Daily Management Review

Ford to invest $3.1 billion in Michigan state


Ford has struck a deal with Michigan government to invest $3.1 billion in the state in exchange for tax credits.

American automobile major Ford Motor Company has vowed to invest $3.1 billion in its home state of Michigan.
The move by the company is aimed to keep the attractive tax breaks of the state capped at $2.3 billion. The investment plan was made under an exclusive deal by Gov. Rick Snyder. The plan will pave way for Chrysler and GM, the other two major auto companies in the state to follow suit.
The state has also approved a new change to Ford's Michigan Economic Growth Authority tax credits. This is the first milestone by the Governor’s administration to help stop the state's $9.38 billion long-term liability from becoming a burden to taxpayers.
Now the Governor’s move would be to bring an investment plan from the other two companies which are currently eligible for tax credits through 2031. While General Motors Co. has a tax credit of $2.1 billion, the former Chrysler Group LLC has around $1.3 billion standing in tax credits.
Ford meanwhile is in advanced talks with the helm of United Auto Workers over a new contract in which the union will try to wring in more production and vehicle lines commitment from Ford in its US plants. Hence, accepting the Michigan State’s investment plan seems like a two-pronged approach for the automobile major.
Ford has squarely agreed to spend an additional $3.1 billion on Michigan facilities through 2025, which is almost double the automaker's initial capital investment commitment. The tax credits that would be doled out to Ford would help in retention of 40,200 jobs, which is more than 91 percent of Ford's in-state workforce.
Elaborating on the nature of the investment, Ford's regional director of state and local government relations Charlie Pryde said that the investment would mostly be focused on manufacturing equipment and retooling plants in Michigan.
The tax credit meanwhile has been revised from $6.5 billion to $9.38 billion over the next 16 years. The state has been giving away tax credits to the automobile companies during the heydays, but with the recession and lull in global demand, the state has become a direct victim of its dependence on the industry. Michigan gave away such large multimillion-dollar tax credits to businesses that created jobs under former Republican Gov. John Engler's administration. But with inflation and added costs, Ford's 2009 and 2010 tax credits have more than doubled in value. The company has been given a relaxed window of another ten years to claim the tax credits.
GM was the first beneficiary of the tax credits when it got a deal worth $1b billion in 2009. The tax credits have been amended over the years. The company is now in talks with Michigan state officials to strike a deal akin to Ford.