Illinois faces hurdles with auto manufacturers

The Rockford Register-Star reported last week that the state of Illinois “has submitted what could be its best offer to keep the Belvidere Assembly Plant operating and save what could be thousands of jobs.”

Stellantis announced in December it would idle its Jeep Cherokee assembly plant in February. So, there appears to be a glimmer of hope that the state can finally notch a victory with a carmaker after years of trying.

And Jalopnik recently reported that Virginia Gov. Glenn Youngkin told the Ford Motor Co. that he didn’t want their $3.5 billion electric vehicle battery plant which would employ 2,500 workers because the company had partnered with China.

Ford already has a big assembly plant in Chicago. Maybe the state could capitalize on this Virginia thing?

But something else happened in December which highlighted why Illinois has had so much trouble closing deals with the automotive industry, even with a couple of lucrative subsidy laws passed within the last year or so.

Volkswagen filed a federal lawsuit in December that described a bill which overwhelmingly passed both Illinois legislative chambers and was signed into law in 2021 as, "crony capitalism at work: redistributive legislation that takes hundreds of millions of dollars from some (but not all) motor vehicle manufacturers and, for no public purpose, deposits that money directly into the pockets of politically favored Illinois [car] dealers.” The automaker claims the law is costing it an extra $10 million a year.

The bill in question (HB3940) was hotly opposed by automotive manufacturers. The law forces manufacturers to reimburse car dealers at a much higher rate (the auto industry says it’s a 50% higher rate) for warranty repairs. The bill came about after a labor dispute between dealerships and a mechanics union. They apparently decided to let the carmakers pay to resolve their monetary dispute, although the mechanics ended up on strike anyway because the dealers allegedly kept the new windfall initially instead of passing it through.

Just about every state legislator has multiple auto dealers in their districts and Democrats have been eagerly allying themselves ever closer with organized labor in past years, so the bill hit a sweet spot with both parties and cleared the House 85-24 and then passed the Senate without a single dissenting vote a few weeks later.

The manufacturers say the law is costing the industry $240 million a year. Yes, you read that right. $240 million. Per year. They claim Illinois has the highest warranty repair costs in the nation. By far.

The manufacturers were furious and remain so. And since the cost of doing business in a state is a main factor in deciding where to locate a new plant or keep a plant open, the law is not helping Illinois overcome automaker objections.

The subsidies the state can offer simply don’t compare with the gigantic annual cost of that 2021 law. Couple that with our high local property taxes (these electric vehicle plants take up huge amounts of space) and other costs and hurdles (Ohio, like Illinois, is not a “right to work” state, but has a new concierge system to quickly clear red tape), and you can see why the state hasn’t yet convinced a national or international corporation to construct an electric vehicle-related facility here.

It's no secret that Illinois has reputational issues. People love to run Illinois down. It seems to be a major sport everywhere. When Gov. JB Pritzker recently appeared on CNBC while he was at the World Economic Forum in Davos, Switzerland, the first question he faced was how he would attract businesses when so many existing businesses want to leave Illinois.

That 2021 law merely added to the state’s reputational problems. Manufacturers say that the bipartisan eagerness to quickly throw them under the bus is something they hadn’t ever witnessed before here. The substance was bad enough, but the process was outrageous, they say. One industry lobbyist called the process a “radical departure” from the past. The whole thing is understandably given them quite a bit of pause.

Even so, a key labor leader says unions haven’t yet been approached to repeal or modify the law (manufacturers disagree) and an official with the governor’s office says they are unaware that this remains a big issue with carmakers.

I suppose we’ll see what happens with the Stellantis Belvidere plant in the coming days. If Pritzker does cut a deal and convinces the company to stay and even expand, he’ll have overcome some gargantuan hurdles.

Rich Miller

Rich Miller publishes Capitol Fax, a daily political newsletter, and CapitolFax.com.

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