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Japanese automakers Toyota Motor Corp. and Mazda Motor Corp. on Wednesday have reportedly selected the state of Alabama as the site for their new joint assembly plant.

The $1.6 billion car factory will be located in Huntsville and is expected to create up to 4,000 jobs, and build about 300,000 vehicles per year.

Toyota and Mazda declined to comment, while sources with knowledge of the matter said that the company and state officials will make an official announcement in Montgomery later in the day. 

The carmakers expect the new plant to be up and running by 2021. This will be Toyota’s eight factory in North America and the second for Mazda.

Toyota plans to produce Corolla compact vehicles, while Mazda plans small-to-medium sized sport utility cars once the factory opens.

Amid tightening environmental regulations in the country, the possible challenge for now will be to drive new value, such as locally making electric cars and perhaps changing production models to better reflect demand.

Shares of Toyota closed up 2.1 percent higher to ¥7,704, while Mazda gained 0.7 percent to ¥1,583.8 on Wednesday.

Great Addition for Alabama

The facility is a great addition for Alabama, given that Toyota already has an engine plant as well as network of automotive suppliers in the state. It also forms part of a plan by the automotive manufacturer to invest $10 billion in the US over the next five years.

Alabama has long been seen as one of the major players for the factory due to its tax incentives, low-priced labor and active automotive sector. Its factories are also not unionized, which is a factor that seems to draw overseas automakers.   

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In terms of manufacturing strength, the state has built over 1 million vehicles in 2016 and has added 40,000 workers.

The decision suggested that both companies might also be set to capitalize on a large increase in state tax incentives recently signed into law by Alabama Governor Kay Ivey.   

Further details regarding a possible tax and incentive package for the investment are still unknown, but it was reported that the companies requested at least $1 billion in incentives.

Pressured by the Trump Administration

The new unit is also a huge victory for US President Donald Trump’s plan to raise investment and jobs in the country.

The US is currently suffering from a falling auto industry sales. It recorded a 2 percent decline in sales of new vehicles last year, after reaching an all-time high in 2016. The drop in sales is expected to continue this year.  

Trump has also been pressuring overseas auto companies to set up additional industrial units in the US, so as to employ more people.

Last year, he said Toyota would face heavy taxes on cars assembled in Mexico for the US market if they were created south of the border.

Research conducted by a broadcasting company in November showed that about 53 percent of vehicles sold in the US by the six major Japanese automakers were built there, while the rest were produced in Japan, Mexico, Canada, and elsewhere.

Toyota announced in October that it would downsize 30 percent or $700 million of its investment at a plant in Mexico and would cut annual capacity by half to 100,000 vehicles, as it rearrange assembly plans to meet market demands.

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