Incentives Deal of the Month
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Michigan Fires Up $43.9M in Incentives for GM, German Parts-Maker
by JACK LYNE, Site Selection Executive Editor
BRIGHTON and WARREN, Mich. Michigan officials have cranked the ignition on US$43.9 million worth of incentives, steering them straight toward 868 auto-industry jobs.
"These incentives are necessary," Gov. Jennifer Granholm (D) explained in announcing the state's $13.5-million portion of the subsidies. "We cannot compete with our arms tied behind our backs."
The incentives are part of the state's competition for two projects, both in southeast Michigan. Only one of them, though, is a done deal.
Shortly after the incentives were approved, Germany's Dr. Schneider Automotive Systems Inc. (www.dr-schneider.com) announced that it will build a $26.5-million plant and establish its North American headquarters in Brighton, Mich. The operation, which will make interior auto-trim parts, could create as many as 350 new jobs by 2011.
The rest of the state and local subsidies are aimed at 518 jobs that are already in place at General Motors' (www.gm.com) transmission plant in Warren, Mich. The operation currently assembles four-speed transmissions.
GM has announced that it will pick one of its transmission plants to convert to making six-speed front-wheel-drive transmissions. Securing the assignment will solidify the future of the operation that the automaker selects.
GM has initiated layoffs at some of its Michigan plants. At the company's auto assembly plant in Lansing, for example, slowed sales have prompted laying off 900 workers.
Wolverine State officials are eager to ward off the possibility of a shutdown like the one Swedish appliance maker Electrolux AB announced in January. After months of closely watched deliberations, the company affirmed that cost-cutting concerns were prompting it to close its 2,700-employee refrigerator plant in Greenville, Mich., and moving the jobs to Mexico. (For more on the Greenville decision, see Project Watch from Jan. 19, 2004.)
Michigan officials formed an Electrolux Task Force to try to persuade the Swedish company to remain in Greenville. "It's us as a community putting our foot down and saying we won't lose any more manufacturing jobs to Mexico or China," said Granholm, a prominent task force member.
GM Conversion Will Cost $350 MillionThis time around, though, Michigan doesn't know who its competition is. GM hasn't released any details about which transmission plants are being considered for the six-speed conversion. Industry analysts have estimated that the conversion will entail an expenditure of some $350 million, including the operation's retrofit and new equipment.
The state's subsidies require that GM spend at least $299 million in converting the Warren transmission plant. If GM meets that requirement, it will qualify for a 20-year Single Business Tax credit from the Michigan Economic Development Corp. (MEDC at www.medc.michigan.org) that will be worth $10.4 million.
The Warren City Council also unanimously approved a 12-year tax abatement if the local plant is chosen for the conversion. One hundred UAW members who work at the facility attended the council meeting, roaring support after officials okayed the abatements, valued at some $19.6 million.
GM will decide sometime in the next several months which plant will be selected for conversion, company officials said. The converted plant is set to begin assembling transmissions in mid-2006.
Four years ago, Michigan's $256-million state and local incentive package helped persuade GM to announce two new plants just outside Lansing. The two projects, a stamping plant and an assembly plant, involved 2,800 new jobs.
Granholm sounded optimistic that the subsidies for the Warren plant would produce a similarly positive outcome.
"The incentive package puts us very close to sealing the deal and ensuring that these jobs stay in Michigan," she said. "Michigan continues to fight aggressively in the global arena to retain manufacturing jobs."
Dr. Schneider Plant Will Be Company'sThe Dr. Schneider Automotive Systems jobs, however, will be new. The Brighton plant, in fact, will be the first North American production operation for the Kronach, Germany-based company. The Michigan facility will design, engineer and manufacture plastic trim parts for auto interiors (e.g., cup holders, ventilation systems).
First North American Production Operation
Incentives, said company President Peter Jansen, were one of the major reasons that the German firm chose the Michigan site over a Canadian location in Chatman, Ontario.
The state's 12-year Single Business Tax credit for the project is worth $3.1 million, MEDC officials said. Dr. Schneider is also receiving a 12-year property tax abatement from the city of Brighton valued at more than $800,000.
Construction on the facility's first phase will begin immediately, with completion projected in October, Jansen explained. Production is scheduled to begin in January 2005.
Located on a 10-acre (four-hectare) site in Brighton, the facility will initially span 60,000 sq. ft. (5,400 sq. m.). Jansen estimated that later expansions will enlarge the facility to 152,000 sq. ft. (13,680 sq. m.).
Dr. Schneider already has a North American presence, but not in manufacturing. The company's continental headquarters is currently in Farmington Hills, Mich., and it has a sales office in the Michigan city of Novi. Both operations will be relocated to Brighton as the facility expands, Jansen said.
UM Analyses Show MajorEven with Michigan's incentives, the Dr. Schneider and GM projects still promise sizable payoffs for the state, according to analyses compiled by the University of Michigan.
Payoffs for State on Both Projects
The Dr. Schneider plant will produce worker income of $329 million over 15 years, UM estimated. GM's plant conversion will have a bigger return if Michigan lands it, with worker income of $2.9 billion over 20 years.
"I'll be satisfied when everyone has a job and we're not losing manufacturing jobs," Granholm said of signs that the state is building manufacturing momentum.
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