Howes: Auto tax credits win for Michigan, despite costs
In the case of former Gov. Jennifer Granholm vs. the mushrooming cost of tax credits to save auto jobs, Michigan won.
The state that put America on wheels, fueled the Arsenal of Democracy in World War II and survived the Great Recession has since 2010 seen a 48 percent increase in the production of new cars and trucks.
General Motors Co., Ford Motor Co. and FCA US LLC together earned net income of $7.2 billion last year, most of it attributable to strong results in the bellwether U.S. market. Profit-sharing payouts to hourly workers will range from $2,750 at FCA to $9,000 at GM.
Ford is planning to add 1,550 jobs at sites in Dearborn, Sterling Heights and Kansas City to satisfy surging demand for its new aluminum-clad F-150 pickup, a cornerstone of the Blue Oval's business. FCA's Jeep and Ram brands are powering rising sales volumes.
In exchange for the billions in outstanding credits blamed for tipping the state budget into unexpected deficit, Michigan gained revenue from income and sales taxes it otherwise would not have collected. It also gained jobs and reinvestment in communities walloped by the recession and bankruptcy.
The re-engineered automakers are more firmly rooted in their home state than anytime in decades, and more likely to stay that way because of their competitive position. That's a reality that looked far less certain as GM and Chrysler gutted through federally imposed bankruptcies that forced plant closings and job cuts.
The lights are almost all green, to extend the metaphor. But they're flashing red in the state capital because billions in tax credits extended in the late Granholm years are coming due faster than expected — a marker of the longest growth spurt the industry has seen since the 1960s.
That's a good problem to have, considering the possibly grim alternatives easily forgotten over a five-year run of profitability, stronger product line-ups and the burgeoning rehabilitation of Detroit's battered image.
The partisan response would lean toward excoriating Team Granholm for such short-sighted corporate welfare; to allege economic naivete in the face of terrifying business implosion; to see the giveaways through a gauzy rear-view mirror that fails to reflect the scope of collapse then.
Two thoughts: the positive reinvestment binge fueled by the Granholm-era credit bonanza is as much a part of her legacy as the expensive payback it now is demanding. And, second, how quickly they forget.
By Christmas 2008, GM needed a cash infusion from the U.S. Treasury to keep operating. Fiat SpA's Sergio Marchionne gained control of Chrysler without spending a single dollar. Ford's fears that the industry could tip into chaos prompted a secret pact with Toyota Motor Corp. and Honda Motor Co. to keep their mutual supply base afloat.
More specifically, the GM and Chrysler emerging from federally induced bankruptcy had choices. Among the hard truths, according to executives there at the time, is that the Granholm incentives now threatening to bust a hole in the state budget represented an offer Detroit's Big Three basically could not refuse.
"With rare exceptions," I wrote in 2011, "the program effectively ranks the home of the Detroit auto industry among the most competitive in the nation for investment in new products built in existing, union-represented plants."
A boon to Michigan? You bet. The so-called "Global MEGA" credits the state showered on its three automakers accelerated their retreat from states like Louisiana, Georgia and Virginia to concentrate production here at home.
"They made a compelling case," an industry executive close to the situation said at the time. "These are important tools in states."
Yet the underside of four years of growing sales, expanding production and fat profit-sharing checks to Michigan-based employees means the state's obligation to the credits is increasing. The automakers fulfilled their part of the bargain; now it's the state's turn.
Count on state legislators to wail and grandstand; to threaten with Michigan Economic Development Corp. with funding cuts; to demonstrate a cartoonish understanding of how the credits work; to conveniently forget the context in which they were issued.
It was an ugly time. The governor says he's personally involved in analyzing the problem and its longer-term implications. And neither he nor ranking members of his administration minimize the difficulty of the problem.
They shouldn't, because in the panoply of financial hardships to manage, this one is preferable to some of the alternatives that easily could have become reality.
Daniel Howes' columns can be found at detroitnews.com/staff/27151