Michigan Economy Gets Another Hard Blow To Absorb

Story from Detroit Free Press

NEW YORK -- Half of the 14 General Motors Corp. factories slated to be closed are in Michigan, another devastating blow to communities throughout the region that have endured cutbacks for years.

The Michigan facilities employ an estimated 9,000 salaried and hourly workers, according to GM's Web site.

A bright spot for the state, however, is that one of the assembly plants slated to be idled -- Orion Assembly -- is being considered for retooling to make a yet-to-be named small car that was promised as part of the most recent round of labor negotiations with the UAW.

Orion was one of several plants placed on standby status by GM, which is considering bringing new work to three sites. The others are an assembly plant in Spring Hill, Tenn., along with a recently closed facility in Janesville, Wis.

"Those will be the three plants we will consider," said Tim Lee, GM North America vice president of manufacturing.

The plants that do not receive the future small-car project likely will be closed.

Erich Merkle, an auto industry analyst, said the Orion plant has the benefit of being close to the auto industry's supplier base in Michigan. He said the Janesville plant is probably too old to get the work.

"Spring Hill is your toughest competition," he said. "It's the newer plant, and they make engines there, so it's not just an assembly facility."

Four assembly plants were targeted for closure or standby in addition to the Spring Hill and Orion facilities.

GM's Orion assembly plant, which builds the Chevy Malibu and Pontiac G6 midsize cars, is to be put on standby in September and the Pontiac facility, where the Chevrolet Silverado and GMC Sierra pickups are built, is to be closed by October.

The Orion plant has about 3,400 hourly and salaried workers, while the Pontiac plant had 1,470 workers this spring, the company's Web site said.

The fourth assembly plant on the closing list is in Wilmington, Del., where the Pontiac Solstice and Saturn Sky are built. The plant employs about 1,000 people.

Four stamping plants were slated for closure or standby status.

The Grand Rapids stamping plant, which already was slated for closure, is to close this month. It had 800 workers at last count. The Pontiac stamping plant, which has nearly 1,300 workers, is to go to standby in December next year. The company also announced six powertrain facilities are to be closed.

In Michigan, the Livonia Engine, Flint North Components and Willow Run plants are to close next year. The three facilities employ more than 2,100 people.

"Under this plan, the new GM will achieve full capacity utilization of its assembly operations in 2011, two years ahead of what was scheduled in its Feb. 17 viability plan submission," the company said. "This will result in lower fixed costs per vehicle sold, and lower and more efficient capital investment."

In addition to the 14 plants being closed, GM's Service and Parts Operations will end operations at parts distribution centers in Boston, Columbus, Ohio, and Jacksonville, Fla., by Dec. 31.

Michigan Among Several States Wooing Hollywood

Story from Associated Press

BALTIMORE (AP) — Many states that are cutting spending on schools, roads and other basics have been lavishing hundreds of millions of dollars in incentives on Hollywood studios to lure TV and movie productions — this, despite scant evidence that taxpayers come out ahead on such deals.

An Associated Press survey found that states competing for projects handed out $1.8 billion in tax breaks and other advantages to the entertainment industry from 2006 through 2008.

Several states have even sweetened their incentives recently or are considering doing so, for fear that if they don't land the next major motion picture, someone else will.

"The industry has been able to play off North Carolina against South Carolina against Louisiana against Georgia. Louisiana raises its incentives, and it puts pressure on South Carolina, North Carolina and other states to do likewise," said Bob Orr, a former North Carolina Supreme Court justice who heads an anti-incentives group called the North Carolina Institute for Constitutional Law.

Some states argue that the tax breaks pay for themselves in revenue. Many others contend that even if tax revenue takes a hit, the film industry boosts their economies with an infusion of cash and jobs.

Production companies spend money on sets, props, caterers, and salaries for actors, extras and crew members. Movie crews eat at restaurants and stay in hotels while in town.

Movie shoots can also give a place a little Hollywood glamour, which can, in turn, boost tourism — something that has happened in Durham, N.C., where the 1988 Kevin Costner comedy "Bull Durham" was shot, and in Savannah, Ga., the setting of the 1997 film "Midnight in the Garden of Good and Evil."

"I relate this to creating jobs similar to the way you would turn on a light," said Republican state Rep. Stephen L. Precourt of Florida, who is pressing to increase the state's incentives. "Within days, people could be working here under this incentive program."

New Mexico and New York commissioned studies by the accounting firm Ernst & Young that found the tax credits pay for themselves by producing more revenue than they sacrifice. The studies' authors estimated that state and local governments in New Mexico brought in $1.50 in revenue for every dollar spent on tax credits, while state and local governments in New York state and New York city generated $1.90.

But many economists and policy analysts who have studied the issue independently contend that tax breaks for the TV and movie industry are rarely break-even deals for states, in part because the jobs created are often short-lived. Even the revenue departments in some states would agree.

Connecticut's revenue department, for example, found in 2007 that every dollar in tax credits generated only 20 cents in new tax revenue. Connecticut gave away an estimated $70 million in tax revenue that year.

"The credit does not 'pay for itself,'" Jennifer Weiner, a policy analyst for the New England Public Policy Center at the Federal Reserve Bank of Boston, wrote in a January report about Connecticut's incentives. "Increases in economic activity spurred by the film credit generate some additional tax revenue for the state from a variety of sources. This additional revenue is likely to offset some, but not all, of the initial cost of the credit."

The AP surveyed the 41 states, plus the District of Columbia, that offer rebates, grants or tax credits to cover production costs for movies, TV shows and commercials, and found they committed $1 billion last year alone. New York was the leader in 2008, giving away or pledging $275 million in tax credits to productions that shot in the state that year.

New York said the money bolstered the state's economy with $2.2 billion in direct spending. The state had no immediate estimate of how much tax revenue that translated into.

Louisiana, one of the biggest incentive states, pledged an estimated $358 million in tax credits to filmmakers between 2006 and 2008, including $27 million for last year's Oscar-winning "The Curious Case of Benjamin Button." Now state lawmakers are considering more than $150 million in cuts to higher education.

Filmmakers have grown accustomed to shopping around for the best deal.

California, which is grappling with a projected $24 billion budget deficit, launched an incentive program this year to keep its homegrown business from migrating. Movie-star Gov. Arnold Schwarzenegger even pledged to make a cameo in the Warner Bros. blockbuster "Terminator Salvation," now No. 2 at the box office, if producers shot it in California. The movie was made in New Mexico.

Little illustrates the competition between states better than Miley Cyrus' new movie project, "The Last Song." In April, North Carolina's governor scheduled — then canceled the same day — a news conference to announce the movie would be filmed in Wilmington. The reason for the cancellation: the Walt Disney Co. was considering Georgia, which offers incentives of up to 30 percent versus North Carolina's 15 percent.

Shooting is to begin in Georgia this month.

Determined not to miss out next time, legislators have introduce a bill in North Carolina — a state facing a $3 billion budget gap this year — to increase incentives to 25 percent of production costs.

Some states have started rethinking their show business giveaways. Wisconsin Gov. Jim Doyle wants to eliminate the incentives he signed into law a year ago. A legislative committee has instead proposed capping the annual payout — but only for two years — to help solve Wisconsin's budget shortfall.

Michigan, which offers one of the most generous tax credits in the nation, equal to 42 percent of production costs, gave away $48 million in incentives last year and is expected to pay out $198 million in the 2010 fiscal year, which starts in the fall. And that's in a state that faces an estimated budget shortfall of $700 million for 2010.

State Sen. Tom George said he supports Michigan's incentive program because of the production activity it has drawn to his job-starved state. But he has no illusions about whether Michigan brings in more tax revenue than it gives away.

"We don't get back what we pay out," said George, a Republican who wants to cap the annual payout, either on a per-film or per-year basis. "We don't even get back half of what we pay out. I don't even know if we get back a quarter of what we pay out."

GM Files For Bankruptcy Protection

Story from the Wall Street Journal

DETROIT -- General Motors Corp. filed for Chapter 11 bankruptcy early Monday, marking the humbling of an American icon that once dominated the global car industry and setting up a high-stakes gamble for U.S. taxpayers.

The bankruptcy filing, made in the U.S. Bankruptcy Court in Manhattan, marks the climax of a lengthy debate over the auto maker's future after it sought a bailout from the U.S. government in December to stay alive. In the end, GM couldn't complete its restructuring out of court and filed for bankruptcy-court protection to get billions more in aid from U.S. taxpayers.

The question now facing 56,000 auto workers, 3,600 GM dealers and the Obama administration: Will it work?

The U.S. government has agreed to provide GM with another $30 billion in aid, in addition to the $20 billion the auto maker has already borrowed, to see it through its restructuring and exit from bankruptcy protection. In return, the government will get a controlling stake in the company. The Canadian and Ontario governments are putting in $9.5 billion for a 12.5% stake.

The reorganization faces myriad risks, ranging from legal challenges to the uncertainty of when consumer demand for new cars will rebound. In becoming GM's new owner, the government is also entering largely unexplored terrain filled with political minefields, notably the possibility of meddling by Congress in the company's daily operations and business plans.

In bankruptcy, the auto maker will split apart into two companies: a leaner new GM and a so-called old GM, which will include the pieces that will be wound down. GM intends to accomplish the split through a Section 363 sale, which would transfer the new GM assets to an entity owned by the U.S. and Canadian governments, the United Auto Workers union and the company's unsecured creditors.

Even if a new GM emerges swiftly from bankruptcy, the administration will face a thicket of challenges, including closing more than a dozen factories and shedding the Pontiac, Saturn, Saab and Hummer brands. Shepherding these unwanted parts of GM -- the so-called Old GM -- through liquidation in court could take years, with potential extra costs to taxpayers if the process bogs down.

Monday, GM said it will shutter 17 factories and parts centers by the end of 2011, including seven factories in Michigan and plants in Ohio, Indiana and Tennessee. Two of the closures had been previously announced, including a castings factory in Massena, N.Y., which closed May 1. Three of the facilities to close are parts centers and three factories could reopen if market demand rebounds.

GM's restructuring has been carefully planned by the company itself and the Treasury Department, but it faces some uncertainty now that its fate is in the hands of a bankruptcy judge. The judge chosen to handle the case will have a major impact on the outcome of the case, especially if dissident bondholders mount a legal challenge to the restructuring. There's also the risk that consumers will be scared off by the company's Chapter 11 filing, causing sales to fall even further.

And unknown is how the cost of restructuring both GM and Chrysler LLC would have compared with the cost of letting both companies fail in terms of lost wages, disruptions among car-parts makers and the broader economic fallout. Chrysler, which could emerge from bankruptcy as soon as Monday, will be controlled by Italy's Fiat SpA under its own risky revamping.

Bankruptcy should allow GM to pull off one of the most expedient downsizings in the industry's 120-year history. Long hampered by laws, union strife and management practices that kept it from fast action to fix problems, GM plans to eliminate almost all of its debt, halve its U.S. brands, shutter 2,600 dealers and rewrite labor contracts almost overnight.

Emerging sometime this summer would be a GM with a cleaner balance sheet and slimmer operations than the company that has posted deep losses since 2005. GM has burned through $33.6 billion in cash the past four years. Under its restructuring plan, GM will shed more than $79 billion in debt, gain work-force savings worth billions of dollars a year, close unneeded facilities and reduce its dealer network by 40%.

The Obama administration, for its part, has navigated the GM rescue so far with notable speed, clearing away many of the biggest obstacles in just months with less drama than many expected. In six to 18 months, GM could be a publicly traded company again, administration officials said.

Over the weekend, owners of a majority of $27 billion in GM unsecured bonds agreed to a sweetened offer to trade their investment for stock. Days earlier, the UAW signed off on a range of concessions.

GM at the last minute also found buyers for some unwanted subsidiaries, including German-based Opel, which is being acquired by a consortium led by Canadian auto-parts supplier Magna International Inc., and the Hummer brand, whose buyer remained undisclosed.

Long-term success for the company depends on a critical question: When will consumer demand for new cars rebound, and with what force? New-vehicle sales in the U.S. have dropped nearly 40% since January, to an annual rate of fewer than 9.5 million a year. At that level, even Toyota Motor Corp., the world's biggest car maker, is losing money.

Under the restructuring plan, the surviving New GM would break even when the rate of all new-vehicle sales in America reaches 10 million a year. In the view of many analysts, economic recovery should unleash pent-up demand, pushing U.S. sales far past GM's break-even point, though probably not within reach of the historic peak of more than 17 million sales back in 2000.

Yet some worry the New GM will emerge under the same management as its predecessor, minus longtime Chief Executive Rick Wagoner. After pushing out Mr. Wagoner in March, the Obama car task force gave the top job at GM to Frederick "Fritz" Henderson, a 25-year veteran whose father worked at the company.

In an interview Thursday, Mr. Henderson said he understands that federal officials want results. "They're expecting that we'll get the job done," he said.

GM won't prosper without halting the lengthy slide in its U.S. market share, to 22% in 2008 from 45% in 1980. It faces the old perception of poor quality that turned swaths of the American market toward foreign-brand models.

"I won't buy another GM," said Dennis Brown, a banker in Cypress, Calif., whose 1980s-vintage Pontiac Fiero and Chevy Chevette suffered a litany of mechanical problems. Current GM models have fared better in quality rankings.

Beyond quality, trendsetters typically shun Detroit-brand cars, a problem that is especially prevalent among highly educated buyers who also tend to purchase higher-margin vehicles. Car buyers who are college graduates account for 70% of European-brand car sales in the U.S. and 55% of Asian brands -- but only 39% of Detroit-brand car sales, according to J.D. Power & Associates.

GM hopes to counter its image as a maker of gas guzzlers with the 2010 introduction of the electric-powered Chevrolet Volt. Administration officials have played down the market potential of the Volt because of its expected $40,000 price tag, compared with less than $25,000 for the popular Toyota Prius, a hybrid gas-electric. Even at $40,000, moreover, the Volt will struggle to break even because of the cost of its technology.

GM's new deal with the UAW, meantime, promises to deliver considerable cash savings, and has been billed as capable of putting GM's labor costs on a level playing field with key rivals such as Toyota and Honda Motor Co. GM cut hourly costs, such as overtime provisions, supplemental unemployment and entry-level pay rates, by at least $1.5 billion annually.

But the car maker won't be entirely out of the woods. It faces heavy retiree-related costs that will cut into profits on every car and truck it builds.

Because of the way the UAW health-care agreement is set up, GM will still be sending about $600 million to the union annually in the form of preferred stock dividends. Even if GM builds two million vehicles a year in the U.S., a stretch in the current 10-million annual market, it will spend $300 in retiree health-care costs per vehicle it builds in the U.S.

GM faces another challenge related to pension obligations. Once flush thanks to strong investments, GM's pension funds, covering nearly 500,000 Americans, have been drained by the decline in the stock market and by a move by the company to increase pension payments to offset falling health-care benefits and entice older workers to retire early.

As of Dec. 31, GM estimated its U.S. pension funds were underfunded by $12 billion to $13 billion, and would need "significant contributions" as early as 2013.

GM Bankruptcy Report From MSNBC

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Day Of Reckoning Arrives For General Motors

Story from MSNBC

WASHINGTON - General Motors filed for Chapter 11 bankruptcy protection Monday as part of the Obama administration’s plan to shrink the automaker to a sustainable size and give a majority ownership stake to the federal government.

GM’s bankruptcy filing is the fourth-largest in U.S. history and the largest for an industrial company. The company said it has $172.81 billion in debt and $82.29 billion in assets.

As part of its restructuring, GM said it will permanently close nine more plants and idle three others to trim production and labor costs under bankruptcy protection.

Assembly plants in Pontiac, Mich., and Wilmington, Del., will close this year, while plants in Spring Hill, Tenn., and Orion, Mich., will shut down production but remain on standby. Powertrain plants in Livonia, Flint and Ypsilanti Township, Mich. will close next year, along with plants in Parma, Ohio, and Fredericksburg, Va.

Stamping plants in Indianapolis and Mansfield, Ohio, also will close. A stamping plant in Pontiac, Mich., will be idled but remain in a standby capacity. GM also said it will close service and parts warehouses in Boston, Jacksonville, Fla., and Columbus, Ohio, by the end of this year.

As it reorganizes, the fallen icon of American industrial might will rely on $30 billion of additional financial assistance from the Treasury Department and $9.5 billion from Canada. That’s on top of about $20 billion in taxpayer money GM already has received in the form of low-interest loans.

GM will follow a similar course taken by smaller rival Chrysler LLC, which filed for Chapter 11 protection in April. A judge gave Chrysler approval to sell most of its assets to Italy’s Fiat, moving the U.S. automaker closer to a quick exit from court protection, possibly this week.

President Barack Obama said Monday that a court’s approval of the sale of Chrysler's assets to Fiat will allow the automaker to emerge stronger from bankruptcy. He said in a statement that the decision “paves the way for the new Chrysler to successfully emerge from bankruptcy as a new, stronger, more competitive company for the future.”

The plan is for the federal government to take a 60 percent ownership stake in the new GM. The Canadian government would take 12.5 percent, with the United Auto Workers getting a 17.5 percent share and unsecured bondholders receiving 10 percent. Existing GM shareholders are expected to be wiped out.

The administration expects the new GM could emerge from bankruptcy in as little as 60 to 90 days.

President Barack Obama is scheduled to address the nation about GM’s future at midday from Washington, and GM CEO Fritz Henderson is to follow him with a news conference in New York.

GM’s filing comes 32 days after a Chapter 11 filing by Chrysler, which also was hobbled by plunging sales of cars and trucks as the worst recession since the Great Depression intensified.

The third of the one-time Big Three, Ford Motor Co., has also been stung hard by the sales slump, but it avoided bankruptcy by mortgaging all of its assets in 2006 to borrow roughly $25 billion, giving it a financial cushion GM and Chrysler lacked.

The downsized GM’s brands will be limited to Chevrolet, Cadillac, GMC and Buick. Its Pontiac, Saturn, Hummer and Saab operations will be either sold or closed. GM said it was finalizing a deal to sell Hummer, and plans for Saturn are expected to be announced within weeks.

GM, whose headquarters tower over downtown Detroit, said it believed the filing was not an acknowledgment of failure, but a necessary way to cleanse itself in an orderly fashion of problems and costs that have dogged it for decades.

Trading of GM shares was halted early Monday after they plunged Friday as low as 74 cents, the lowest price in the company’s 100-year history. GM will be kicked out of the Dow Jones industrial average because rules established by the News Corp. unit that oversees the index prohibit it from including companies that have filed for bankruptcy.

GM first sought help from the Bush administration and Congress last year as it was in the midst of being staggered by $30.9 billion in losses and seeing its cash resources shrink by more than $19 billion.

Consumers, worried about the economy and the future of GM, shied away from the company’s cars and trucks this year even after President George W. Bush promised loans and Obama followed through with billions more in assistance — plus a stiff set of new requirements GM was ordered to meet.

When GM failed to do so by a March 31 deadline, Obama forced out CEO Rick Wagoner and replaced him with Henderson.

Wagoner served at the helm since 2000 and was the face of GM when he first flew on the company jet to ask Congress for aid. After a firestorm of negative publicity, Wagoner rode in a hybrid Chevrolet Malibu from Detroit to Washington for a second set of withering questions before lawmakers.

But that amounted to only a sideshow as the automaker’s financial position worsened. Its revenues plunged almost 50 percent in the quarter ended March 30 and it racked up another $6 billion in losses.

The Henderson-led GM faced a government-imposed June 1 deadline to restructure, slash costs and modify contracts with its union and dealers. But meeting most of those demands, plus a late agreement by many bondholders to swap portions of the $27 billion in debt they are owed for shares in a new GM, were not enough to prevent the court filing.

In fact, it was an all-out sprint to Monday’s filing, as GM quickly sought to nail down deals with its union, bondholders and sell off brands and along with most of its Opel operations in Europe in an effort to appear in court with a near-complete plan to quickly emerge as a leaner company with a chance to become profitable.

In Germany on Sunday, the government agreed to lend GM’s Opel unit $2.1 billion, a move necessary for Magna International Inc. to acquire the company. The Canadian auto parts supplier will take a 20 percent stake in Opel and Russian-owned Sberbank will take a 35 percent, giving the two businesses a majority. GM retains 35 percent of Opel, with the remaining 10 percent going to employees.

In the U.S., the United Auto Workers’ ratification of concessions, announced Friday, will save GM $1.3 billion per year and bring its labor costs close to those of its Japanese competitors. The new UAW deal freezes wages, ends bonuses and eliminates some noncompetitive work rules.

It also moves billions in retiree health care costs off GM’s books. In exchange for its ownership stake, $6.5 billion of interest-bearing preferred shares, and a $2.5 billion note, the trust will take on responsibility for all health care costs for retirees starting next year. Higher health care costs alone accounted for a $1,500-per-car cost gap between GM and Japanese vehicles.

GM will offer buyouts and early retirement packages to all of its 61,000 hourly workers as it plans to shrink overall employment. The company also has about 27,000 white collar employees. In contrast, GM employed 618,000 Americans in 1979, more than any other company.

GM earlier outlined a plan to cut about 1,100, or 40 percent, of its dealers by the end of 2010. It also plans to shed about 500 dealerships that market the Saturn, Hummer and Saab brands.

But just cutting labor and overhead costs won’t be enough to save the company. It also has been working to streamline its engineering and design, as well as standardize many parts so they can go into multiple models.

The once powerful GM earns a place in history as the largest U.S. industrial company to file for bankruptcy protection, and the fourth-largest company overall to do so based on its $82.29 billion in assets.

Lehman Brothers Holdings Inc.’s September 2008 bankruptcy filing is the nation’s largest with $691 billion in assets, and likely served as a catalyst for GM — and Chrysler’s — downfall, as it hastened the erosion of credit markets, making it more difficult for consumers and dealers to finance new vehicles.

Attorney General Protests Blue Cross Rate Hikes, Offers Own Plan

Story from the Detroit Free Press

Michigan Attorney General Mike Cox filed a petition Thursday to stop proposed individual rate hikes for more than 400,000 individual Blue Cross Blue Shield of Michigan customers.
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"Blue Cross should stop putting profits over people and focus on its mission as the insurer of last resort," Cox said in a statement announcing the challenge.

Overall, average increases sought would be 56% for non-elderly people buying their own insurance; 42% for group conversion policyholders who purchase coverage they once had at work, and 31% for seniors with supplemental Medicare, also known as Medigap policies.

Michigan's Office of Financial and Insurance Regulation was to have ruled on the rate hikes by June 2. Now the office has 30 days from Thursday to hold the hearing.

Blue Cross has said it needs the rate hikes to offset mounting losses for its individual policies, to exceed $1 billion through 2011, according to Blue Cross estimates. It also is laying off or not filling 1,000 jobs, has frozen executive and board salaries and cut spending on advertising, lobbying and other expenses, the Detroit-based company has said.

In a statement, Blue Cross said that it would prefer not to raise rates but "unfortunately our broken regulatory system puts us in this uncomfortable position."

Cox has had mixed results with rate challenges.

He and Ann Arbor attorney Joe Aoun lost a challenge earlier this month of 2007 Blue Cross rate hikes for non-elderly people who buy their own Michigan health insurance. But Cox won a separate challenge in 2007 to raising Medigap rates.

Cox has issued his own 10-point plan to reform Michigan's health insurance industry. He said challenges like the one he filed Thursday will be reduced by proposals pending in the House.

Rep. Marc Corriveau, D-Northville, said he has tried unsuccessfully to work with Cox to frame the bills to retain his oversight. His proposals would allow the Attorney General to file a challenge to a rate hike, but would shorten the time he could do it.