RALEIGH – Advance Auto Parts is ending its agreement ith the state of North Carolina under which the company could have received economic subsidies if it met previously agreed upon conditions, including adding employees based in its headquarters.
On Tuesday the state’s Economic Investment Committee accepted the company’s request to terminate the company’s Community Economic Development Agreement (CEDA) that had previously been agreed upon in late 2018 that involved the company relocating its corporate headquarters from Roanoke, VA, to Raleigh.
Advance Auto Parts joins Microsoft and Sonic Automotive as companies with facilities based in North Carolina that have requested to terminate an existing deal tied to job creation and investment with the state this year.
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Terminating an agreement
There are any number of reasons a company may request to terminate an agreement, said John Quinterno, a professor at Duke University, in an interview with WRAL TechWire.
Those include cyclical factors, market conditions, and more, said Quinterno. “Any number of reasons, obviously ranging from a company in financial distress, or a reflection of slowing business conditions.”
For Advance Auto Parts, the stated rationale for the termination has more to do with the company’s desire to remain competitive in a job market where workers may have the upper hand when it comes to work place or geographic location.
In a letter written to the North Carolina Department of Commerce by Tammy Finley, the company’s executive vice president, general counsel, and corporate secretary, obtained by WRAL TechWire, the company cites a changing talent market following the onset of the COVID-19 pandemic in March 2020 as the primary rationale for terminating the agreement.
“As part of CEDA Grant No. 2018-26, Advance Auto Parts was expected to maintain 729 retained positions and add a minimum number of new eligible positions annually over a defined time period,” the letter reads. “For the 2021 grant year, we had 721 retained positions and 0 eligible positions, which does not meet our 2021 criteria for funding under CEDA Grant No. 2018-26.”
And this staffing shortfall, the letter states, “was due primarily to changes in corporate work arrangements as a result of the COVID-19 pandemic.”
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Tough talent market
“Traditionally, these subsidy packages were designed that you were going to have the workforce in a geographical region,” said Quinterno. “But I think the pandemic has changed that assumption, particularly, you have more flexible arrangements or remote arrangements.”
That’s what appears to have happened at Advance Auto Parts, according to the company’s letter to the North Carolina Department of Commerce.
“Similar to much of corporate America, Advance Auto Parts has become more flexible in its work arrangements with respect to onsite, hybrid and remote work by its corporate staff,” the letter reads. “We have not required many of our new positions and hires to relocate to our corporate headquarters in Raleigh and have allowed some existing corporate staff to move out of state while still performing their roles.”
The company called these decisions “necessary in order to attract and retain top talent in the current competitive environment.”
The letter also notes that the company will not meet its staffing criteria required for future funding years and that a conversation had occurred in recent weeks with staff of the Commerce Department at which staff recommended the company terminate the agreement.
“I want to reiterate our continued commitment to maintain our Raleigh corporate headquarters location, which currently staffs over 700 full-time employees,” the letter concludes. “Advance Auto Parts has invested over $40M in our headquarters location, which is currently covered by a multi-year lease term, and we plan
to continue to successfully operate from this location for many years to come.”
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Time to revisit how deals are made?
But maybe it’s time to reconsider how economic incentive deals are structured, Quinterno told WRAL TechWire.
“When companies walk away from their subsidies, does that call into question the whole idea, or the birthplace, when we say that if we don’t provide the support, they won’t come to the area,” said Quinterno. The argument, said Quinterno, is often summarized by stating that if incentives are not provided, companies would not locate or expand in the state. “Again, when folks do seem to be very willing to walk away, all of a sudden, does that call into question the original rationale for providing the subsidy in the first place,” said Quinterno.
Remote work will remain for many sectors, in many fields, and that is a positive, said Quinterno. But there may be a different relationship moving forward, between work and place, he added. “In the future, that may mean we have to rethink how we calculate or recalculate the jobs numbers that are used in these types of incentives.”