The interim head of a revived Fisker Automotive was in the headlines last week when he told The News Journal that there is a 50-50 chance a new vehicle will be built in Delaware at the former GM Boxwood plant. That may be the best Delaware can hope for, given the built in disadvantages that come with building a vehicle on the East Coast.
In the last few decades, Detroit has shuttered all plants on both costs, the one exception being Tesla, which uses a portion of a GM plant in California.
Delaware dodged many bullets over the years as Detroit moved toward a long-planned exit from the East. The dogged efforts by of the state’s political leaders and a skilled, flexible workforce kept both plants alive. The near collapse of the industry in 2008 and 2009 proved to be too much as the owners of both plants went into bankruptcy.
A controversial government bailout/restructuring of Chrysler and GM did not help. The fate of the Chrysler plant had been sealed years earlier and the GM plant was turning out a tiny number of two-seater sports cars while piling up a big loss on each vehicle assembled.
A bit of hope appeared earlier this year when Chinese parts-maker Wanxiang won Fisker in a bankruptcy court auction in Wilmington. It is now making plans to resume production of the Fisker Karma, with the mid-sized Fisker Atlantic to come along later in the decade.
The one big advantage for the state is the Boxwood Plant that was in the early stages of renovation when the federal government pulled the plug on a loan to Fisker. The mid-sized Atlantic was to have been built in Delaware. Wanxiang now owns the plant and the interim executive of Fisker said its paint shop and other facilities give it an advantage.
At the same time, the plant has a major disadvantage, a location away from the automotive supply chain that now runs from Canada to the deep south. In earlier efforts to improve the competitive position of the industry, it was estimated that it cost $400 more to build a vehicle in Delaware than in the Midwest and South.
That’s largely due to shipping costs and stiffer environmental standards. For many years, that cost disadvantage was not a problem. Chrysler, for example, was making a nice profit in the heyday of the Dodge Durango SUV, but as margins tightened and production plummeted, costs became a big issue.
Delaware also has a gross receipts tax that is paid by a company based on sales, not profits, although it is likely that the tax would somehow be waived if production of vehicles ever resumed. When it comes to other financial assistance for the plant, Delaware is tapped out.
The state is on the hook for a $20 million loan to Fisker and is unlikely to get more than pennies on a dollar from a settlement. The state also helped with keeping the lights on when Fisker moved out. Delaware does offer a program that offers payments for each job created.
That could be an option, given the fact that the money is often recouped fairly quickly in the form of income taxes. But if states in the south, or even Michigan or Ohio, want to give away the store, Delaware is out of luck. Add in all of the pluses and minus, and the 50-50 odds look fairly accurate.
