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VOL. 124 | NO. 239 | Monday, December 07, 2009



Tunica's New Cash Crop?

First came cotton, then casinos and now – maybe – cars

By Eric Smith

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Persie Buford of Bowdre Place clears cotton off the top of a picker during a late harvest west of Tunica on Fox Island Road. -- PHOTO BY LANCE MURPHEY

When Xiaolin “Charles” Wang was introduced at an October press conference announcing plans to build a $1 billion hybrid automotive plant in Tunica County, he was described by the emcee as a man who “dreams big and drives fast.”

Six weeks later and those are the only things known about the Chinese businessman whose project would rival Northwest Mississippi’s casino industry. That’s because neither Wang nor his associates has spoken with the media about how much – if any – progress has been made on raising the money that will make his dream a reality.

Wang’s company, GreenTech Automotive Inc., claims it will manufacture 150,000 hybrid cars a year and employ 1,500 workers at a Tunica County megasite by 2012. The plant, whose long-term outlook calls for 250,000 cars a year and a work force of 4,500 people, would breathe new life into a part of the Mid-South that for years has suffered from high unemployment and poverty.

“Three years from today, the land will grow green cars instead of cotton and soybeans,” Wang recently told a captive audience at Harrah’s Casino in Robinsonville.

Wang and GreenTech officials were not available to speak with The Memphis News for this article, said Brian Sullivan of CS2 Advertising, the company handling public relations for GreenTech. But with huge pieces of the puzzle missing, it’s easy to wonder if the company’s project will ever get in gear. Because no matter how big Wang dreams or how fast he drives, the economic conditions for building an auto plant are far from ideal – and the road is anything but smooth.

Life is a highway

GreenTech Automotive made quite a splash two months ago when it invited a host of public and private officials along with a gaggle of local, national and international media representatives to Harrah’s, where the company said it would build a massive automotive plant on 1,500 rural acres in Tunica County. The site, at the southeast corner of Miss. 304 and U.S. 61 in the eastern part of the county, isn’t far from the casinos that put the area on the map in the early 1990s as a gaming and entertainment destination.

Wang even asked audience members to hold their breaths as dignitaries unveiled GreenTech’s four prototype hybrid automobiles – a hybrid midsize, an electric car, a high-efficiency subcompact and a hybrid sports car.

The event, though well organized, also had a spur of the moment feel because Mississippi Gov. Haley Barbour wasn’t there and Tunica County officials had managed to keep the news secret. But this project had been bubbling under the surface – and under a mountain of legal bickering – for months.

Wang had been going through a public dissolution of his professional partnership with Yung “Benjamin” Yeung. The two men had previously formed Hybrid Kinetic Automotive Holdings, a Chinese-U.S. company that would combine investment dollars and automotive technology from Asia, America and Europe to bring the first Chinese carmaker to this country.

“Three years from today, the land will grow green cars instead of cotton and soybeans.”

– Xiaolin "Charles: Wang
CEO, GreenTech Automotive

A personal dispute over business erupted and the men had a falling out. Yeung filed a lawsuit earlier this year and the partners ultimately parted ways, forming their own business teams. Wang was required to pay Yeung $1.5 million in a settlement, but he also was allowed to build a car plant in the company’s initial target site of Tunica, while Yeung was allowed to operate under the company name Hybrid Kinetic Motors Corp.

Yeung’s group decided to build its car plant in Alabama and appears much further along in what has become a race to bring the first Chinese automobile to the U.S. But GreenTech and HMKC have their work cut out for them with regard to raising the capital needed to build their plants and producing a car that Americans will want to drive.

Haig Stoddard, a Troy, Mich.-based automotive analyst at IHS Global Insight, has serious doubts about both issues. As he pointed out, coming up with the billions of dollars in capital required to build the plant and then have the ability to engineer and produce a product would demand a tremendous mix of public and private dollars, or a “lot of moving parts.”

“It seems awfully tough, especially in this environment,” Stoddard said. “One of the things, too, is nobody really knows what the demand is going to be for these kinds of vehicles, especially from vehicles built by what are basically rogue companies that don’t have any type of a track record selling vehicles or any type of brand name recognition.”

Cloak of reticence

Although GreenTech held a groundbreaking ceremony at a corner of the Tunica County megasite – where a large plaque described the land as the “GreenTech Automotive Industrial Park” – the company hasn’t formally bought the land.

And because Wang and his team are seeking much of their capital in China, the financial particulars are murky at best. What confounds this project is the silence from local and state officials, who attribute their reticence to speaking on the record to the notion that the GreenTech development is “ongoing.”

Tunica Chamber of Commerce President Lyn Arnold was gung-ho about touting the GreenTech plant during October’s groundbreaking when the camera crews were snapping pictures of company and county officials donning hardhats and hoisting shovels. But even her enthusiastic comments were tempered by the harsh realities of today’s economy.

“There’s still work to do, still planning to be done, still money to be raised, but it’s a very realistic possibility,” Arnold said during the Tunica County press conference.

As Arnold told The Daily News, sister publication to The Memphis News, during that same press conference, part of the reason for GreenTech selecting Tunica was because it is so close to Memphis, a city renowned for its shipping and distribution capabilities. Those assets would be valuable for an automaker looking to develop a parts supplier network.

“Having a large city near you, having an international airport near you, those things are great advantages,” she said. “All the transportation networks that are in the Memphis area, all of those things are important. Having a large city population and the amenities that the city offers are very important.”

But when asked for further comment on the project, she declined to talk about it.

Although this placard on the Tunica County megasite claims GreenTech as one of its own, the company hasn't actually bought the land on which its car plant wil sit. -- PHOTO BY ERIC SMITH

“Since Green Tech is still an active project, we are not discussing the details of the project at this point. So there is really not much I can say,” she wrote in an e-mail. “The project is ongoing and we hope to have more information to share in the spring of 2010.”

Even the Mississippi Development Authority’s Sally Williams said the organization, which will be critical for GreenTech’s ability to move forward on the site, can’t comment on “what may or may not be an ongoing economic development project for the state.”

“That being said,” she added, “we are watching with great interest as the company, GreenTech Automotive, secures its funding.”

Waiting game

Funding is the biggest issue surrounding GreenTech’s grandiose plan, and this is where the plot thickens. Wang insists the company has investors from “all over the place,” including China, the U.S. and Europe. But without any way to quantify how much has been raised and where it’s coming from, it’s impossible to know how far along GreenTech is in compiling the capital it needs to get started.

Taylor Beery is president of New Orleans-based Gulf Coast Funds Management LLC, the firm handling part of GreenTech’s funding approach through the Gulf Coast Automotive Fund. This fund is primarily targeting money through the EB-5 program, which allows foreign backers to invest a significant sum of money, in this case $500,000, in U.S. projects.

Beery declined to speak directly about GreenTech’s EB-5 fundraising goals, but he did shed light on the process, which has been around since 1990 to create American jobs and provide an economic spark by funneling foreign investment into needy areas of the country.

“The benefit to the immigrant investor is the immigration status,” Beery said. “An immigrant who seeks to achieve some form of a United States green card has several avenues. One of them is to invest a minimum of $500,000 or a million dollars depending on the area where the project will be physically located.”

In an area like Tunica, with its 13 percent unemployment rate, an individual need only invest $500,000, whereas in an area with better employment, the person would need to invest $1 million.

“If, at the end of the two-year period, you can show that money did go into the project that was at-risk and that their funds were a part of creating a minimum of 10 American jobs, then they have the conditions removed and they have a permanent United States green card,” Beery said.

People familiar with the project spoke more specifically off the record about the project’s unique fundraising dynamics. For example, GreenTech has lined up four or five total investors, sources said. One of those investors had obtained conditional U.S. residency status, and others are in process with the U.S. citizenship and immigration service, so the wheels are in motion for the capital to be raised.

How much has been raised to date is confidential, but Beery said the efforts to infuse the project with money continue.

“There are many challenges that lie ahead,” Beery said. “They’ve overcome many challenges to get to where they are and we continue to support them in their process.”

Through the hoops

“Probably the only way I could see (the GreenTech plant) being a success is if we do see a tidal wave of consumer preference toward fuel-efficient or hybrid, clean emission-type vehicles.”

– Haig Stoddard
Automotive analyst, IHS Global Insight

Unfortunately for GreenTech, the challenges go beyond funding.

Larry Rinek, senior technology consultant for the Mountain View, Calif., office of Frost & Sullivan, a company that tracks emerging automotive technologies, said startups have a difficult time carving a niche and establishing a brand in a market with so many established carmakers.

That is especially true for a nascent hybrid company, which would face stiff competition from established carmakers and a handful of American startups that have recently launched or soon will launch their own hybrid products.

Rinek projected a U.S. market of 1.2 million hybrid vehicles in 2015, up from a few hundred thousand now. While that’s robust growth, Rinek said, the established brands will have increased production by then and a handful of other startups will have hybrids rolling off their assembly lines. GreenTech also might see challenges in meeting the U.S. safety regulations, which are more stringent than they are elsewhere.

“It’s not like you just launch a go-kart and people can go buy it at the dealer,” Rinek said. “This is not like India, which has essentially no regulations. We’re very strict here. (GreenTech officials) know that. They’ve got to meet that before they can even be invited to the party to sell.”

Rinek said GreenTech will need an ample selling network, marketing savvy and a product that is “new, different and better than the well-established hybrid producers.”

“Any new brand is going to be working uphill,” Rinek said. “One of the more common market entry techniques, especially a know-nothing brand with Asian backing, is to have someone else’s private label sell it where they already have the distribution network. It’s going to a huge expense and time consuming to set up a deal network, especially one that will match the volume they’re talking about.”

Stoddard, the auto industry analyst from IHS Global Insight, echoed those comments about new automakers coming online. Having two of them – GreenTech and HKMC – starting simultaneously clouds the picture for both companies.

“Even if they did get a vehicle developed and they had an assembly plant and all that was put in place, just marketing and coming up with a distributorship for the cars so that you could sell enough of them to make money on them or even break even would be another big hurdle,” Stoddard said. “Probably the only way I could see it being a success is if we do see a tidal wave of consumer preference toward fuel-efficient or hybrid, clean emission-type vehicles.”

Open door to China

The realities of the business world will dictate GreenTech’s ability to succeed, but Wang’s heritage plays a role as well, said Dr. Hsiang-te Kung, director of the Confucius Institute at the University of Memphis. The organization, formed in 2007 under the auspices of the Beijing-based Office of Chinese Language Council International, works to strengthen business and cultural ties between the U.S. and China.

Kung, a 75th-generation descendant of the Chinese philosopher and teacher Confucius, said Chinese businesses are bullish on investing in U.S. companies, and that relations between the two countries are healthy, as evidenced by increased international trade and even recent news like President Obama’s visit to China.

And just as the Japanese automakers such as Toyota have performed well here, companies like GreenTech and HKMC can thrive if they offer the right product at the right price, Kung said.

“If other countries can produce good quality with less cost, I think most likely they will survive,” he said.

Wang, when speaking in Tunica in October, said his investment group will be composed of Chinese, Americans and Chinese-Americans – or “Americans who have a Chinese face,” he said.

“I assure you they will soon blend into the local community of Tunica and in no time they will be one of your own,” Wang said.

Kung said Chinese businesspeople like Wang are obligated to deliver on their promises because the whole notion of successful globalization is based on trust between partner nations. That puts pressure on Wang.

“If you announce a promise, you should fulfill in order to win the faith and confidence,” Kung said. “You really have to earn the trust. Trust comes from fulfilling your promise or fulfilling what you say. If Chinese can trust the Americans and Americans can trust the Chinese, then things can go well. If you lose the trust, then people become very suspicious.”

Stand, deliver

People are understandably suspicious of Wang’s promises to bring economic investment and jobs to Tunica County. But if GreenTech succeeds in developing the plant, it will have a huge impact on Northwest Mississippi and the entire Mid-South.

From an industrial real estate and manufacturing perspective, the facility could attract so called “Tier One” and “Tier Two” auto suppliers, which make and distribute parts related to a carmaker’s products.

From a logistical perspective, Memphis-based third-party logistics providers (3PLs) would stand to benefit as they move parts into, out of and through the area via road, rail, river or air. Already, Memphis’ own Mallory Alexander International Logistics has a contract with GreenTech, helping the company import its four prototype vehicles and working with it on other customs and tariff issues. But because Mallory Alexander has a non-disclosure agreement with GreenTech, officials of the Memphis-based 3PL were unable to discuss how they would directly affect GreenTech’s local supply chain network.

Without question, there are more questions than answers right now, all of which raises doubt about GreenTech’s ability to build the plant, much less find success with its product.

If HKMC is able to get its Alabama-based product to market first, what does that do for GreenTech? Where will GreenTech’s price point be? How much will demand for hybrid vehicles grow? And will Americans buy in to a new Chinese car when they buy something like a Toyota Prius that’s been around for years?

Despite having a big dreamer and fast driver behind the wheel, the finish line for GreenTech – and for Tunica – is nowhere in sight.

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