Manufacturers turn to US
by Richard Milne in London
Published: September 7 2008 18:19 | Last updated: September 7 2008 18:19

The latest cheap manufacturing site for European companies is not in Asia or eastern Europe but the United States, say top executives from some of the continent’s biggest companies.

“It may sound like a joke but it can be cheaper than you imagine to manufacture there,” the chairman of one of Germany’s largest automobile groups told the Financial Times.

The reason is less the level of the dollar, which remains relatively low in spite of the euro’s recent plunge, but rather the huge level of incentives some US states are offering companies to set up factories in their region.

Tennessee, for instance, has just disclosed that it agreed to give German carmaker Volkswagen $577m in incentives for its $1bn plant in Chattanooga.

A senior executive at Fiat, the Italian industrial conglomerate, said: “With the amount of money US states are willing to throw at you, you would be stupid to turn them down at the moment. It is one of the low-cost locations to be in at the moment.”

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The $28,500 a ticket luncheon is being organized by some of the most controversial names in business, including buyout baron Henry Kravis.

John McCain has said he does not support closing tax loopholes for hedge fund managers and buyout industry executives such as Kravis, who have pocketed billions of dollars by paying a lesser percentage of their income to taxes than many regular working Americans.

Besides helping to organize Tuesday’s event, Kravis has been a major fund-raiser for John McCain throughout his campaign for president. This is the same Kravis who donated $28,500 to the National Republican Senatorial Committee last October to help with the primaries.

McCain’s tax plan also includes two huge tax cut giveaways for American corporations–lowering rates from 35% to 25% and adding other new deductions.

You can’t really blame Kravis for supporting McCain in hopes of winning those two economic boons. His company, Kohlberg Kravis Roberts & Co. and their holdings stand to make millions of dollars off the new cuts. According to the Center for American Progress, “The centerpiece of Sen. John McCain’s tax plan is two huge tax cuts for American corporations, including utility and energy companies.”

A CAP analysis finds that McCain’s tax policy–which lowers corporate tax rates from 35 to 25 % and makes equipment and technology investments immediately deductible–would give a single KKR portfolio company, Energy Future Holdings (formerly TXU), a $49 million tax cut.