The governor of the Mexican state of Nuevo Leon, Jaime Rodriguez, has worked out an agreement with Kia over its tax breaks on the building of a new plant, according to a Reuters report. The new deal reduces the amount of incentives from 28% of the amount invested by Kia and its suppliers to 10.5%, as well as eliminating an income tax rebate. Kia has also agreed to increase purchases from local suppliers. The current deal, which Kia negotiated with the state's previous government leaders in 2014, was criticised and the new administration said that it violated state law by including "excessive" incentives. The new agreement also reportedly eliminates other elements, including the state paying for an inauguration party for the plant and state government commitments to provide water and electricity services.
Significance: Kia had received the incentives to support its investment in the new plant in the state and production started at the plant in May. However, the incentives became an issue when the new governor took office and they were determined to be too high for the state. Although the new deal increases costs for Kia, putting an end to the disagreement will allow both sides to move forward. Initially, Kia will build the Forte at the plant, with production of the Hyundai Accent and Kia Rio forecasted to be added in 2017. By 2020, IHS Automotive forecasts production will reach 251,000 units per annum at the plant.
