Rick Haglund: Will Michigan’s big tax incentive bet pay off in new auto jobs?

Michigan’s new economic development incentives, mostly designed to help Michigan better compete with other states for new electric vehicle assembly and battery plans, remind me of a hilarious scene in the 1996 hit movie, “Jerry McGuire.”

McGuire, a sports agent played by Tom Cruise, is desperate to keep pro football client Rod Tidwell, portrayed by Cuba Gooding Jr., from bolting to another agent. Before he signs a contract, Tidwell makes McGuire repeatedly shout into the phone, “Show me the money!”

It looks like automakers will be demanding that state and local governments show them billions of taxpayer dollars as they build battery plants and retool vehicle assembly plants in a historic transition to electric cars and trucks. 

Whether these public investments will ultimately pay off in a net increase in Michigan auto jobs is debatable.

In the early hours of Wednesday morning, the Legislature overwhelmingly approved $1 billion in incentives to lure auto and other business investments to Michigan. Gov. Gretchen Whitmer is expected to sign the legislation.

Lawmakers were spurred into action after Kentucky and Tennessee offered Ford Motor Co. more than $1 billion in combined incentives to build an electric truck assembly plant and battery plant in Tennessee and two battery plants in Kentucky.

There’s some delicious irony here. While the legislative package won bipartisan support, all the bills were introduced by Republican lawmakers. A decade ago, Republicans strongly supported then-Gov. Rick Snyder’s strategy of eliminating tax credits and cutting the business tax rate. 

Republican Snyder called tax incentives “the heroin drip of government.” Many Republicans still regard such incentives as picking winners and losers or, even worse, as “corporate welfare.”

It’s also amusing to see Republican lawmakers, most of whom don’t believe that climate change is caused by human activity, enthusiastically embrace incentives to produce electric cars aimed at reducing planet-warming greenhouse gases.

But there’s nothing that excites elected officials on both sides of the aisle more than being able to announce they beat out other states for a big, new auto plant.

We are likely on the cusp of one of the most expensive economic development incentive wars ever as states compete for hundreds of billions of dollars of investments automakers expect to make over the next few years.

And the battles will be waged quickly as automakers race to meet ambitious electrification goals. U.S. automakers Ford, General Motors and Stellantis (formerly Fiat Chrysler) have pledged that up to 50% of their sales will be electric vehicles by 2030.

Huge investments will be necessary to reach that goal, and automakers expect states to put skin in the game. The states are more than willing to do so, despite research showing that economic development incentives often play no role in business location decisions.

“Everyone in the game is playing with really big incentives,” said Kristin Dziczek, senior vice president of research at the Center for Automotive Research in Ann Arbor.

The first project in Michigan taking advantage of the state’s new incentives is likely to be in the Lansing area, where GM is considering construction of a $2.5 billion battery plant that could eventually create 1,700 jobs.

Lansing City Council members have voted to support GM’s state Renaissance Zone application. If approved by the state, the battery plant would be exempt from most state and local taxes for 18 years.

Putting the plant there seems like a logical decision, with or without incentives. GM already owns the proposed site, which would serve the automaker’s two assembly plants in the Lansing area.

But GM holds the trump card and it’s highly unlikely Michigan will call its bluff by denying incentives for the project.

“The whole geography of the industry is changing and incentives are playing a major role in that,” Dziczek said.

But Michigan’s long and lucrative financial support for its auto industry has stopped its steady shrinkage.

Michigan has about 44,000 jobs in auto manufacturing plants, less than half the number of auto-building jobs in the state 20 years ago.

New hourly jobs assembling batteries and vehicles might, at best, recover some of the thousands of engine, transmission and related parts jobs likely to be lost as the internal combustion engine disappears.

“There is a stack of these companies in Michigan that are in absolute peril,” said Alan Baum, a West Bloomfield automotive analyst who works with auto suppliers. 

While auto manufacturing and parts production jobs still play an important role in Michigan’s economy, the state needs a stronger focus on growing the technical and management side of the auto industry.

Lansing lawmakers freaked out when Ford announced major electric vehicle plant investments in Tennessee and Kentucky in September. But there was hardly a peep when electric truck maker Rivian moved its headquarters from Michigan to California last year to take advantage of software engineering talent there.

Rivian announced Thursday it would build a $5 billion truck assembly and battery plant in Georgia, employing as many as 10,000 workers.

That points to another hard truth about Michigan’s new economic development incentives: they likely won’t attract battery or other auto plant investment from non-Detroit automakers that have comfortably established themselves in southern states.

Those mostly Asian and European companies account for slightly more than 60% of U.S. auto sales. University of Michigan economists predict Detroit automakers’ collective market share will continue its long-term decline for at least the next two years.

It’s hard to see how Michigan’s new economic development incentives will change that trajectory.