3 things the Mercedes HQ move tells us about incentives

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Mercedes-Benz USA recently announced it would move its headquarters from Montvale, NJ to the Atlanta area, bringing at least 800 jobs to Georgia. While large incentive packages dominated the discussion related to other recent automotive headquarters moves, including Subaru's commitment to Camden, NJ and Toyota's planned move to Plano, TX, the Mercedes move shows a more nuanced view of incentives' role in location decisions.

It's not just about incentives 

Political or economic development leaders who rely exclusively on incentives are not going to be successful. This is true even if the entire focus of an economic development program is business attraction (which it should not be, by the way). Most economic development professionals know this and work hard to make their communities great places to live and work. 

Mercedes-Benz USA cited several factors supporting the location choice, especially locating closer to the strong and growing customer base in the southeast as well as talent and quality of life, cost savings and business efficiency. Summarizing his view of incentives, CEO Steve Cannon said:

In fact, incentives, when you look at the whole picture, it's just a small piece. We're making a 50-year decision, and a pile of incentives in Year One, Two or Three over a 50-year decision doesn't make a gigantic impact.

Company research reveals what matters more

 A bit of research on the company strategy and culture would have revealed this long-term outlook and the non-cash, non-incentive factors that were the real drivers behind  this relocation decision. Economic developers who were aware of the company's strong focus on growth especially among younger, millennial buyers; emphasis on customer service and digital platforms; constant focus on efficiency; and the recent pattern of consolidating regional operations would be well-prepared to present their communities in a light more appealing to MBUSA than simply offering a "pile of incentives."

Business climate matters, but not in the way you think

Many articles have cited New Jersey's tax climate and high costs as the reason behind the move. Yes, Georgia has lower taxes than New Jersey, but the Tax Foundation ranks the state 32nd in the country for tax climate for business -- not exactly the best and probably not the primary driver for the company.

Other business climate issues may have had more impact. Last summer the New Jersey Assembly approved a bill related to manufacturer-dealership regulations that angered New Jersey-based car companies and prompted one (Jaguar Land Rover) to state that if enacted, "we would be actively looking at whether there is a more business-friendly environment in a neighboring state." The CEOs of other car companies based in the state all signed a letter opposing the bill, which did not become law, to our knowledge.

Yes, costs, taxes and incentives do influence location choices, and we are still waiting for details on Georgia's incentive package for Mercedes-Benz. But focusing economic development efforts exclusively on incentives and taxes will mean missed opportunities and lost business.

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