Taxpayers: Beware GM's Decision to Build Compact in Michigan

There’s an interesting story in the WSJ concerning GM’s (GMGMQ.PK) decision to build its new small car in Michigan as opposed to Tennessee, Wisconsin or overseas. All of those places were in the running for the business. This is of more than passing interest, since you and I are heavily invested in this company and would, I think, like to see them making good business decisions.

First, the battle between Michigan, Tennessee and Wisconsin:

When it was deciding where to build its new compact car, General Motors Corp. made a point of saying it would push politics aside and use strictly commercial criteria.

So Tennessee’s three top officials were astonished last month, in a meeting with GM, when they were told the first two criteria were “community impact” and “carbon footprint” — or how the choice would affect unemployment rates and carbon-dioxide emissions.

“Those didn’t strike us as business criteria at all,” said Tennessee Sen. Lamar Alexander, who was joined in the meeting by fellow Republican Sen. Bob Corker and the state’s Democratic governor, Phil Bredesen. Those factors, Mr. Alexander said, “seemed odd for a company struggling to get back on its feet.”

On June 26, after a monthlong competition, GM tapped an existing factory in Orion, Mich., pushing aside competing plants in Spring Hill, Tenn., and Janesville, Wis.

All the sites had merits, but the Michigan plant had additional attractions. It is embedded in a struggling state that is a Democratic stronghold. The Orion site, 35 miles from GM’s Detroit headquarters, is also close to tens of thousands of current and former United Auto Workers union employees, whose pressure previously helped persuade GM to scrap plans to build the car overseas.

The area has one of the region’s highest unemployment rates, at 12.4%, though the Wisconsin site’s was even higher, at 12.9%. Janesville, by contrast, offered a less-expensive labor pool, according to people briefed on the plan. In Spring Hill, GM has a new, $225 million paint shop. The Orion plant’s paint shop needs to be replaced.

Set to emerge from bankruptcy within weeks, GM declined to disclose the factors it weighed in picking Orion, but said the process was free of political meddling.

“It’s in the best interest of all involved to not discuss the selection criteria for the small-car plant,” said GM spokeswoman Sherrie Childers Arb. “All three plants have individual merits, but when all told, the Orion plant scenario provided the best business case.”

Now, there is one factor that probably tipped things in favor of Michigan — money. The state offered $779 million in tax credits over 20 years, $130 million in federal funds for worker training and another $102 million came from local political districts. Reportedly, that dwarfed anything the other two states came up with. So why doesn’t GM just come out and say it was all about the money? It seems like that would be a whole lot better than clamming up and encouraging rumor mongers (like me) and conspiracy theories.

One is also inclined to ask how a state as flat broke as Michigan can come up with that kind of dough. I suppose the answer is that they have a friend on the Potomac.

An even more pertinent question might be why is this car being built in the United States at all. Remember, originally the car was to be built in China and imported until the UAW raised a stink, rallied its friends on Capitol Hill and caused the company to back down.

Here are some observations from the article about this point:

Even with the labor savings, analysts question the logic of building a compact car in the U.S. Margins are so tight that even Toyota and Honda have opted to build their smallest models in countries with lower labor costs.

“Virtually nobody makes cars that size in the U.S.,” said CSM Worldwide automotive analyst Michael Robinet. “There is a reason why GM at the outset was going to bring this car in from China.”

Various estimates peg GM’s losses on U.S.-built small cars at roughly $1,000 to $2,000 per vehicle sold in recent years. Lawmakers and congressional staffers involved in the compact-car competition said GM acknowledged the company expected to struggle to break even on the venture.

GM views small cars as central to its bid to become what Mr. Clarke called “the greenest car company in the world.”

Anticipating higher gasoline prices, the cars will be “more and more toward the sweet spot of the market” when they roll off the assembly line sometime after 2012, Mr. Clarke said.

Keep in mind that this car is crucial for GM. They currently don’t have a competitive small car and quite frankly have never produced one successfully in this country. Trucks, SUVs and mid-sized cars are their bread and butter. The small car is an outgrowth of the ill-considered changes to the CAFE rules and the Obama administration's dreams of green. It has to succeed or it might well blow the entire investment out of the water. On second thought, amend that last sentence to read it might cause the American taxpayer to pony up substantially more money to feed this beast.

I have to say as a shareholder, I’m a little concerned about these first steps by my company.

Comments

[303820:]

We used to have a name for anti-union, anti-america, and anti-GM people like Tom Linmark...TRAITOR...!

Jul 06 07:46 AM

[User 158164:]

I'm getting sick of this "since you and I are heavily invested in this company" crap. Take your federal taxes and divide by the percentage of the federal outlays this year that went to GM and you are more heavily invested in your next cup of coffee, so quit whining about it. Where are the long articles about AIG, who you must have at least a McDonald's Happy Meal worth of "investment" in? Next year when the IPO takes place and the "poor taxpayer" get's his money back with interest, the first time that's happened since Chrysler in the 70's, I'll be enjoying all the articles about what a smart move this was, ha ha ha.

Politics these days is all about distraction. While you are staring into one company's decision to build one model car in one town or another, or lamenting the use of private jets, or perhaps wondering about the cut of a GM's executive's suit, billions of dollars of "poor taxpayer" money is being pi$$ed away on banks.

Jul 06 08:46 AM

[Mister Jimmy:]

Your tax dollars provided to GM give you as much of an ownership interest as your tax dollars spent in Iraq......zero.

Jul 06 09:15 AM

[hoffman23:]

Why don't you ask Bob Corker why GM didn't go to Tenn. How about his cries for bankruptcy, probably leading to liquidation. Maybe Nissan can hire his folks. And about profits, what about Prius, the favorite " best little car ever". Toyota admits losing money on each one produced but, because of Japanese govt. support of their car companies and their health systems, it's OK. Another idiot author on this blog.

Jul 06 09:17 AM

[Leftfield:]

A quick word for User 158164: We are in an advanced state of dying by a thousand cuts. Take the Depts. of Energy and Education. After the "stimulous" bill is factored in, they total well north of $100 billion this year. They have accomplished nothing towards their stated goals and in fact hinder the progress that could be made if their wasted employees would get productive jobs and the money went towards real accomplishment and investment. Our system is choking on this stuff; these are only two examples.
GM is now in the purview of the real impresarios of smoke and mirrors. These are suits who always have "plausible deniability" for their wealth-destroying, self-serving deeds. Rick Waggoner's last stupid act was not to proceed to bankruptcy. Now GM is a ward of government, I know, all decisions are "for the good of the country" or whatever the party line is. As they are increasingly perceived as Government Motors they will sell mostly to government and to government and union employees. But we will still pay. Yuck.

Jul 06 09:21 AM

[303820:]

Toyota and Honda are subsidized by their governments; VW,BMW and Fiat are subsidized by their governments; KIA and HYUNDAI are subsidized by their governments...to make things worse Americans subsidize all of the above by purchasing 3 million of their imported rust boxes every year.

BTW.."WE THE PEOPLE" ARE THE GOVERNMENT AND UNION EMPLOYEES ARE PART OF "WE THE PEOPLE"!!!!!


On Jul 06 09:21 AM Leftfield wrote:

> A quick word for User 158164: We are in an advanced state of dying
> by a thousand cuts. Take the Depts. of Energy and Education. After
> the "stimulous" bill is factored in, they total well north of $100
> billion this year. They have accomplished nothing towards their stated
> goals and in fact hinder the progress that could be made if their
> wasted employees would get productive jobs and the money went towards
> real accomplishment and investment. Our system is choking on this
> stuff; these are only two examples.
> GM is now in the purview of the real impresarios of smoke and mirrors.
> These are suits who always have "plausible deniability" for their
> wealth-destroying, self-serving deeds. Rick Waggoner's last stupid
> act was not to proceed to bankruptcy. Now GM is a ward of government,
> I know, all decisions are "for the good of the country" or whatever
> the party line is. As they are increasingly perceived as Government
> Motors they will sell mostly to government and to government and
> union employees. But we will still pay. Yuck.

Jul 06 09:42 AM

[relaplan1:]

Buy Ford!

Jul 06 09:47 AM

[slowdown:]

How about this - GM is simply borrowing some of the money (not even half) that its retiree/employees have paid into the federal government in INCOME TAXES over the course of the last 30 years. So...yuck all you want. There are still enough of us left that can claim married and 10 and not pay any taxes at all.


On Jul 06 09:21 AM Leftfield wrote:

> A quick word for User 158164: We are in an advanced state of dying
> by a thousand cuts. Take the Depts. of Energy and Education. After
> the "stimulous" bill is factored in, they total well north of $100
> billion this year. They have accomplished nothing towards their stated
> goals and in fact hinder the progress that could be made if their
> wasted employees would get productive jobs and the money went towards
> real accomplishment and investment. Our system is choking on this
> stuff; these are only two examples.
> GM is now in the purview of the real impresarios of smoke and mirrors.
> These are suits who always have "plausible deniability" for their
> wealth-destroying, self-serving deeds. Rick Waggoner's last stupid
> act was not to proceed to bankruptcy. Now GM is a ward of government,
> I know, all decisions are "for the good of the country" or whatever
> the party line is. As they are increasingly perceived as Government
> Motors they will sell mostly to government and to government and
> union employees. But we will still pay. Yuck.

Jul 06 09:59 AM

[slowdown:]

BTW...you must be a lawyer - check out the cost that Delphi has paid for it's five year bankruptcy and what GM has paid for it's 30 day bankruptcy and then let's talk about stupid decisions. I think Wagoner did exactly what he should have. Spent money restructuring instead of lawyering.


On Jul 06 09:21 AM Leftfield wrote:

> A quick word for User 158164: We are in an advanced state of dying
> by a thousand cuts. Take the Depts. of Energy and Education. After
> the "stimulous" bill is factored in, they total well north of $100
> billion this year. They have accomplished nothing towards their stated
> goals and in fact hinder the progress that could be made if their
> wasted employees would get productive jobs and the money went towards
> real accomplishment and investment. Our system is choking on this
> stuff; these are only two examples.
> GM is now in the purview of the real impresarios of smoke and mirrors.
> These are suits who always have "plausible deniability" for their
> wealth-destroying, self-serving deeds. Rick Waggoner's last stupid
> act was not to proceed to bankruptcy. Now GM is a ward of government,
> I know, all decisions are "for the good of the country" or whatever
> the party line is. As they are increasingly perceived as Government
> Motors they will sell mostly to government and to government and
> union employees. But we will still pay. Yuck.

Jul 06 10:03 AM

[Leftfield:]

slowdown: If we could all take back half our income taxes, last 30 years, or better yet, not pay for all that government waste in the first place, this country would still be #1. I believe primarily it's lawyers and government that have nearly destroyed this country more than anyone else. I think that getting government and lawyers out of the way would lower the stupid legal, tax and regulatory burdens to restore us to the great way of life we have largely lost in the last 40 years. When one earner could support a family better than two can now.
If we created low-tax and regulatory enterprise zones in distressed areas like Flint and Detroit the example of prosperity created would disrobe the stupid pretensions of our overpaid leaders who would rather take over GM and make it part of their crony capitalism schemes.
We need to wake up and vote out our failed incumbents over and over even if they seem to be giving some of us handouts so we can get back on our feet again.

Jul 06 10:40 AM

[relaplan1:]

Tom Linmark is correct! The UAW and the State of Michigan destroyed the US auto industry.

Ever since the 1950's, Michigan has been supported by high taxes loaded on autos and sold to people in other states. Now, for purely political reasons, we are bailing out Michigan and the UAW.

A lot better cars are made in Tennessee.




On Jul 06 07:46 AM 303820 wrote:

> We used to have a name for anti-union, anti-america, and anti-GM
> people like Tom Linmark...TRAITOR...!

Jul 06 11:37 AM

[303820:]

YOU CAN HAVE YOUR BETTER CARS!!!!!!!www.consumeraffairs.co...


On Jul 06 11:37 AM relaplan1 wrote:

> Tom Linmark is correct! The UAW and the State of Michigan destroyed
> the US auto industry.
>
> Ever since the 1950's, Michigan has been supported by high taxes
> loaded on autos and sold to people in other states. Now, for purely
> political reasons, we are bailing out Michigan and the UAW.
>
> A lot better cars are made in Tennessee.
>
>

Jul 06 01:38 PM

[slowdown:]

By whom???? Last I knew (and since it is one of my plants) the Springhill plant is a UAW plant earning the same wages that a plant in Michigan earns.

On Jul 06 11:37 AM relaplan1 wrote:


> A lot better cars are made in Tennessee.
>
>

Jul 06 03:33 PM

[spald_fr:]

So Tennessee’s three top officials were astonished last month, in a meeting with GM, when they were told the first two criteria were “community impact” and “carbon footprint” — or how the choice would affect unemployment rates and carbon-dioxide emissions.

“Those didn’t strike us as business criteria at all,” said Tennessee Sen. Lamar Alexander


Geeez. Lamar must have bone from ear to ear. Business criteria are now defined by the Feds, brother Alexander.

Jul 06 03:33 PM

[slowdown:]

I think you are describing Japan.


On Jul 06 10:40 AM Leftfield wrote:

> slowdown: If we could all take back half our income taxes, last 30
> years, or better yet, not pay for all that government waste in the
> first place, this country would still be #1. I believe primarily
> it's lawyers and government that have nearly destroyed this country
> more than anyone else. I think that getting government and lawyers
> out of the way would lower the stupid legal, tax and regulatory burdens
> to restore us to the great way of life we have largely lost in the
> last 40 years. When one earner could support a family better than
> two can now.
> If we created low-tax and regulatory enterprise zones in distressed
> areas like Flint and Detroit the example of prosperity created would
> disrobe the stupid pretensions of our overpaid leaders who would
> rather take over GM and make it part of their crony capitalism schemes.
>
> We need to wake up and vote out our failed incumbents over and over
> even if they seem to be giving some of us handouts so we can get
> back on our feet again.

Jul 06 03:34 PM

[frankly:]

www.youtube.com/watch?...

copy and paste into your browser

I don't enjoy watching our government burn money at such a pace and support such bad investments.
I can't imagine what type of businesses could have been started or had their growth accelerated if the government had provided matching funds or lower interest to profitable and dynamic companies rather than ones that haven't been profitable for years.

the above link to Utube is the best explaination I have seen for the velocity of spending.

finally; I think we can all have different opinions without questioning someone's place in America.

best to you all.

Jul 06 04:40 PM

[Mark Stanford:]

This is a simple case of Obama buying votes with tax dollars. The only good thing about it is that it will help demonstrate stupidity of the democrats when GM finally DOES go out of business, and the UAW is broken. No one is going to by this piece of junk, small car.

Jul 06 05:01 PM

[dw57:]

if i remember right the main problem with spring hill was that it was pretty far from its suppliers. plus i am sure that all the complaining from their delegates didn't exactly make the GM folks happy. can GM make a go of it? probably. not sure why they didn't put this car into the NUMA plant though. and i am not sure why so many are in favor of unions in other countries. since the vast majority of imported cars are from countries where the unions make them. that would include Germany (most expensive of all), Japan, and Korea. only cars they assemble here aren't made by union workers.

Jul 06 05:08 PM

[Big Bubbette:]

The sooner we are rid of unions the better. Start with all gettting rid of government unions.

Jul 06 08:50 PM

[303820:]

FAT CATS LIKE YOU ARE TOO BUSY SPENDING THEIR MONEY...NON UNION POOR WORKING STIFFS ARE TOO BUSY SURVIVING...THE ONLY PEOPLE THAT ARE A THORN IN YOUR REAR END ARE THE UNION WAGES MIDDLE CLASS...WE ASK QUESTIONS...WE SEND OUR CHILDREN TO COLLEGE...WE BUY THE NEWS PAPER...WE WATCH THE NEWS; WE'RE THE THORN IN YOUR REAR END..WITH OUT UNIONS WE'D BE SLAVES...YOUR CUP OF TEA!


On Jul 06 08:50 PM Big Bubbette wrote:

> The sooner we are rid of unions the better. Start with all gettting
> rid of government unions.

Jul 06 10:35 PM

[Crank Monkey:]

Don't think of GM as an investment.

It's a welfare program.

Jul 07 10:34 AM

[ts2:]

Hey 303820
The author is a traitor?? - for writing what he thinks.

Jul 07 10:56 AM