Ford Motors (NYSE: F) has agreed to invest $3.1 billion in Michigan, so that it can qualify for more long-term tax credits. The state is already suffering from a $9.38 billion tax deficit because of tax credits awarded earlier during the recession (when automakers were threatening to pull out from the state). So this investment will give the state administration some breathing space and help it justify some of the tax breaks. The agreement has already received the seal of the Michigan Strategic Fund. Ford Motors is likely to spend the money on factory machinery for producing electric cars.
Michigan state economic development officers have said that the deal will give Ford an incentive to expand its Michigan operations. However, the carmaker declined to say when and where those additional investments would happen. Ford Motor's regional director of government relations, Charlie Pryde said that the company does not have any plan to invest right now but when it does, it will certainly honor the agreement.
New agreement combines and subsumes four old agreements
Ford Motors had signed four agreements with the old Michigan Economic Growth Authority between 2009 and 2011. The new deal combines and revises those agreements. The total value of the tax credits has been capped at $2.5 billion till 2025. When the investments are finally made, over the next 10 years, they will increase Ford's cumulative capital investments in Michigan to $6.2 billion.
Governor Snyder is upbeat about the deal and said that it showed Ford Motors had trust in Michigan's economy. He called it a win-win situation for both sides. Michigan Economic Development Corp. CEO, Steve Arwood, also said that the deal was a 'great framework' and the state might use it to arrive at similar agreement with other automakers in the state.
Ford is one of the biggest investors in Michigan
Ford has made significant investments in the state recently. In 2014, the company invested nearly $1 billion to retrofit several plants, including a metal stamping factory to produce parts for the new F-150 pickup. In 2013, it invested $555 million in its Flat Rock plant, which makes Mustang cars.
But there is a catch. Ford Motors cannot claim all the tax credits at once (there are limits on how much tax credits it can claim in a single year). The state stopped awarding new tax credits in 2012 and began offering loans and direct cash incentives. Legislative proposals have already been mooted to prevent the state from amending tax incentive schemes, unless they reduce the tax credits. So it won't be easy for Ford Motors to make the agreement work.