Who's Subsidizing the Electric Car?

Posted by Phil Mattera, Clawback at 4:50 AM on September 9, 2008.

Flint Â… General Motors Â… electric car Â… subsidies -- where to begin?

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 companyÂ’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 Â… General Motors Â… electric car Â… 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 VolkswagenÂ’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
FlintÂ’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 GMÂ’s plans in Flint, which
calls itself the “birthplace of General Motors” and has been
celebrating the 100th anniversary of the companyÂ’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 MooreÂ’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 companyÂ’s bottom line. ItÂ’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 GMÂ’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.”

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