Lordstown Motors’ bankruptcy is just the latest twist in a sad, sordid saga of wasted taxpayer money.
Lordstown Motors’ bankruptcy is just the latest twist in a sad, sordid saga of wasted taxpayer money.
E lectric-vehicle startup Lordstown Motors has filed for bankruptcy protection, becoming the latest cautionary tale for states’ efforts to conquer the economic realities of global marketplaces through the use of economic-development subsidies.
The recent announcement that the artisanal-EV-pickup-truck manufacturer had filed for Chapter 11 bankruptcy marked the end of a wild ride that began with the purchase of a former General Motors manufacturing plant with money borrowed from GM itself, saw its peak as the company used a reverse merger to go public in the SPAC boom of 2020, and then crashed back to earth as the company’s stock was delisted from NASDAQ earlier this year after it had fallen thousands of vehicles short of its manufacturing targets.
It also closed the latest chapter in the sad and often infuriating story of Lordstown Assembly, the workers who occasionally got to build cars there, and the politicians who loved to give companies millions and millions of dollars in taxpayer money to promise they’d keep voters employed there. It’s a modern public-policy farce, rife with players that are themselves the protagonists of their own economic-development horror stories.
One of those recurring characters is General Motors, which built Lordstown Assembly in 1966. The plant had its highs and lows over the decades: It was the home of the iconic Pontiac Firebird of Smokey & the Bandit fame, but also never quite managed to scrub away the stench of being the source of the notoriously terrible Chevy Vega.
Whatever was being built there, politicians loved to find ways to take credit for it with the region’s voters. That’s why Ohio’s governments handed General Motors more than $100 million in various subsidies for Lordstown Assembly over the decades.
The problem is that state and local agencies were getting staffing and production promises from a company that was competing in a famously volatile and cutthroat global industry. Just as any company would, GM based its hiring, layoffs, and production scheduling at Lordstown Assembly on the business demands driven by marketplace forces, not on the language of subsidy agreements.
For instance, GM signed a $63 million subsidy deal with the state in 2002 as part of a decision to build the new Chevy Cruze at the plant, which one local county commissioner called “the best economic news we’ve had probably in the last 30 to 40 years in the Mahoning Valley.”
“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.
Within six years, the automaker was bankrupt and had announced 3,100 layoffs in Lordstown.
Decades of broken promises weren’t going to stop Ohio’s politicians from scheduling another press conference where they could take credit with Mahoning Valley voters for “job creation,” however, so in 2009 the state and the automaker signed yet another tax-credit deal worth $60.3 million that included promises to employ 3,900 people and keep the plant open until 2027.
Despite this, the plant was only employing a reported 1,500 workers when the last GM vehicle rolled off the Lordstown Assembly line in 2019.
And yet, even with the plant’s doors closed almost a decade sooner than promised, Ohio’s politicians and bureaucrats still didn’t hold GM accountable. Rather than being forced to repay all of the $60 million it had received in Lordstown-related subsidies between 2009 and 2016, GM instead negotiated an agreement to pay back $28 million and spend $12 million on “workforce, education, and infrastructure needs” in the region. This meant that the automaker got to keep $20.3 million in “job creation” subsidies despite prematurely eliminating all the jobs.
Did this finally teach Ohio’s elected officials and bureaucrats their lesson about subsidizing the auto industry, or even cure them of their seeming need to subsidize General Motors in Lordstown specifically? You might as well ask if a Lordstown-built Chevrolet Cavalier had won the Indianapolis 500. No, this is the world of government economic-development programs, so in 2020 the state approved $13.8 million in subsidies for a joint venture between General Motors and South Korea’s LG Chem, which was building a battery plant next door to Lordstown Assembly.
That battery plant was supposedly needed, in part, because there was still hope for Lordstown Assembly — at least if Ohio’s politicians had anything to say about it. This is where Lordstown Motors entered the story. With a $40 million loan from GM in hand and visions of an eventual giant SPAC investment deal, the new EV startup bought the plant as its future primary manufacturing facility.
Excited by the opportunity to hold another press conference and once again take credit for “creating jobs” in an electorally important region of the state, Ohio elected officials approved Lordstown Motors for $20 million in tax credits. The state’s JobsOhio economic-development corporation, which is uniquely (and opaquely) funded by the profits from the state’s monopoly on liquor distribution, also pledged $4.5 million in grants to the prospective automaker, which in turn pledged to employ 600 workers and build 20,000 pickups a year.
Because they now had an EV plant and a battery plant in Lordstown and every economic-development campaign needs a dumb nickname, Ohio’s leaders tried to tag Northeast Ohio as “Voltage Valley.” Shockingly, the name did not stick.
Despite all the hype (and all the subsidies), Lordstown Motors ran into something that has become the defining challenge for even the most highly touted of the current crop of startup electric-vehicle makers: It turns out that it’s really, really hard to build cars and trucks profitably, at scale, and to the quality standards expected by North American consumers. For all that the Detroit automakers have made terrible business decision after terrible business decision over the decades, they have managed to make the actual process of manufacturing a lot of relatively high-quality cars and trucks look easy. But it is not easy, as even startup automakers that bought existing auto plants — Tesla in Fremont, Calif., Lordstown Motors in Ohio — have discovered.
After a string of failures to meet previously announced production timelines, Lordstown Motors notified federal regulators in June 2021 that it did not have enough money to begin full production of its trucks.
This is where we meet another character in the Lordstown farce, this one straight out of economic-development villain Central Casting. Unable to build its own trucks, Lordstown Motors sold the Lordstown Assembly plant to a company it hoped would do the job for it: Hon Hai Precision Industry Co., Ltd.
If that name isn’t familiar, you may know it better as Foxconn.
Yes, Foxconn, the subject of an economic-development deal that went so operatically wrong it helped cost former Wisconsin governor Scott Walker his job in the 2018 elections. The Taiwanese electronics manufacturer had agreed to a $4 billion deal that was, at the time, the largest economic-development-subsidy deal in history. In return, it promised to build a gigantic Wisconsin factory that would employ as many as 13,000 people by 2022. The company quickly began scaling back its plans, even while local governments were already using eminent domain to clear inconveniently placed family farms out of the way of the plant. While the company disputes the state’s accounting of its hiring figures, its employment in Wisconsin was officially 281 jobs in 2019 and 601 in 2020, which qualified it under a renegotiated deal for $29 million in subsidies.
Foxconn bought the Ohio plant and took a stake in Lordstown Motors as part of its plan to move into electric-vehicle contract manufacturing for Lordstown Motors, Fisker Automotive, and other automotive brands.
Those plans will now be complicated by Lordstown Motors’ bankruptcy, which includes a potential lawsuit by the company against Foxconn, its would-be outsourced EV manufacturer. In an SEC filing, Lordstown Motors said that Foxconn had failed to complete an agreed-upon purchase of 10 percent of the company’s stock to add to its existing 8 percent stake.
Foxconn’s chairman has reportedly said that the company hopes to build 5 percent of the world’s electric vehicles by 2025, with a long-term goal of manufacturing almost half the EVs in the world as a contract manufacturer. Lordstown Assembly is at the heart of that strategy, and it remains to be seen whether Ohio’s politicians and bureaucrats will once again make the trek back to Lordstown to announce yet another round of subsidized “job creation” at taxpayer expense.
If they do, it might finally be time for Ohio voters to question whether that is really in their best interests.