Judge Orders GM Not to Shut Plant, Cites Tax Break

In a decision that could confound relations between companies and governments across the country, a Michigan judge ruled Tuesday that battle-weary General Motors must keep its Willow Run assembly plant open because the firm promised to maintain long-term operations in exchange for tax abatements from Ypsilanti Township.

As the nation’s manufacturing sector has restructured--causing layoffs and economic disruption--states, counties and cities have competed fiercely for major employers, often offering lucrative packages of tax breaks to retain or lure jobs.

So, if it is upheld, Tuesday’s decision by Circuit Judge Donald Shelton of Washtenaw County could have ramifications far beyond the automotive industry.

GM said it would immediately appeal the ruling, which threatens to disrupt the money-losing industrial giant’s plans to shrink its operations by closing 23 plants and laying off 74,000 workers by the mid-1990s.

The decision is yet another setback for GM, which is expected to announce a $23-billion loss for 1992 on Thursday and is facing sharp demands by consumer groups for a recall of its 1973-1987 full-size pickup trucks. One of those trucks figured in a $105-million jury verdict against the firm last week.

GM officials said they were confident that the Ypsilanti decision would be promptly overturned on appeal. But the company is worried that other municipalities may file similar suits.

” . . . there isn’t a city that has a GM plant that hasn’t made some concessions to get it,” said Maryann Keller, an analyst for Furman Selz Inc. in New York. Nonetheless, she predicted that GM would close the Willow Run plant, even if it has to pay millions of dollars in back taxes to Ypsilanti.

GM announced the closing of the Willow Run plant last February after a highly publicized contest between that factory and another GM assembly plant in Arlington, Tex., where the auto maker concluded that it could build Chevrolet Caprice wagons and sedans more cheaply.

Ypsilanti Township officials were outraged by the planned closure, which will idle 4,500 workers. They said shuttering the plant, about 30 miles west of Detroit, would have a devastating effect on the local economy, since it accounted for nearly 10% of township tax revenues and produced $178 million in wages annually.

The township filed suit in April, arguing that GM had been granted tax abatements in exchange for promises that the plant would remain open until 2003.

Shelton said the long-term relationship between GM and the township amounted to an informal contract that could not be broken just because the company wanted to shift production.

GM spokesman Peter Ternes said the court’s ruling “is unprecedented and contrary to the facts and law.” He said the company would seek an expedited hearing with the Michigan Court of Appeals.

The auto maker faced a similar suit in 1987 when it closed its plant in Norwood, Ohio. That case was summarily dismissed in favor of GM, Ternes said. And though the company is confident that it will win the Ypsilanti case on appeal, Ternes said the suit could have a chilling effect on investment in other Michigan cities.

Nonetheless, township officials and factory workers were basking in the glow of the court victory Tuesday.

Township Supervisor Wesley Prater said the ruling means that GM will have to honor the promises it made when the company sought the tax concessions. Since it began operations in Ypsilanti in 1959, the auto maker has been granted more than $1.3 billion in tax abatements, he said.

Leo Laurin, vice president of United Auto Workers Local 1776, said there was a mood of excitement around the union hall. “We are hoping that GM will wake up and realize that we make quality cars here,” he said.

But Keller said there is little chance of that. There is simply not enough demand for the cars made at Willow Run, the stock analyst explained--and courts cannot dictate where a company produces its product.

GM was hoping to close the plant this summer. It has cut back to one shift with about 2,500 workers. About 200 union members already have relocated to Texas, and many more have accepted early retirement offers.