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Tenn. may fold in GM bidding war, Stakes look too high for Spring Hill plant

June 13, 2009

Tenn. may fold in GM bidding war

Stakes look too high for Spring Hill plant

By Bonna Johnson and Chas Sisk

Tennessee may not have the will — or the cash — to continue in the incentives race that has helped keep GM’s Spring Hill auto plant up and running in the state for two decades.

Other Tennessee political leaders aren’t complaining that Gov. Phil Bredesen is backing off his pursuit of GM, even as most auto analysts give the Spring Hill plant the edge as the best location of GM’s new automotive line.

"If this opportunity does not fit the Spring Hill plant, another one will," said U.S. Sen. Lamar Alexander, R-Tenn., who was governor when GM announced it would build Saturn cars at Spring Hill and considers it part of his legacy.

And state Sen. Bill Ketron, a Murfreesboro Republican whose district includes Spring Hill, doesn’t like the idea of writing GM a big check when Tennessee is already in a budget crisis.

"After all the billions of dollars that have already been given by you and me and all the other taxpayers across the country, I think it’s incumbent on them (GM executives) to figure it out," Ketron said. "For them to come in and start demanding money — just write us a check — without even talking about tax incentives, there’s nothing we can do. There is no money."

GM is expected to announce by month’s end which of three idled plants will get the work, with a plant in Orion Township, Mich., viewed as Spring Hill’s main competitor. Most auto analysts regard the third contender, an old, closed plant in Janesville, Wis., as a long shot.

Bredesen on Thursday expressed dismay that GM was asking for "front-end money," $200 million or more, to locate production of a new small car at Spring Hill, when he had initially been told the selection would be based on the merits of the sites.

"Everyone is vying for jobs right now, so it’s probably a lot easier in this environment to negotiate some kind of state funding," said auto analyst Erich Merkle, who is based in Grand Rapids, Mich. "Call it what you will — a good old shakedown — but it is what it is."

One automotive business expert called it insincere for Bredesen to grouse about a bidding war when that is the way the game has always been played.

"Why is Governor Bredesen crying about this?" said Peter Morici, business professor at the University of Maryland. "What it comes down to is where is the least costly place" for GM to build cars.

Morici said it is disingenuous for the governor to complain about GM’s demands when Tennessee lavished incentives to lure Volkswagen to Chattanooga last year. "I think he has a memory problem," Morici said. It took an incentive package totaling more than half a billion dollars to bring Volkswagen’s assembly plant to Chattanooga, including
$229.75 million in cash incentives from the state, contributions from local governments and tax credits.

Tennessee spent a combined $95 million to attract Nissan’s assembly plant to Smyrna in 1983 and the General Motors Corp. Saturn plant to Spring Hill in 1985. In addition, the state gave GM $35 million for retraining of Spring Hill employees so that the plant could be reopened to produce a new Chevrolet vehicle.

GM Chief Executive Officer Fritz Henderson has said the carmaker is evaluating the three idled plants along 12 criteria, though neither the company nor Bredesen has listed those requirements. Bredesen’s press office said the governor was not available Friday to elaborate on his earlier remarks.

The governors of Wisconsin and Michigan aren’t publicly flinching over GM’s financial demands, as Bredesen has done.

Wisconsin Gov. Jim Doyle "is working aggressively to put together a competitive package," spokeswoman Carla Vigue said.

Michigan Gov. Jennifer Granholm and her economic leaders also are fighting aggressively for GM’s work. "With that said, we are not going to lay our cards on the table publicly," said Liz Boyd, Granholm’s spokeswoman.

Spring Hill plant has edge

In terms of facilities, industry analysts largely give Spring Hill the edge because of its flexible assembly line and recent investments toward improvement. GM spent $690 million in 2007 to retool the plant to build the Chevrolet Traverse crossover vehicle. Spring Hill also is the newest of the three plants in consideration for the small car and would not cost as much to retool.

"If it’s just based on a gut feeling, outside of political considerations, it seems to me that Spring Hill would be the likely winner," said David E. Cole, chairman of the nonprofit Center for Automotive Research in Ann Arbor, Mich.

But political and other factors could come into play, including Michigan’s home-state advantage and Tennessee’s red-state status.

"Maybe your governor is resigned to the fact that this just isn’t as important to him as GM believes it is," Merkle said. "Maybe he feels he can offset the demise of Spring Hill with the supplier base and Nissan there and Volkswagen coming in."

Michigan, on the other hand, has more to lose, he said.

"They’re pretty hungry to keep it," Merkle said. "I have to believe that the jobs may be much more important and coveted by the state of Michigan as it related to the small car than by the state of Tennessee."

George Peterson, president of auto industry consulting firm AutoPacific, said given Michigan’s dismal economy and skyrocketing unemployment, "To the extent they can, Michigan will bring out the big guns to keep the jobs in the state."

They believe GM will either shut the plant or sell it, perhaps to carmakers from China or Korea.

If that happens, it shouldn’t be a fatal blow, said Malcolm Getz, a Vanderbilt University economics professor, who noted that Smyrna bounced back from the closure of Sewart Air Force Base in the early 1970s. Much of the area has since been redeveloped.

"It’ll take a number of years for it (the Spring Hill plant) to come through, but they’ll find that it has water and sewer and power and access roads and transportation — it has value. There will be bidders for it," said Getz, who specializes in urban development.

Negotiations continue

Despite other major economic development investments, such as those in solar technology and Volkswagen’s new plant, Spring Hill still plays an important role in Tennessee’s economy, said Bill Fox, a professor of economics at the University of Tennessee.

"Spring Hill remains one of the biggest manufacturing facilities in Tennessee. I have no doubt the governor and others regard it as very important," he said. "I don’t think the governor would say that one job is more important than another."

State Rep. Ty Cobb, a Columbia Democrat whose district includes the Spring Hill plant, said Bredesen’s comments should be seen as part of the ongoing negotiations with GM.

He doubted that GM will make its decision solely on financial incentives and will instead take into account factors such as Tennessee’s advantageous location, the recent upgrades to the Spring Hill plant and the favorable labor deal that local autoworkers have struck with the company.

"That’s going to have to be taken into consideration," he said. "The new GM that you have has got to make money."

But he would understand if the governor refused to give in to GM’s demand. "We’ve got some money in the reserves, but we can’t throw away $200 million," Cobb said. "He’s got to represent all the taxpayers of Tennessee."

Laura Lefler, spokeswoman for U.S. Sen. Bob Corker, R-Tenn., said Corker "believes the governor is thinking this through in a very prudent and thoughtful way."

U.S. Rep. Lincoln Davis, a Democrat, whose district includes Spring Hill, wants to give Bredesen and state economic leaders "an opportunity to confer as to what the state’s options are and how best to respond," according to Davis’ congressional office.

"Governor Bredesen knows what he is doing when it comes to creating a good environment for auto jobs in Tennessee, and I’m sure he will make the right decision in this case," Alexander said. "Tennessee has too many advantages for Spring Hill to remain idle for long — a central location, hundreds of suppliers, low costs, a superior four-lane highway system, a right-to-work law and good workers."


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