Print 24 comment(s) - last by Ammohunt.. on Dec 30 at 2:37 PM

Michigan wants to build batteries for hybrid cars in the state

The U.S. auto industry is one of the nation’s hardest hit industries in the current economic climate. Several of the nation's largest automakers were facing the very real possibility of bankruptcy. Dwindling sales and minimum cash reserves led the automakers to seek help from the U.S. government.

The emergency loans were granted to GM and Chrysler recently totaling $13.4 billion. Governmental officials in Michigan aren't content to rely on these loans to power the major employers in the state and are looking to the future to lure new business into the sate that will bring jobs and bolster the economy.

Lawmakers and Gov. Jennifer Granholm from Michigan are offering up big tax incentives to battery firms to lure them away from Asia and into the U.S., specifically into Michigan where the battery technology can be used by automakers directly.

With hybrid vehicles and plug-in hybrids like the Chevy Volt at the core of the plan GM and other automakers have to save their companies, it makes sense for the state to want to bring the making of all key components to Michigan. The lithium-ion batteries are perhaps the most important component of any hybrid vehicle.

Sen. John Pappageorge told the Detroit News, "It is imperative that Michigan possess this technology to keep Michigan the center of car manufacturing."

Lawmakers from the state say that not only is Michigan lacking in battery technology companies, but the entire U.S. is lacking as well. Granholm said, "They [GM] are going to produce the Volt. ... The battery that is going to power the Volt -- we intend that to be made in Michigan."

Michigan is offering battery companies refundable tax credits to lure them to the state. Refundable credits go a step further than tax breaks; they are like a rebate for production expenses and can require the state to write checks to businesses if the credits exceed their tax liability. The tax measure was approved by the Senate 31-3 and was approved by the House 94-0.

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Moral hazard
By Ringold on 12/29/2008 7:10:21 PM , Rating: 2
This exemplifies why the auto bailout is a bad idea.

Michigan is getting whacked, for the last decade in particular it has paid the price for its failed industrial policy. In the face of this, the Governor refuses to acknowledge the faults of the domestic automakers, going on national TV and making herself look like an amazing idiot by saying things like Toyota has a cost advantage because foreign governments have socialized medicine. Sorry, the South failed at its attempt to become a separate nation and no Southern state has socialized medicine. Instead of asking itself penetrating questions, like what about their method of running the state has contributed to their woes, they now attempt to augment their old policies with a new favored-son pick-a-winner industry, batteries. In other words, central planning failed them so far, so their response is more central planning and micromanagement. Even if it goes no where, they can afford to continue to meander about in its response, because the warm embrace of Obama will take hold soon and the federal money spigots will bust open.

Compare this to Ireland. Facing economic collapse and malaise, and no one willing to provide a massive bailout, they asked those sorts of tough questions and had a deathbed conversion to capitalism. They got a little help from the EU, but not enough to of made a difference had they not made significant structural changes. Ireland went from being the poor man of Europe to one of the wealthiest countries in the EU and possessing one of the freest economies, referred to as the "Irish Miracle."

Spare the rod, spoil the child?

If Michigan had learned anything from what is happening to them, they'd be cutting taxes across the board for business and reforming labor laws, not this targeted nonsense. Why not declare the entire state a FEZ, or Free Economic Zone, similar to some tax-free areas of South America and Asia? It works for them..

RE: Moral hazard
By wjcott on 12/29/2008 10:23:58 PM , Rating: 2
Without going into your points and suggestions, which I think are good, I just wanted to clarify the purpose of the emergency loans (which I consider a pseudo-bailout). The purpose of the loans is not to limit or minimize the hardships felt in Michigan as much as it is an attempt to minimize the impact felt throughout the country.

A failure of these companies will result in the government (aka the citizenry) covering a significant number of pensions (65% of what the Big 3 would pay). Also, many of the other pension funds in the country have significant funds tied up in these companies. On top of these two points, it is anticipated that the creation of the VEBA will return competitiveness to these companies in the not-to-distant future.

RE: Moral hazard
By Ringold on 12/30/2008 6:35:29 AM , Rating: 2
I'm not familiar with the status of GM's pension fund, but if it's either empty or a set of funds that would be given to bond holders then you're right about that, the government would be on the hook. As for other pension funds being invested in GM, their only possible excuse is perhaps indirect exposure via index funds. If that is the case, as far as equity exposure goes whats the difference between the -94% 10 year performance it has had and a total loss? Nothing really. Existing bond holders, last I heard, will be getting their principal wrote down to 30 cents on the dollar, which is already pseudo-bankruptcy. If Pelosi and the UAW get their way, it may be written down to 20 cents or less. Bottom line, the money that would be lost has largely already been annihilated.

As for a return to competitiveness, perhaps. Congress can't mandate cultural change inside these firms. They could help; something like prepackaged bankruptcy with debtor-in-possession financing would be good in many ways. Knocking the UAW down a notch and getting concessions from older workers would help. Giving the Big Three the political green light to close any facility they feel they need to would help. Obama has a decent set of economic advisors, but it will be Congress, I think, that'll be the huge problem. With Pelosi and the ideology she has espoused over the years running the show, I just have no confidence the hard calls will be made. Of course, I hope I'm surprised and my skepticism is misplaced, but we'll see. ;)

"We basically took a look at this situation and said, this is bullshit." -- Newegg Chief Legal Officer Lee Cheng's take on patent troll Soverain
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