Who’s Subsidizing the Electric Car?

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Chevrolet Volt prototype

Announcements by U.S. cities of subsidy packages for new automobile plants have become commonplace, but the most recent one is fraught with irony. Last week, the city council of Flint, Michigan voted unanimously to grant several tax breaks to General Motors in connection with the construction of a facility that will produce engines for the company’s planned plug-in electric car called the Chevrolet Volt, which is expected to start production in 2010.

The deal includes a 15-year, 50 percent abatement of real property taxes on a new 500,000 square-foot plant, a 100 percent abatement of taxes on personal property (i.e. equipment) and the designation of the site as a brownfield redevelopment, which would make the plant eligible for additional state tax breaks. Flint officials have not yet released an estimate of the total cost of the package.

Flint…General Motors…electric car…subsidies—where to begin?

The typical U.S. auto subsidy story involves a foreign carmaker getting a ton of money to construct a new plant on a greenfield site in a Southern state where unions are scarce. Think of Volkswagen’s recent announcement it will open a plant in Tennessee, which follows a long string of investments by companies such as Toyota, Nissan, Honda and Hyundai in states such as Alabama, Mississippi and Texas.

The GM/Flint story, by contrast, involves a U.S.-based company investing in an established industrial area of a Northern city where the United Auto Workers is well entrenched. It is unlikely that Flint’s subsidies will match what foreign carmakers receive in the South, though it is worth noting that GM apparently intends to seek additional aid from the state of Michigan, which would presumably cover not only the engine plant in Flint but also the plant in Detroit/Hamtramck where the Volt will be assembled. GM, along with Ford and Chrysler, is seeking federal assistance as well.

There are apparently mixed feelings about GM’s plans in Flint, which calls itself the “birthplace of General Motors” and has been celebrating the 100th anniversary of the company’s founding with public events such as a parade of vintage GM cars. Yet Flint has also suffered through waves of GM downsizing that have cost the city many thousands of jobs over the past quarter-century. The travails of the city were made famous in Michael Moore’s 1989 documentary film Roger & Me.

The Volt facility, however, will create no new jobs. It will be staffed by about 300 existing GM workers in Flint, whose positions will be counted as “retained.” Flint City Councilman Jim Ananich told the Detroit News: “A lot of people still feel…General Motors owes us more than just a couple hundred jobs.”

The same argument could be made about tax revenue. It is true that GM is hemorrhaging cash—it posted a loss of more than $15 billion for the second quarter of this year—but will the property tax savings from Flint do much to rectify that mess? The tax payments would mean much more to a struggling city than to the company’s bottom line. It’s clear that GM would find a way to build the engine plant even without the abatements.

At the same time, I can understand why Flint would be willing to pay to get a foothold in a forward-looking part of GM’s operations. Subsidizing a plant that will manufacture a component for a cleaner-energy vehicle is more palatable than sinking money into conventional auto production. It should be noted, however, that the Flint plant will make the “dirty” part of the Volt—the gasoline-powered engines that will extend the range of the car beyond the 40 miles allowed by the battery-driven electric motor.

One can only hope GM is serious about the Volt. After all, this is the company that had developed an electric car—the EV1—a decade ago and declined to market it (as documented in the 2006 film Who Killed the Electric Car?). It is also odd that Vice Chairman Robert Lutz, the GM executive credited with promoting the Volt, is reported to have said privately earlier this year that global warming is “a total crock.”

I’d be a lot happier if a company without GM’s tainted track record were pioneering a plug-in electric car and creating lots of new union jobs in unsubsidized plants, but perhaps that’s something to expect not in a documentary but rather in a science fiction film.

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