Driving business: Ohio's auto industry.

The automobile industry and the State of Ohio are close partners. The state's auto industry ranks second in the United States in automobile production, generating 1.7 million light vehicles each year and $20 billion in activity. Ohio also ranks first in the country in the number of auto suppliers. This is all good news when the auto industry is robust, but not so great when the industry is challenged and unstable, as has been the case throughout this decade.

Despite the challenges, Lt. Gov. Bruce Johnson, who also serves as director of the Ohio Department of Development, sees Ohio's auto industry as thriving.

"Ohio is home to many companies that provide world-class equipment, products and services to the automotive industry, and ranks first or second in the nation in the export of automobiles, engines, wheels and auto parts," he says. "With more than 200 tier-one suppliers strategically located across the state, Ohio manufacturers provide products to automakers including Honda of America, DaimlerChrysler, Ford and General Motors--all companies that continually reinvent themselves by using new technologies and processes."

Ohio's economic history was built on a foundation of manufacturing--obviously a major aspect of the auto industry--and since the early '90s, the state has grown into the nation's third-largest manufacturing economy. This translates into an environment that has become even more attractive to companies seeking new investment and growth, says Johnson, but also presents some interesting political concerns, especially in taxation.

For example, Johnson recently visited various Ohio cities to promote the state's new business tax plan that will radically shift from an antiquated tax structure that previously taxed profits, equipment and inventory. The end result represents a huge advantage to the capital-intensive auto industry.

"Ohio's new business tax reforms are eliminating the corporate franchise tax and taxes on inventory, as well as eliminating taxes on manufacturing machinery and equipment," says Johnson. "The state is phasing in a broad-based, low-rate Commercial Activities Tax on business receipts that we expect will create a tax system more in tune with the realities of today's economy."

Johnson says for years, Ohio's tax code put an unfair burden on its manufacturing industry. Today, the state is committed to attracting investments and helping companies be more competitive. As a result, other pending tax proposals include exempting the first $150,000 in small businesses' gross receipts, with the first $1 million in gross receipts subject to a minimum tax of $150.

Ohio Automotive Revitalization Initiative

One way the state is helping the automotive industry be competitive is through the Ohio Automotive Revitalization Initiative, a program announced in late 2005 by Gov. Bob Taft. During the program's launch, Taft said, "Recent troubles at Delphi Corporation, and other automotive manufacturers and part suppliers in Ohio, represent a grave threat to Ohio's economic vitality, and that's why our action plan is aimed squarely at revitalizing Ohio's automotive industry. We must take definitive steps to ensure a prosperous future for all Ohio auto workers and parts businesses."

The program consists of five initiatives:

1. Building capital investments: The Ohio Department of Development (ODOD) will designate up to $300 million over two years in federal volume capital for tax-exempt financing of pollution control equipment. Up to $30 million will be designated over two years to help the state's auto companies make strategic investments, and up to $5 million will be allocated for infrastructure improvements or key equipment acquisitions.

2. Strengthening the workforce: Over two years, $30 million will be set aside to help Ohio's auto companies implement quality on-the-job training to enhance the skills of their workers.

3. Developing new technologies and improving processes: The ODOD will work with the Ohio General Assembly to expand the Research & Development Investment Tax Credit to include fixed-asset investments as eligible expenses for the purposes of determining the value of the tax credit and to allow small businesses to be eligible recipients.

4. Environmental and regulatory assistance: The Ohio Environmental Protection Agency (EPA) will work with companies to further facilitate and expedite the permit process and improve communication with companies. The Ohio Bureau of Workers' Compensation (BWC) will offer state-funded automotive companies premium discounts for participation in the BWC risk management programs, and set aside up to $5 million in safety grants and $1 million in special grants for drug-free workplace initiatives. The BWC's Division of Safety and Hygiene will offer the auto industry up to 1,500 hours of safety and cost containment training for state-funded, self-insured companies.

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5. Federal advocacy: Gov. Taft pledged that his administration will work closely with President Bush's administration to address federal issues that are vital to the viability of Ohio's automotive industry.

The tariff barrier question

The last point of Gov. Taft's new initiative--federal advocacy--may be a very important point of contention, according to Ross Eisenbrey, vice president of the Economic Policy Institute, a Washington, D.C.-based think tank researching economic trends and policies affecting workers. Eisenbrey sees a serious roadblock for the auto industry looming in the near future: two trade deals currently being negotiated by the Bush administration to eliminate, or significantly reduce, the 25 percent tariff on imported pickup trucks from Thailand and South Korea.

Although Eisenbrey says the Thailand deal won't happen this year because of the political situation in that country, the U.S. pickup manufacturing industry is not out of hot water just yet. Thailand has the biggest pickup truck industry in the world outside of the United States.

"There could be a real problem in the future because our government wants to make a deal. In addition, Korea is next in line because the Koreans aren't making many pickup trucks now. If the tariff barrier fell, they would."

Eisenbrey outlined his concerns in a "viewpoints" column published in the Akron Beacon Journal on March 20. In that column, he pointed out Ohio employment has not recovered from the 2001 recession; there are more than 200,000 fewer jobs today than in January 2001. Because the auto industry is "at the heart of Ohio's manufacturing base," he points out the fate of Ohio is closely tied to that of General Motors and Ford. If the Pacific Rim trade barriers are removed, Ohio faces the possible loss of 15,000 jobs producing engines, stampings and transmissions for the Big Three (GM, Ford and Chrysler) automakers' pickup trucks.

Adding to the dark outlook is Eisenbrey's belief that Ohio's auto industry is going to see more declines in the future, continuing a downward trend.

"I just saw that Ford's Lorain assembly plant is going to close and GM is cutting back its production in Lordstown," he says. "These kinds of changes do not have to be done all at once to cause serious problems. Instead, if closings and scaling back are done as a continual steady kind of drip, drip, drip, we're going to eventually have the same effect."

Eisenbrey's solution to the entire automotive industry woes is a large-scale federal bailout. He proposes a giant, nationwide investment through which the U.S. government would communicate, "It's in our interests to have the most energy-efficient automobile industry in the world, producing the most efficient vehicles because we need to be energy independent."

"We need to have an industry that's competitive, both for the jobs and because our trade deficit is out of control," he says. "If we let things go on as they are, we're never going to get to that point. If you see things trending down and don't change your policies, then all you can expect is that trend to continue."

Impacting Ohio's economy

"While Ohio has an even spread of competencies in a variety of industries, the health of Ohio's economy remains reliant to a significant degree on a stable and healthy automobile industry," says Johnson. "Auto manufacturing remains a key component of our economy, accounting for one-fourth of Ohio manufacturing employment and paying out wages of $7 billion annually."

He acknowledges the recent troubles experienced by auto manufacturers and suppliers could present a serious threat to Ohio's economic vitality.

"If the industry is down, we can expect layoffs, which obviously are a detriment to our economy," says Johnson. "Yet, every state's auto industry can reasonably expect to hit rough waters, depending on the inevitable ebb and flow of the national economy and other variables out of their control. Fortunately, although we've felt the effects of the downturn just as everyone else, Ohio has shown incredible resilience."

Indeed, Johnson reports that while U.S. industry output declined from 1998-2003, Ohio output increased during the same period. The state remains on top of the nation in production and is garnering significant new investment from automakers.

He also points to the Automotive Revitalization Initiative as a reason to be optimistic for the future of Ohio's auto industry. Another point of progress is the expectation that the state's business climate will experience a boost as a result of tort and tax reform, job creation initiatives, and funds designated for infrastructure improvements and research and development activities.

"With more than 10 percent of Ohio workers relying on the automotive industry for their livelihood, the auto industry is certainly a major driver of the state's economy, which directly or indirectly impacts all businesses and residents in our state," says Johnson. "The impact of the auto industry is even greater when you take into account the industry's supply chain. Ohio doesn't just produce vehicles, but is also a major parts supplier."

A variety of core Ohio industries--steel, rubber, plastics, aluminum and glass products--are tied up in the production of each motor vehicle that rolls off the assembly line. The impact may be even larger when you consider those who are working for auto insurance companies, paving contractors, parking lots, public transportation and other affected industries.

Johnson sums it up: "Many industries have a stake in the auto industry, and the auto industry has a stake in them as well. Ohio's economy, businesses and residents all share a mutual dependence, which means it is in the best interest of our state that we work to strengthen Ohio's economy and every industry that employs Ohioans. Fortunately, Ohio's businesses, leaders and citizens have proven their strong commitment to doing just that."

Scott H. Cytron, ABC, is an accredited communications and public relations consultant working in the accounting, healthcare, high-tech and finance industries. He also teaches efficient and effective writing to professional services' groups, and can be reached at [e-mail] or through his Web site, www.cytronandcompany.com.

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By Scott H. Cytron, ABC

Top 10 North American vehicle producers

2004 (measured in thousands)

Ontario, Canada  2,701.2
Michigan         2,598.4
Ohio             1,818.5
Missouri         1,226.3
Kentucky         1,162.8

Source: The Detroit News Autos Insider

Note: Table made from bar graph.