Volvo: A Big Win for Western Virginia

The Volvo Group has announced that it will invest nearly $400 million to expand its Volvo Trucks North American New River Valley assembly operation in Pulaski County. The project is expected to create 777 new jobs within six years.

Plans call for a new 350,000-square-foot building that will house truck cab welding operations; expansion of the existing plant to upgrade plant operations and production flow; and equipment upgrades such as installation of state-of-the-art dynamometers for vehicle testing. Volvo, which manufactured 127,000 trucks worldwide last year, considered sites in multiple other states.

This is a huge win for Western Virginia, which has seen its manufacturing sector devastated by globalization and automation over the past three decades. The investment comes with a price for Virginia taxpayers, of course, but the subsidy seems modest compared to the magnitude of the project. Volvo will be eligible to receive $16.5 million over 10 years, contingent upon meeting investment and job-creation benefits. The subsidy amounts to only 4% of the capital investment, although, seen another way, it represents $21,200 per job.

The governor’s press release says nothing about the average pay scale of new jobs created, as it did with the Amazon deal, so that remains a mystery. Nor does the announcement, which alludes only to cab welding, painting, and dynamometers (devices for measuring torque) provide any hint of any higher value-added activities that will take place at the Pulaski County plant.

Last year Volvo unveiled a new concept electric truck called Vera, built from the ground up to be autonomous. The truck has literally no cab for a driver to sit in. Earlier this month, the vehicle manufacturer announced a test project to use Vera to transport goods between a logistics hub and a port in Sweden, as well as a partnership with American tech company INVIDIA to apply artificial intelligence to training, simulation and driving more broadly. Is there an opportunity for either Virginia Tech or the Pulaski operation to participate in this “future of trucking” initiative? No clue from the press release.

Bacon’s bottom line: I have been pessimistic about the prospects to build the economy of non-metropolitan Virginia on a manufacturing foundation, especially foot-loose light manufacturing operations. Volvo is a different case. It’s a massive facility, supporting more than 3,200 jobs even before the expansion. The company has an enormous investment here — Pulaski County is Volvo’s largest truck manufacturing facility in the world — which it would not lightly abandon. Indeed, Volvo has demonstrated a long-term commitment to the state. If the commonwealth is determined to support Virginia manufacturers, Volvo is one of the worthier candidates. A logical next step is to see if Virginia, which has identified autonomous vehicles as a strategic economic-development priority, can capture some of Volvo’s investment in AI and autonomous trucks.

Another interesting question: Was this investment a one-off, or does the project represent the fruit of Trumpian economic policy? Did lower U.S. corporate tax rates affect Volvo’s decision to expand in the U.S., and thus Virginia, or would market conditions, such as an increasing demand for trucks, have dictated a U.S. expansion in either case? Similarly, can Virginia claim this project as affirmation of a strong business climate — or would Pulaski County likely have beat competing U.S. locations regardless?

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9 responses to “Volvo: A Big Win for Western Virginia

  1. A fascinating contrast with two nights of clueless rhetoric about the failures of the American economy from Trump’s would-be replacements. Yes, the tax policy changes, regulatory changes and more-complicated trade environment have created more incentive to put a project like this within the lower 48. As to what else the incentive package includes, including perhaps some local tax abatement, we may have to await further details. I’m sure the agreement specifies that the pay levels need to track the plant’s existing structure (union there? Don’t know.) I suspect the plant sets the local market price for labor, as the shipyard did in Newport News.

    These are the kinds of high-skill, well-paid jobs that generate a supply chain multiplier and should be at the top of the economic development food chain. The right tax policy environment to capture and retain them is also crucial.

    • News Flash #1 –

      Great marketing operations, of which there are few, win the most buyers most all of the time. So, for example, among the four first buildings constructed and rented in Ballston during 1980s, one building won the first 16 tenants, filling that building up, before the other three competitors got a single tenant.

      News Flash #2 –

      In all healthy revivals of older urban places, there must be is a contraction, that is loss of inhabitants and population, before any revival can gestate and begin and, in most all major healthy revivals, that population loss often will continue unabated for years after that revival begins, the old and dying making way for the new and vibrant. Indeed, dying urban places too must be pruned by informed human hands to grow healthy fastest, like has happened in DC many times. This is not novel. It’s ubiquitous. It’s happened everywhere has since human settlement first began. Danville is no different. Nor is any town or city or cultivated valley anywhere, including the Shenandoah Valley, exempt from this iron law of human nature.

      News Flash #3 –

      We as human beings must learn to walk and chew gum at the same time, hold two very different ideas in our head. Only then will we be ready and able to deploy both of these very different ideas at the same time in different places within a state or region. What works in Northern Virginia, and what works in Danville or Bridgewater Va., might be very different in theory and approach, but we can be sure now that they are closely related and interactive in fact. We all need to learn this simple fact. It is how the real world works.

      We all need to learn these simple and obvious facts of life, given they are how our real world works. Hamilton Lombard of the University of Virginia’s Demographics Research Group particularly needs to learn these rules of his game if he is to become a competent and reliable demographer worth relying on. His is an art and craft, as well as a science, all this stuff.

  2. I think it was 2014 when Volvo started building trucks in the New River Valley – that was PRE-TRUMP and pre Trump tax cuts!

    Of course – Volvo Cars are now a subsidiary of a Chinese Company!

    And some Conservative types would say that Volvo LEFT Sweden because of high labor costs and they chose the New River valley – instead of the existing Rust-Belt manufacturing cities because of labor costs and unions.

    Volvo cars opened a plant in South Carolina – so it’s amazing that they chose Virginia when it seems like so many manufacturing companies from Boeing to BMW are now locating in South Carolina!

    • You are right that Volvo Cars was sold to Ford and Ford sold it to Geely, a Chinese company. But — the truck manufacturing component of the Volvo Group, A B Volvo, was NOT sold and remains based in Sweden. My understanding is that Jim is talking about AB Volvo coming to Pulaski.

  3. This is good news if it happens. Before we get too excited, there was another announcement today from Volvo–upcoming layoffs at the Dublin plant. https://www.roanoke.com/business/volvo-trucks-anticipates-layoffs-as-industry-hot-streak-comes-to/article_b177e6cd-c153-5ef6-aa12-4e676c5b0127.html

    That plant has a cyclical history of layoffs, gearing up, and then layoffs as the market cools off.

    According to the linked article, the last year was a record breaker for truck manufacturing. This leads me to suspect that the market conditions, rather than corporate tax breaks, were the catalyst for the announced expansion.

    In answer to a question raised by Steve, the plant is unionized (UAW).

  4. Many manufacturing operations like that are cyclical, and that is often a problem as the economic development programs want stability and uniformity. That’s the point I was getting at writing about the single sales factor tax approach, not many companies can take it because they can’t satisfy what the government demands. Market conditions will always overpower government incentives, which is why my preference is just a pro-business climate period.

    And I think there has been something out there pre 2014 even, but it was another company purchased by Volvo?

    • From what I can find, the first Volvo truck rolled off the line at the Pulaski plant in 1982. Before that, the plant may have been White Truck Co. (Volvo purchased that company in 1981). It is not clear if the Dublin plant existed before Volvo came into the picture. By the way, in all this research, I found out that Volvo purchased the Mack Truck Co. in 2000.

  5. I also end up with the “enjoy it while it last” discomfort on manufacturing in general these days. It just seems like plants are closing/downsizing all over the place and this one is expanding.

    Would be interesting to know what are the specific things that Volvo liked about the New River Valley location.

  6. I was pleased by the article until I read the part about the $21,000 per job state subsidy. These types of payments are a total misallocation of resources and the subject companies often leave when the freebies run out. I would propose that Virginia instead spend money making the whole state more business friendly. Unfortunately this entails the more difficult task of upgrading the workforce, improving infrastructure, improving transportation and regulation. At $21,000 per job, the state may as well hire some more employees for dot or as park rangers.

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