Proximity to suppliers and a Pontiac stamping plant helped, but a whopping $1 billion in tax incentives and training support was an offer General Motors Corp. could not refuse to produce future small cars at its Orion Township assembly plant rather than in Wisconsin or Tennessee.
It was the type of bidding war from which Michigan has often limped away wounded and empty-handed. But not this time.
The state came up with a $779 million, 20-year Michigan Economic Growth Authority (MEGA) tax credit package. Separately, Orion Township offered a 25-year 100% personal property tax abatement, potentially worth $100 million over 25 years, according to township supervisor Matt Gibb. Oakland County offered $136.5 million in retraining funds.
In addition to saving 1,200 jobs at Orion, GM will invest between $600 million and $800 million to equip the plant to build up to 160,000 small cars annually, beginning in 2011. The body panels and structural components will come from GM's Pontiac stamping plant, preserving another 200 jobs.
Orion first will launch a subcompact car the size of a Chevrolet Aveo, now produced in Korea. Eventually, the plant will be able to assemble a slightly larger compact model, perhaps the Chevrolet Cruze, which launches next year at Lordstown, Ohio.
"Proximity to suppliers was a significant advantage, especially when it came to heavy materials such as axles and transmissions," said Rep. Gary Peters, whose congressional district includes the Orion plant. Peters led a "Make it in Michigan" lobbying campaign that gathered about 30,000 signatures in slightly more than a week, in an attempt to influence the decision.
"Let's not forget about our membership that produced three No. 1 J.D. Power quality awards in recent years," added Mike Dunn, chairman of UAW Local 5960, which represents Orion workers. "And the current (Pontiac) G6 and (Chevrolet) Malibu finished second and third in their segment in this year's quality survey."
By deciding to build the small cars in the United States, GM is defying the industry's conventional wisdom that small cars can only be profitably made in low labor cost countries such as Mexico, China, India or eastern Europe. The key is GM's labor agreement with the UAW that allows up to 25% of any plant's workers to be hired at a wage and benefit cost of $28 an hour, or about half of what veteran union workers receive.
"If they hire enough lower wage people, they can come within $100 to $150 of the cost of building a comparable car in China," said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor.
Troy Clarke, president of GM's North American operations, said talks are under way with the UAW about the process for staffing the assembly plant for the new small cars.
Dunn said Local 5960 already has on lay off 586 workers who are paid the lower Tier 2 wage.
With labor now accounting for 10% or less of the cost of producing a car, automakers are looking at other factors such as transportation and logistics costs when deciding where to build specific vehicles, too. So even when comparing factories in the U.S. and China, China is not necessarily the lower cost option.
"It can cost $850 per vehicle to ship from China to the U.S.," McAlinden said. "Plus you have inventory tied up at sea for weeks at a time."
Orion was to be placed on "standby" status because G6 production is slated to end as GM phases out the Pontiac brand and all Chevrolet Malibu production is consolidated at GM's assembly plant in Fairfax, Kansas.
