The Retirement Systems of Alabama’s (RSA) Role
in Bringing Mercedes-Benz Manufacturing to Alabama
By Mark Fagan
High inflation and slow economic growth negatively impacted Alabama during the late 1970s and early 1980s. Alabama faced budget shortfalls, below average schools, high unemployment, and prison overcrowding. Alabama’s new home starts and auto sales were at the lowest levels in decades. Alabama’s industrial jobs were mostly for non-durable goods and relatively low-paying. Long-term interest rates were too low to generate adequate investment returns for the RSA. The RSA began investing in Alabama to increase returns, diversify funds, and stimulate economic growth in the mid-1970s. The RSA’s CEO (Dr. David Bronner) and Glen Pringle, Director of Industrial Development at RSA, began building relationships with corporate leaders and offering financing for relocation to Alabama.
Jim Folsom Jr. became Alabama’s 50th governor in April 1993 and immediately began leading Alabama’s efforts to recruit Mercedes-Benz (Mercedes). Folsom included the following in his statement for my recent book on RSA. “Billy Joe Camp (Director of Alabama Development Office), Elmer Harris (President of Alabama Power), Bronner, Pringle, and I went to Stuttgart, Germany on the first trip to meet with the leaders at Mercedes. Bronner brought prestige and his German heritage helped build initial rapport with the decision makers. RSA stayed involved daily during the recruitment process.”
Billy Joe Camp’s statement had the following comment. “I wanted Bronner present to show support by the state pension fund and overcome an image that Alabama was backward and undeveloped.” The late Elmer Harris helped to craft Alabama’s $238 million incentive package for Mercedes to build in Alabama their first auto assembly plant outside of Germany. This subsidy included site preparation and infrastructure, $95 million; training, $90 million; state tax credits, $43 million; and other incentives, $10 million. Harris’ statement to me included, “The RSA’s role in securing Alabama’s agreement with Mercedes was critical to culminating the October 1993 announcement that Alabama had beaten 30 other states for the coveted facility.”
Governor Fob James came into office in 1994 before the deal closed for the Mercedes plant to be built. Funds for the agreed-upon package could not be secured without the RSA providing the bridge financing (buying $109 million in bonds). The state secured the bonds with its TVA receipts ($12 million per year), and the State Fire Insurance Fund (SFIF) bought $30 million of the bonds. All TVA dollars paid to the state were pledged first to the RSA for the 9% interest and principal with the SFIF getting paid after RSA was 100% repaid. The state made plans to sell a General Obligation Municipal Bond over the next few years with lower interest rates to save money. Without the RSA, Mercedes would have chosen another site and Alabama’s credibility to recruit industry could have been dead for decades.
In 1997, the first M-Class was produced in Vance and there have been 6 expansions since then with more than 2 million vehicles produced. The $8 billion facility (6 million sf on 966 acres) now has 4,400 employees and a production capacity of 300,000 vehicles annually ($1 billion) exported to 135 countries. Current products (GLE SUV, GLE Coupe, GLS SUV, and the Mercedes-Maybach GLS) include models with a plug-in hybrid drive system. Starting in 2022, the plant will produce all-electric (EQE SUV and EQS SUV). In addition, an electric vehicle battery factory is being built near the existing facility and will be part of the global battery production network of Mercedes-Benz Cars, which has locations on three continents.
Mercedes-Benz Plant at Vance Near Tuscaloosa (photo courtesy of Mercedes-Benz
Aound 150 automotive part suppliers have opened in Alabama since Mercedes, Honda, Hyundai, and Toyota/Mazda developed assembly plants in Alabama. Employment in Alabama’s automotive manufacturing sector now exceeds 40,000 (26,000 in the growing parts’ supplier network). Mercedes has 51 suppliers with plants near Tuscaloosa, Auburn/Opelika, Gadsden and McCalla. Honda has over 50 suppliers (Lincoln, Gadsden, Huntsville, and Auburn/Opelika). Hyundai’s 64 suppliers are located in Montgomery, Greenville, and Auburn/Opelika while Toyota’s 78 suppliers are found all over Alabama.
According to Jo Bonner Jr., new president of University of South Alabama, former 6-term congressman, and former chief of staff for Alabama Governor Kay Ivey, “Had Mercedes not come to Alabama, there would have been no reason to believe other automotive companies would have followed. The addition of Toyota/Mazda in North Alabama, Honda in Lincoln, Hyundai in Hope Hull, and Mercedes’ expansion for electric vehicles makes Alabama a national leader in the automotive industry. It is hard to imagine that any of this would have been guaranteed had Dr. Bronner not been so involved in helping land Mercedes in the early 1990s.”
Getting Mercedes began the transition of Alabama’s economy from the textile to the automotive and aerospace industries and the production from nondurable goods to durable goods. This manufacturing expansion in Alabama has resulted in many high-paying jobs and increased tax revenue for the state. Alabama’s incentive package and the RSA’s critical deal-saving financing for the Mercedes plant has paid billions of dollars in dividends for the state. Bronner stated, “Establishing Mercedes in Alabama has a similar impact to Dr. Wernher van Braun coming to Huntsville to start the space industry after World War II.”
*Dr. Fagan is professor emeritus at Jacksonville State University. He has written six books which include The Robert Trent Jones Golf Trail: Its History and Economic Impact and Coastal Alabama Economic History. The quotes in this article came from statements for the Oral History chapter in his recent book called, Alabama’s Public Pension Fund Growth and Economic Expansion Since 1973. It is available at https://store.bookbaby.com/profile/MarkFagan.