Michigan's Job No. 1: Recovery

New York Times Article 12-27-2005
http://www.nytimes.com/2005/12/27/business/27state.html?th&emc=th

A Roadmap to Michigan's Future
http://milproj.dc.umich.edu/publications/roadmap/

December 27, 2005

Michigan's Job No. 1: Recovery
By MICHELINE MAYNARD

DETROIT, Dec. 26 - In another era, Jennifer M. Granholm's courtship of Toyota would have been considered heresy for the governor of Michigan, where American automakers and their suppliers fueled the economic engine for decades.

But with General Motors and the Ford Motor Company cutting thousands of jobs, closing plants and eliminating benefits for the shrinking number of workers still employed, the governor is vowing to "go anywhere, do anything" to find investment for her state.

And while the governor agrees that the state's monolithic economy has to be moved away from its dependence on manufacturing and toward high-tech industries, short term there is little she can do - or wants to do - to escape the auto industry's clutches.

While the pursuit of Toyota may strike some as desperate, it reflects her determination to draw an ace for the hand Michigan has been dealt. In July, she went to Toyota's offices in Nagoya, Japan, to promote sites in Michigan that could be home to a Toyota plant. She talked about the state's ample supply of skilled workers who have automotive experience and who would not need the degree of training that their counterparts at other Toyota plants in the United States have required.

Ms. Granholm, having landed a $150 million Toyota design center earlier this year, now has her eyes on a potentially bigger prize: an engine plant that Toyota may build in the Midwest.
"We want to make sure they know how welcome they would be here," she said in an interview last week in Michigan.

In an earlier era, Toyota might never have considered Michigan, where the United Automobile Workers union is such a powerful force. Nor would it have needed to, given its freedom to choose among union-averse areas nationwide.

But with Toyota on the verge of becoming the world's biggest carmaker, possibly eclipsing G.M. as soon as next year, a Michigan plant would take it to the center of the American automotive heartland. Last week, Toyota officials in the United States and Japan finally said they were giving serious thought to building a factory in Michigan, although a decision is still months away. Such is the new reality of Detroit, where what once seemed out of the question is now up for discussion.

And Ms. Granholm, the state's Democratic governor, acknowledges that. "We've got to transform Michigan. Change is imperative," the governor said in an interview last week.
"A Toyota plant in Michigan would be a very clear signal that this is the future," said Gary N. Chaison, a professor of industrial relations at Clark University in Worcester, Mass.

If anyone had any doubts about the impact of the auto industry's decline on Michigan, a report from the University of Michigan issued last fall put it bluntly. "Michigan's old manufacturing economy is dying, slowly but surely," declared the report, prepared by the Millennium Project at the university and called "A Roadmap to Michigan's Future." The economic shifts are "putting at risk the welfare of millions of citizens of our state in the face of withering competition from an emerging global knowledge economy."

But while her long-term goal is to diversify the state's economy and lessen its dependence on the auto industry, Ms. Granholm's immediate priority is to make sure car companies still provide jobs here.

Toyota has spent $16.3 billion during the last 20 years putting its North American plants in places like Ontario, Mexico, Alabama and Indiana, but never in the nation's automotive capital, where the U.A.W. is dominant. That trend initially caused some to view the governor's tactic as a Hail Mary pass. But her efforts now have a chance of bearing fruit.

"If we do a new plant, we would consider Michigan, along with other states," Dennis C. Cuneo, a senior vice president at Toyota Motor Manufacturing North America, said in an interview last week.

In some ways, a favorable decision would be a sign of continued cooperation with the governor, who came through for Toyota earlier this year when it was trying to acquire land to expand its technical center in Ann Arbor, about 45 miles from Detroit. Another developer seeking the same 600 acres in York Township offered a higher price than Toyota, but the governor prevailed when a court supported the state's decision to make the land available to Toyota.

Then the State Legislature passed an incentive package for Toyota worth $50 million, including tax credits - small change as far as such deals can go, but enough to impress Toyota officials that Ms. Granholm truly wanted them in her state.

"She really stuck her neck out for us politically, and we appreciated it," said Mr. Cuneo, who will play an important role in deciding whether Toyota will choose Michigan as the site for its engine plant.

But before that happens, Ms. Granholm must deal with a more immediate issue: persuading Ford Motor to spare its big luxury-car plant in Wixom, outside Detroit, which is on a list of plants that Ford may close when it announces an overhaul plan on Jan. 23.

The state is also bracing for a plant-closing announcement by the Delphi Corporation, which filed for Chapter 11 protection in October. One of Delphi's targets could be a big parts plant in Flint, a community already devastated by years of shutdowns.

Ms. Granholm's primary tactic is to persuade companies to consolidate operations in Michigan and shut plants elsewhere. Last week, she signed legislation granting $600 million in tax cuts to manufacturers, including a 100 percent tax break for companies that bring jobs back to the state in 2007 and 2008, and a specific break for Delphi, in a move to save its Michigan jobs.
Simply supporting manufacturing, however, would not be enough, argued the "Roadmap" report, which was led by James J. Duderstadt, the former president of the University of Michigan and now a professor of science and engineering there.

The report contended that the state's future relies on improving education and providing investment for advanced technologies that can create stable, high-paying jobs.
Less than a quarter of Michigan residents have college degrees, the report noted, reflecting an era when workers who lacked even a high school diploma could land lucrative jobs in auto plants. "Michigan today is sailing blindly into a profoundly different future," the report warned.

Indeed, statistics paint a gloomy picture. The state's unemployment rate, 6.6 percent, is the third-highest in the country, behind the hurricane-devastated states of Mississippi and Louisiana, and it ranks dead last in economic momentum, a measure based on employment growth, personal income and population trends, according to the Citizens' Research Council.
Even those who still have jobs are feeling the pinch of the auto industry's decline. In the fall, workers at G.M. and Ford agreed to health care restrictions that will require them to pay modest amounts for previously free coverage. G.M., meanwhile, will no longer match worker contributions to their 401(k) plans.

All that helps explain why Ms. Granholm, who faces re-election next November, is focusing her attention on strengthening the state's ties to Toyota, the world's most profitable auto company.
The factory she is vying for would supply engines to a Subaru plant in Lafayette, Ind., which plans to build 100,000 cars a year for Toyota beginning in 2006. Toyota has not said how many workers its engine plant might employ, but it typically hires a few hundred people as a start.
Still, any jobs would be significant. Toyota, which initially thought to put the plant next to a Subaru factory, has scouted possible sites in southwestern Michigan, near the Indiana border, and on the part of Interstate 94 that is opposite Detroit.

But no matter how far the plant is from the Motor City, Toyota officials must come to terms with the influence of the U.A.W., whose president, Ron Gettelfinger, has said the plant would benefit the state.

Organizing its work force also would benefit the union, which has failed to organize workers at any of the major factories built by foreign automakers in the United States in the last 25 years.
Still, Toyota has dealt with the union at New United Motor Manufacturing Inc., a joint venture plant owned by G.M. and Toyota in Fremont, Calif. At the plant, known as Nummi, formerly a G.M. site, workers operate under a special contract with more flexible work rules than other U.A.W. contracts, and the plant operates under Toyota's production methods.

Toyota can easily avoid such drama by picking another plant site. But it can score points in its drive to be seen as a good local citizen by helping a state that can meet its economic needs and arguably needs its assistance the most - Michigan.

"In a simple sense, one plant doesn't mean anything," Professor Chaison said, "but in a symbolic sense, it would show that there is still life in Michigan, and good jobs to be gotten."