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State law infuriates auto manufacturers, with one calling it “crony capitalism at work”

Monday, Jan 30, 2023 - Posted by Rich Miller

* My weekly syndicated newspaper column

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 the online Web site Jalopnik recently reported that Virginia Governor Glenn Youngkin told the Ford Motor Company 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 that 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-percent 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 car makers 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 Governor 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 giving 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 car makers.

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

* Meanwhile, from Crain’s

For weeks, Crain has written about how Pritzker has staked a fair-sized chunk of his deal-making chops on replacing the soon-to-be shuttered Stellantis Jeep plant in Belvidere with a new generation, long-lived EV factory. What’s new is that government and private sector sources say that the fight has boiled down to Illinois vs. Michigan, pitting governor against governor.

“They’re both pulling out all the stops,” with calls, letters and other constant communication, says one source in a position to know. “This one counts.”

       

32 Comments
  1. - Blue Dog - Monday, Jan 30, 23 @ 9:04 am:

    just saying. last week I paid $140/ hr at dealership on southern illinois. not co.plaining, bit I do wonder how the less fortunate can afford this.


  2. - Publius - Monday, Jan 30, 23 @ 9:07 am:

    “The manufacturers say the law is costing the industry $240 million a year. Yes, you read that right: $240 million.”

    Maybe they should build better cars? From my perspective, why would I want to buy any vehicle that has a reputation for warranty repairs?


  3. - Rich Miller - Monday, Jan 30, 23 @ 9:07 am:

    ===I paid===

    Unless this is about warranty service, you’re off topic.


  4. - Blue Dog - Monday, Jan 30, 23 @ 9:13 am:

    sorry Rich. My poor attempt. whether it’s correct or not, was told by dealership owner that rates for general repairs have to go up based on low reimbursement rates on warranty work.


  5. - Rich Miller - Monday, Jan 30, 23 @ 9:13 am:

    ===low reimbursement rates on warranty work===

    lol

    You need a new dealer.


  6. - Bruce( no not him) - Monday, Jan 30, 23 @ 9:15 am:

    “Volkswagen…claims the law is costing it an extra $10 million a year.”
    Volkswagen also: 2022 earnings $24.85 Billion Up 6.05%


  7. - Perrid - Monday, Jan 30, 23 @ 9:24 am:

    When other businesses get favorable laws passed, it’s crony capitalism. When YOUR business gets favorable laws passed, it’s a friendly business environment.


  8. - walker - Monday, Jan 30, 23 @ 9:25 am:

    A smoke bomb lobbied in.


  9. - Hannibal Lecter - Monday, Jan 30, 23 @ 9:25 am:

    === “Volkswagen…claims the law is costing it an extra $10 million a year.”
    Volkswagen also: 2022 earnings $24.85 Billion Up 6.05% ===

    Not really the point Bruce. Regardless of how much money they made last year, they still have to evaluate where it is the most cost efficient place to manufacture their cars. When surrounding states have a much cheaper cost of doing business because of deals like this, you are basically telling them not to set up shop in Illinois. We cannot put ourselves at a competitive disadvantage just because we perceive the companies as able to pay. They will always find another place to set up shop, which means that there will be fewer jobs in Illinois.


  10. - Donnie Elgin - Monday, Jan 30, 23 @ 9:26 am:

    “$240 million a year”

    the Warranty reimbursement costs and the higher labor costs hit their profit margins each and every year. JB’s one-time sweeteners are a poor offset.


  11. - H-W - Monday, Jan 30, 23 @ 9:30 am:

    Correct me if I am wrong.

    The manufacturers hate our law that says, if a manufacturer sells a car in Illinois, and that car subsequently needs to be repaired due to defects that occurred during the period under which the manufacturers are willing to guarantee their craftsmanship, then the manufacturers are going to be upset if they are held liable for half the cost of those defects associated with producing those cars they sell in Illinois.

    Am I reading this wrong?


  12. - ddp76 - Monday, Jan 30, 23 @ 9:32 am:

    I get my warranty work done at the dealer. I get work after warranty done at my fourth generation local guy. Reasons mostly are trust, cost and the experience I have had with some who try to build their paycheck finding things.


  13. - Back to the Future - Monday, Jan 30, 23 @ 9:43 am:

    Really felt I got value from my Sun Times subscription price. I know I am behind the 8 ball on figuring out the Times/WBEZ deal and need to start reading those messages the Times and WBEZ sends out or maybe just going to their websites, but these kinds of articles by the Times easily justified any costs.
    As to the post, also tired about all the negative views of Illinois. I understand we have some serious issues, but Illinois has a lot going for and in the state. We keep losing business opportunities in-spite of having tremendous resources available to national and international firms.
    I was surprised to see a reference to “crony capitalism” in a lawsuit, but thinking it is a good definition of Pritzker politics.
    Thinking that the half a Billion slush fund is just about in the pockets of someone and am having a negative view of that as just another example of “crony capitalism” by our political folks.


  14. - Excitable Boy - Monday, Jan 30, 23 @ 9:54 am:

    - was told by dealership owner that rates for general repairs have to go up based on low reimbursement rates on warranty work. -

    Hey Blue, did I ever tell you I had some prime ocean front real estate for sale in eastern Missouri? Let me know if you’re interested.


  15. - Chicagonk - Monday, Jan 30, 23 @ 9:55 am:

    If it was Ford, Stellantis, or GM complaining, it might have more weight.


  16. - Rich Miller - Monday, Jan 30, 23 @ 9:55 am:

    ===If it was Ford, Stellantis, or GM complaining===

    They are.


  17. - Bruce( no not him) - Monday, Jan 30, 23 @ 10:18 am:

    === reimburse car dealers at a much higher rate (the auto industry says it’s a 50-percent higher rate) for warranty repairs.===
    Aren’t the manufacturers being forced to pay the same rates as consumers for repairs?
    So the manufacturers were paying half the rate that I pay for work at the dealer? And I’m supposed to be upset about that? /S


  18. - Homebody - Monday, Jan 30, 23 @ 10:22 am:

    Stop. Giving. Supply-side. Incentives.

    They don’t work. They never work. People just pocket the money as profit every time.

    == although the mechanics ended up on strike anyway because the dealers allegedly kept the new windfall initially instead of passing it through. ==

    Example 1.


  19. - Blue Dog - Monday, Jan 30, 23 @ 10:23 am:

    finding a dealership in my neck of the woods that employs union mechanics is no small feat. I can find cheaper rates at other dealers for sure


  20. - TNR - Monday, Jan 30, 23 @ 10:26 am:

    I can see where something like the PILOT proposal floated by the Bears last week could help lure EV manufacturers to the state by reducing their property tax liabilities. But I don’t like the idea of using it to help move an existing business from one location within the state to another, as the Bears have suggested.


  21. - Lincoln Lad - Monday, Jan 30, 23 @ 10:39 am:

    Nobody is forcing manufacturers to sell their cars through a dealership network in Illinois. I’m pretty sure any manufacturer choosing to exit the market will find that someone else will sell us our cars.


  22. - Rich Miller - Monday, Jan 30, 23 @ 10:51 am:

    ===Nobody is forcing manufacturers to sell their cars through a dealership network===

    “Nobody” except for all those state laws.


  23. - Cool Papa Bell - Monday, Jan 30, 23 @ 10:58 am:

    Read the fine print on all warranty’s from car dealers. A few years back a friend bought a new car and opted for the extended warranty sold by the dealer (a little off topic, I know) When he needed a repair under the extended warranty the dealer did the work and then charged him.

    Asking what the purpose of the extended warranty was then, he was told that the warranty only covered $X per hour and their charge was $Y per hour. He needed to cover the difference.

    So they sold him a warranty that wouldn’t cover their own shop time.


  24. - New Day - Monday, Jan 30, 23 @ 11:02 am:

    If it was Ford, Stellantis, or GM complaining, it might have more weight.

    They are complaining. Loudly. This was a massive unforced error by all leaders of the state and they are now paying the price. Was amused by Greg’s story.

    “They’re both pulling out all the stops,” with calls, letters and other constant communication, says one source in a position to know. “This one counts.”

    I wish our state all the success in the world. But I doubt the incentives are going to get the job done. We angered the wrong people.


  25. - New Day - Monday, Jan 30, 23 @ 11:05 am:

    “Nobody is forcing manufacturers to sell their cars through a dealership network in Illinois. I’m pretty sure any manufacturer choosing to exit the market will find that someone else will sell us our cars.”

    You’re completely missing the point. It’s about manufacturing cars and battery plants and other things in the supply chain. There’s a reason Obama worked so hard to save the domestic auto industry and that reason is millions of jobs. Illinois loses out if the entire auto industry is blackballing Illinois because of this one misdirected law.


  26. - sulla - Monday, Jan 30, 23 @ 11:12 am:

    So Illinois legislators rolled over and passed a sweetheart law to benefit a union; fumbled the ball anyway; angered a core manufacturing industry in doing so; and now is at risk of losing a major economic development deal as a result.

    It’s like an AI was given the instructions to write the “most-Illinois” economic story possible.


  27. - Roadrager - Monday, Jan 30, 23 @ 11:38 am:

    ==Public unions are ruined Illinois. Illinois is pathetic.==

    Either stay out or get gone, and be thankful for your at-will $7.25 an hour.


  28. - Lucky Pierre - Monday, Jan 30, 23 @ 12:54 pm:

    The companies looking to expand manufacturing would quibble that we have only this one misdirected law


  29. - Chicago 20 - Monday, Jan 30, 23 @ 1:24 pm:

    If Volkswagen wants to reduce warranty costs, they must find ways to build a better product instead of reacting with short-term solutions.

    Warranty flat rate labor times are written by the manufacturers, for their own benefit and have little to do with the actual time of diagnosis and repair.
    Dealerships are reimbursed by the manufacturers based on these flat rate times.
    At the end of the day, it is the dealership has to make up the difference between actual labor times and these flat rate times.
    Without these highly trained technicians the manufacturers would be complaining about State Lemon Law costs.

    Published reports of non-franchised Tesla stores with $239.00 per hour labor charges and diagnostic fees on warranty repairs show this is not a dealership problem but a manufacturer problem.


  30. - TNR - Monday, Jan 30, 23 @ 1:45 pm:

    Don’t forget, it wasn’t just the unions. Hundreds of Illinois businesses (the car dealers) were for this law too.


  31. - JB13 - Monday, Jan 30, 23 @ 2:33 pm:

    Maybe the governor can address this in his forthcoming address, and tell everyone that this isn’t really happening, and it’s just more spelunking by carnival barkers, and Illinois is the *real* economic success story, not like those hellholes run by those Trump-wannabes down south.

    It’ll work, for sure.


  32. - Demoralized - Monday, Jan 30, 23 @ 4:55 pm:

    ==Illinois is the *real* economic success story==

    I would say, yeah, that Illinois has a pretty strong economy no matter what you carnival barkers have to say about it. But hey, if you like to live in doom and gloom land be my guest. Whatever helps you sleep at night.


Sorry, comments for this post are now closed.


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