing 100 people in Versailles, near Cincinnati, but halted construction in January.

"We'd love to start this fall. However, it all depends on how the economy is doing," Vice President Mark McIntyre said.

Belletech's decision would not surprise any of the Indiana manufacturers that have been shedding workers by the hundreds. Greensburg's losses since 2007 easily make a wash of the 1,000 jobs created by Honda.

Delta Faucet, formerly one of the city's largest employers, began whittling down its local work force in early 2007 as sales slowed along with the housing market. This past May, the company announced that it would consolidate operations in Jackson, Tenn.

That will leave about 200 jobs in Greensburg, down from about 800 in 2007.

Radiator maker Valeo, a major Chrysler supplier, has reduced its Greensburg work force from about 1,000 in the fall of 2007 to about 600. Some of those current employees are laid off temporarily.

One relative bright spot is Greensburg-based Gecom, a door-latch maker that has a long-standing relationship with Honda and still employs about 1,100 people locally.

The Greensburg operation has benefited as Gecom shut its research-and-development office in Detroit and closed a plant in Kentucky. Because of the consolidation, human resources manager Debora Ybarra said Gecom is recalling some of its 200 laid-off Greensburg personnel.

Long-term outlook

Though its impact may be muted now, Honda still could breathe life into the region over the long term.

Retired Indiana University economist Morton Marcus said he believes sales of hybrid and electric vehicles will usher in a new era of auto manufacturing, and many of the suppliers hoping to capitalize will want to locate in southeastern Indiana to be near Honda.

Honda can make multiple models on its Greensburg lines and already produces a small number of natural gas-powered Civics.

"Everyone who's thinking about expansion is thinking about the Greensburg area because of Honda," Marcus said.

But for now, market conditions in the auto industry remain dismal.

Edmunds.com predicts U.S. auto sales will reach 10 million this year only if things go well. It probably will be another two years before sales reach a more comfortable 14 million, analyst Jessica Caldwell said.

Honda initially benefited from the gas price spike that began taking its toll on other auto makers last spring and summer. Civic sales last May totaled 53,299. This May, they reached only 20,723, a 60-percent decline.

The auto industry's woes have spurred civic leaders to contemplate diversifying the area's economy. Officials are evaluating opportunities in such fields as renewable energy, food processing and logistics.

"Almost everything we have is auto-related," said Vicki Kellerman, executive director of the Greensburg/Decatur County Economic Development Corp. "Even a lot of our small-job shops depend on the automotive industry."

But local businesspeople still have high hopes for Honda. Freeman, the truck dealer, said he knew the company's arrival would not immediately transform the city of 11,000.

Three years ago, he was part of a contingent of local officials who took a bus trip to Marysville, Ohio, where Honda opened a car plant in 1982, to learn what they could expect.

"Nothing happens quickly," said Freeman, former president of the Greensburg/ Decatur County Chamber of Commerce. "They told us, there's going to be development, but it's not immediate."

In fact, Freeman observed that Marysville itself isn't much changed, in part because many of Honda's employees live near Columbus, Ohio, 30 miles away. The same story appears to be unfolding in Greensburg.

Honda won't say what portion of its employees live in Decatur County. Freeman said the company's white-collar employees have settled in Shelbyville or Indianapolis.

That's a typical pattern for factory expansions, Marcus said. The reason is that potential home buyers usually are working couples. They'll settle where both spouses can find a job.

Marcus said Greensburg may be like Kokomo. When Delphi and Chrysler expanded, professionals settled in Hamilton County.

"The housing market changes very slowly," he said.149;

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