Mack, Volvo reach agreement

October 10, 2003|by TAMELA BAKER

AB Volvo announced Thursday that a final decision has been made to locate its North American Volvo Powertrain production operations at the Hagerstown Mack Trucks plant, ending speculation that the production line might go elsewhere.

The Volvo Group bought Mack Trucks Inc. in 2001. The deal represents a four-year commitment to prepare the facility to produce next-generation diesel engines for both Mack and Volvo trucks, according to Volvo officials. They plan to manufacture here all engines used in Volvo trucks sold in North America.

State and local governments made major commitments to seal the deal as well, according to Maryland Business and Economic Development Assistant Secretary Bob Brennan. Among other things, the state will negotiate to purchase a nearly 100-acre tract from Mack for development of a "vendor village" to bring Mack suppliers to the site.


Denis Leblond, senior vice president for Volvo Powertrain's North America division, said the announcement "absolutely" means that Mack's powertrain operation will be the Volvo production site.

Leblond said it was "really too early to say" whether adding the Volvo line would create more jobs in Hagerstown.

Volvo originally announced plans to produce the engines at the Mack facility in 2002, but Mack spokesman John Mies said last month that a final decision had not been made, and that the willingness of members of the United Auto Workers Locals 171 and 1247 to work with the company would affect the decision.

Earlier this week, Mies said the location of the operation had not yet been decided.

Other states attempted to lure the Volvo operation away from Hagerstown, according to Washington County Commissioners President Gregory I. Snook, who admitted Thursday he was relieved that the decision finally had been made.

U.S. Sen. Paul Sarbanes, D-Md., had been talking to Volvo chief Leif Johansson "since 2000" about the deal, Sarbanes spokesman Jesse Jacobs said.

"His pitch was, 'Look, we have a dedicated and productive work force here - let's keep it here,'" Jacobs said. "He spoke with Swedish officials again this week and reiterated that message."

Volvo officials negotiated with union members last week for amendments to their contract, which the membership approved Saturday. Maurice Kaiser, president of UAW Local 171, said Volvo "wanted to change the sourcing language some," allowing the company to produce engines at its powertrain plant in Skovde, Sweden, "if we can't keep up with the machining, or if we're down in production and they're overloaded in Sweden, we'd do the work here."

"The main thing was to keep the plant here. We're a family here - we know that if Mack doesn't do well, we don't get a paycheck," Kaiser said.

The family extended this week to North Hagerstown High School Principal Robert "Bo" Myers and Washington County Schools Chief Operating Officer William Blum, who "made the facility available to us at short notice" for the negotiations, Kaiser said.

Asked specifically about the potential for outsourcing, Volvo's Leblond said "that was exactly what we discussed with the union representatives." As Volvo moves to the next generation of engines, "adjustments will be made" in the manufacturing operation, he said.

"We also take into account that we're a much larger group than we have been before," Leblond said.

Nevertheless, Leblond said the company will "make a very significant multiyear commitment" in capital investment at the Mack facility.

"The exact number will fluctuate, but we expect to invest $150 million over the next few years," Leblond said.

That commitment was one condition for Volvo receiving the state incentive package, Brennan said. Combined state and county incentives originally had been worth about $5.7 million, but Brennan said modifications were made - the most significant being the plan for the vendor village.

In addition to purchasing the land for the vendor village, the state offered Volvo a $2 million "Sunny Day" loan and a $1.7 million Maryland Economic Development Assistance Fund loan. In addition to making the capital investment, Volvo must maintain a work force of at least 1,000 at the Mack facility through 2008.

Mack currently employs nearly 1,260 in Washington County.

The state also offered $1 million for training, Brennan said, adding that $400,000 had been budgeted for the current fiscal year ending June 30, 2004. The rest will be budgeted in $100,000 increments over six years.

"We have an ongoing training program in Hagerstown in engineering as well as production," Leblond said. "We're very proud of our employees and their skills" and their ability to keep up with technology. "The skill level of the people here was a factor in keeping the center here," Leblond added.

For its part, the county government agreed to freeze the rate for waste management at the facility for the next five years, Snook said. That commitment will be worth about $300,000, Snook and Commissioners Vice President William J. Wivell said.

Although Snook said the county would not be contributing to the purchase of the property for the vendor village, Snook said he expected to be involved in the negotiations and that the county economic development commission likely would help market the property. Based on recent sales of industrial property in Washington County, the acreage could be worth $30,000 to $50,000 per acre.

Snook said the parcel is off Showalter Road and has easy access and available utilities. He said he's happy about "keeping the jobs that we have and the potential for new jobs" with the development of the vendor village.

"Manufacturing is tough to keep," Snook said. "When you get a manufacturer that's been here for 40 years, you want to keep them."

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