Why Ford Left $115 Million on the Table By Shuttering the Wixom Assembly

The Detroit News is reporting this morning the lengths to which the Granholm administration went to try to keep the Ford Wixom plant open. Wixom is scheduled to be one of 12 plants shuttered as part of Ford's "Way Forward" plan.

It appears that (according to the Detroit News) the state offered the following:

• Michigan Economic Growth Authority (MEGA) tax credit worth $98.5 million*
• City property tax abatements worth $13.8 million
• Michigan state property tax abatements worth $3.72 million
• Single Business Tax (SBT) credits worth between $975,000 and $2.7 million*
• $2 million in worker training funds

*I'm not sure what the difference between these two is...from my understanding of the MEGA credit, I was under the belief that the MEGA was an SBT credit. Regardless, even if you cut out that random SBT credit line, we are still talking about close to $110 million.

This is a huge amount of tax credits that Ford left on the table in their decision to shutter the Wixom plant. It's my belief that if Ford left that much in tax credits on the table, it means that they made their decision based purely on the business case surrounding the products being built by the plant, and not the "business environment" or "tax policies" of Michigan. I'm kind of disturbed with the tone the story takes, which appears to be questioning the use of targeted economic development incentives.

Despite free-trade-first folks like Gary Wolfram of the Mackinac Center for Public Policy making comments like "this is simply a statement that taxes are too high and the Governor recognizes it", it actually shows that Michigan has tools available to level the playing field in situations where taxes are the issue. The state can use the MEGA SBT credits and worker training $ available to them to make them competitive with any other state in the union.

But Wolfram's posturing to the contrary, the problem here wasn't our "business environment" and it certainly wasn't our "tax policies", because MEGA allowed Michigan to level that playing field. The problem here was that Ford was making some really crappy and out-dated products at the Wixom plant, and the costs associated with updating the product far outweighed the benefits.

This wasn't an issue where Ford was looking to make the product elsewhere. Because in cases like that, taxes may still be the issue. For instance, lets look at the Minnesota assembly, which is a plant still hanging in limbo. Minnesota's plant, which builds the low-selling Ford Ranger pickup, is not an albatross hanging around Ford's neck. The Minnesota plant also builds the F-series pickup, the Crown Vic and the SuperCab, all of which have been stronger selling vehicles than anything coming out of Wixom. If Ford shutters the Minnesota plant, they can't readily boost production of these vehicles at the other production facility equipped to build them, their Kansas City plant. In this type of a situation, Minnesota has some leverage to use economic development incentives to help make a better case for remaining open.

In contrast, Wixom's plant built the Lincoln LS, which without a redesign, was a vehicle needing to be axed. And guess what, Ford did just that when it announced at the beginning of February that it would be axing the Lincolm LS. In addition, the Lincoln Town Car, also currently built in Wixom, will finally get a re-design. But that will be off of the Montego platform, a platform assembled in Chicago. The final two vehicles built in Wixom are the Ford GT and the Ford Thunderbird, both of which are scheduled to be axed.

Although I've spoken before on the desire of Ford to shop around when they make their decisions on plant closures, the Wixom plant was not one of those situations. Ford wasn't going to be trying to find out what different states will provide in terms of economic development incentive packages for locations to build vehicles they will no longer be making. It is unfortunate that no tax credit, or "better tax policies" are going to change the mind of a company looking to cut a crappy and out-of-date product.

The News also quotes David Sowerby, the chief market analyst with Loomis Sayles & Co. in Bloomfield Hills, who luckily rebuts the free-trade rhetoric provided by Wolfram. Sowerby noted that "the state did everything in its power to keep the plant open...but the state can only do so much." Here in Michigan, we already have the ability to offer a more level playing field when it comes to taxes. We do it with targeted incentives like the MEGA tax credit, and Governor Granholm made the right decision to offer the package to Ford. It can't be helped that Wixom made products no one was buying.

In addition, Anne Marie Gattari, Ford's spokeswoman, is very clear that Ford's decision making required the automaker to "consider many business factors including customer demand for the product, manufacturing flexibility, operating costs and efficiency." I guess you could lump taxes into the "operating costs" part of the decision-making criteria, but it doesn't appear to be the a priori reason that Gary Wolfram claims it to be. Gattari's claim makes sense...Ford cut Wixom not because of Michigan's economic outlook, and certainly not because the State of Michigan didn't do enough.

Don't buy the line of reasoning that the Governor and her administration didn't do everything in their power to save the Wixom plant. They did. And don't buy the line of reasoning that Michigan's "economic environment" and "high taxes" are the reason that Ford is closing the Wixom plant. It's not and they aren't.

Wixom is being closed because the LS, Thunderbird, GT and Town Car weren't selling. End of story.

Related:
Survivor: Ford Motor Company [internal]
DetroitWonk on the BBC [internal]