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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 administrations 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.
Original Article
| What's Behind GM's Decision To Build Its Small Car in Michigan by Tom Lindmark, July 6, 2009 |
There’s an interesting story in the WSJ concerning GM’s 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.
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.
| ButThenWhat.com is an attempt to connect dots and figure out what is going on in business and politics, stripping away personal interest. Lindmark's Bio Visit the blog at ButThenWhat,com. |
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