Ohio’s agreement to give General Motors and LG Chem $13.8 million for their joint venture EV battery plant in Lordstown was far from the largest subsidy deal of 2020. However, it was certainly the deal that required politicians and bureaucrats to be the most willfully blind to history and economic reality and best demonstrates how ineffective governments subsidies are at overcoming market forces. That’s why the Center for Economic Accountability selected it as the Worst Economic Development Deal of the Year for 2020.
Notably, the $13.8 million subsidy was approved in the same week that General Motors reached an agreement with the state to pay back some – but not all – of the money it had received from the state for its GM Lordstown Assembly plant that it had closed and sold despite having active “job creation” subsidies from the state. Under the terms of those 2009 subsidies, GM was supposed to be employing 3,900 workers at Lordstown Assembly until 2027. When GM closed the plant in March 2019, it was employing just 1,500 people.
The history of an automotive assembly plant in Lordstown, Ohio is the story of the last half-decade of the American automobile industry – and of how market forces, not government subsidies, drive business decisions.
It’s also the story of how a company can get so powerful in a state that no elected official is willing to risk telling it “no.” According to the Subsidy Tracker Database compiled by Good Jobs First, Ohio government agencies gave General Motors or its subsidiaries more than $235 million in grants, tax breaks or other forms of subsidies between 1990 and 2016 – and that doesn’t include a half-dozen major deals of undisclosed value.
The story of General Motors in Lordstown began in 1956, when the company announced plans for an assembly plant on former farmland just off the Ohio Turnpike. The plant opened in 1966 – nine years later than originally planned – building mostly full-sized Chevrolets and Pontiacs, including the first generation of the iconic Pontiac Firebird. (It was also home to the Chevy Vega, one of GM’s most famous flops.)
Things were good in the 1960s and 70s, but Lordstown received notice in the 1980s that it would be subject to the whims of the global auto industry and marketplace demand as General Motors shifted production at the plant to compact cars as it belatedly began responding to foreign competition. By the 1990s, Lordstown Assembly was the only U.S.-based GM plant building small cars, as the automaker had shifted production of most of those low-margin vehicles to lower-cost venues like Mexico and China.
In 2002, after threatening to close the plant, GM received a $63 million subsidy deal from Ohio to begin production of the Chevy Cobalt at the plant in 2004. One local county commissioner called it “the best economic news we’ve had probably in the last 30 to 40 years in the Mahoning Valley.” However, the news quickly became much grimmer as the automaker cut 1,100 jobs at Lordstown in 2006 thanks to slowing sales.
Another 2,000 jobs at Lordstown were lost in General Motors’ 2008 bankruptcy, but GM still asked for and received $60.3 million in new subsidies the next year as it retooled the plant to produce the new Chevy Cruze. At the time, GM’s corporate strategy to compete in the global automotive marketplace required a small, fuel-efficient sedan like the Cruze. “The rebirth of the American economy starts right here at Lordstown with a world-class, high-volume car built in the heartland of America,” GM’s then-President of North American Operations Mark Reuss said at the Cruze’s launch ceremony.
However, it turned out that the Cruze’s production in Lordstown was more contingent on GM’s commitment to its small-car strategy than its subsidized commitments to Ohio. As part of a strategic shift away from small cars and toward SUVs, EVs and crossovers, the automaker’s leadership – including new GM President Mark Reuss, who had previously touted Lordstown as the “rebirth of the American economy” – shut down Lordstown and four other plants and laid off a total of 6,000 employees across the company.
It didn’t matter that in its 2009 subsidies, GM had received $60.3 million in subsidies, and in return committed to keep 3,700 employees, add 200 more and keep Lordstown Assembly operating until 2039. Despite these commitments, the last Cruze rolled off the Lordstown assembly line on March 6, 2019 in a plant that employed just 1,500 people. Six months later, GM announced that it would sell the plant to startup electric pickup truck maker Lordstown Motors. (See the updates below for more on how THIS turned out.)
Ohio’s officials threatened to try to get $60 million of the subsidies the plant had received between 2009 and 2016 back from General Motors, but in the end settled for $28 million in refunded subsidies and a promise from GM to spend $12 million in the Lordstown region on “workforce, education and infrastructure needs.” Under the terms of the deal, GM effectively ended up keeping $20.3 million in state “job creation” subsidies for a plant it closed a decade earlier than promised.
And yet, despite all this history, despite all of these broken promises and object lessons in the inability of government subsidy programs to keep factory production lines running in the face of economic reality, Ohio’s elected leaders and economic development bureaucrats still decided to subsidize General Motors’ joint venture with South Korea’s LG Chem with $13.8 million of taxpayer money.
It’s been said that those who do not learn from history are doomed to repeat it. Ohio’s decision to once again tie itself to General Motors’ ability to navigate the peaks and valleys of the global automotive marketplace and the company’s willingness and ability to live up to its subsidy commitments made this subsidy worthy of being singled out as the Worst Economic Development Deal of the Year Award for 2020.
UPDATE #1: In 2021, Ohio approved Lordstown Motors for $20 million in tax credits and the state’s JobsOhio economic development corporation would also pledge $4.5 million in grants to the prospective automaker. The company, which had coincidentally hired Ohio Gov. Mike DeWine’s 22-year-old grandson as a lobbyist, pledged to employ 600 workers and build 20,000 pickups a year.
In 2021 Lordstown Motors notified federal regulators that it did not have enough money to begin production of its trucks and in 2022 it sold the plant to Taiwanese manufacturer and economic development cautionary tale Foxconn for $230 million. Foxconn said it would use the factory to build electric vehicles for auto brands like Fisker and Lordstown Motors itself.
As for Lordstown Motors, the discovery that the company had made misleading claims about the size and quality of preorders for its pickups and other irregularities led to the resignation of its CEO and CFO and spawned investigations from the Securities and Exchange Commission and U.S. Department of Justice. As of February 2023, it had manufactured a total of just 31 vehicles for sale, and in April 2023 it received a notice that its stock would be delisted from the NASDAQ stock exchange for falling below the exchange’s minimum price floor.
UPDATE #2: Lordstown Motors filed for federal bankruptcy protection on June 27, 2023. It also said it had filed suit against Foxconn, claiming the company had breached an agreement to make additional investments in Lordstown Motors.