Incentives prod Mitsubishi to boost production at Illinois plant

State offers $30 million in tax breaks, while union agrees to multiyear wage cut and freeze

By Julie Wernau, Tribune reporter

February 5, 2011

Before Friday, all signs pointed to the beginning of the end of Mitsubishi Motors Corp.’s production plant in Normal, Ill.

The 1,300-employee plant produces roughly a tenth of the vehicles it once made, and those models are due to be phased out of production by 2014.

But Friday, the tide turned. Flanked by Gov. Pat Quinn and other dignitaries at the plant, Mitsubishi executives announced the Japanese automaker would invest $45 million to produce the new Outlander Sport crossover in Normal beginning in 2012, after the state offered $30 million in tax incentives to keep the plant open.

At the same time, the local union struck a deal worth millions of dollars to Mitsubishi to cut and freeze wages through 2015. It is the only Japanese plant in the U.S. whose employees are members of the United Auto Workers union.

“We were faced with the prospect of future work or no work,” said Ralph Timan, president of UAW Local 2488. “It’s a good investment for everybody. From the state, from Mitsubishi and from our members, the workers. Everybody’s got a stake in this, and everybody’s getting a return on this.”

The question is whether Mitsubishi would have stayed in Illinois without tax incentives. And whether when those incentives leave, Mitsubishi will too.

Analysts said Mitsubishi had several reasons to stay in Illinois regardless, among them a global economy that has suddenly made U.S. manufacturing more attractive than auto manufacturing in Japanese and Germany. At the same time, Mitsubishi is planning a renewed push in the U.S. auto market, where it is a shadow of its former self, as its market share stands at 0.48 percent.

Then there are analysts like Michelle Krebs, of Edmunds.com, who believe “there was a very good chance they would have left.”

Dan Irvin, a spokesman for Mitsubishi, said the tax incentives were among several factors that persuaded the manufacturer to invest in the plant.

“All of these things have been critical parts of the decision, and (it is) very difficult to say it was one more than another,” Irvin said.

The tax incentives amount to about $23,000 per job saved, a number government subsidy experts described as “moderate.” Quinn, who signed legislation into law in December 2009 to expand the EDGE tax credit to benefit the auto industry, said the incentives would help stabilize the economy in Illinois.

This isn’t the first time the government has been the plant’s benefactor. Mitsubishi and Chrysler received $249 million in state and local subsidies to lure the plant in a 1985 bidding war with six states.

The cost per job then was $86,000, according to Good Jobs First, a national policy resource center that examined the subsidies of all 50 states.

“The fact that these are good-paying jobs is a good thing. But the state can’t do this for every company,” said Thomas Cafcas, a research analyst with Good Jobs First.

The latest Mitsubishi package consists of EDGE tax credits and Employer Training Investment Program job-training funds. Mitsubishi will also benefit from the Normal plant’s location in an enterprise zone. Cafcas said Illinois’s EDGE program is one of few in the nation that include clawbacks to protect the state if Mitsubishi doesn’t make good on its promises. The $28.9 million EDGE tax credit is one of the largest doled out since Quinn took office.

“I think the bigger question, honestly, is why do public subsidies at all,” said Julia Sass Rubin, an assistant professor at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University in New Jersey. “It does not keep companies from leaving. It does not create jobs. At best, it steals jobs from another state.”

The Outlander Sport went on sale in North America in November 2010. The vehicle is built on the same platform as the Lancer and Outlander SUV, which are sold globally.

Mitsubishi Motors North America President Shinichi Kurihara said, “With the new model, the plant will have better utilization, and, of course, we will see improved efficiency when we eventually consolidate to one model with higher production volume. I fully expect this plant will strongly improve its performance further down the road.”

He estimated that about half the vehicles would be exported.

Melissa Chen

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This blog and its accompanying Twitter account have been established as social media learning tools for the Internal Communications and Employee Engagement class at Columbia College Chicago. Through this blog, we will share our observations about current events, change management and employee communications theory, and the application of social media in shaping employee engagement.
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