Michigan has approved a $99 million incentive package for a new, $450 million General Motors (www.gm.com) auto plant in Lansing that will employ 2,000 workers. The blockbuster deal could be a major first step in establishing the state's capital city as GM's largest North American vehicle-assembly center.

Gov. John Engler announced the $99 million package, which is mostly in the form of tax credits, according to early reports. In addition, the city of Lansing has announced that it plans to add another $12 million in infrastructure improvements for GM's new local plant. If all remaining issues are resolved in relatively short order, the Lansing plant will begin assembling model-year 2002 Cadillac Cateras in late 2001.

GM's board of directors has officially approved fast-tracking the Lansing plant, and work crews are already razing the site, whose one-time corporate citizens included Oldsmobile's engineering offices.

Union Issues Remain Unresolved

A few major issues, however, must be resolved before the facility becomes a reality.

Specifically, GM must still reach agreement on plant work rules with the United Auto Workers (UAW), and the company must secure the necessary environmental permits.

The UAW question is the bigger hurdle by far. To keep its industry cost structure competitive, GM plans for the new Lansing plant to use modular assembly, relying on suppliers for more components. Since the modular system means fewer union jobs, the system has often proved unpopular with the UAW.

GM, however, would realize considerable savings by using the modular approach it plans for the company's $450 million, 2,000-employee Lansing facility. By comparison, using the old, non-modular approach for the same facility would necessitate an expenditure of $1 billion-plus to accommodate some 3,000 employees, industry analysts say.

The UAW's Lansing-based Local 652 has tentatively approved the modular concept, and negotiations have now shifted to senior union leaders in Detroit. Those negotiations could become a major bargaining issue when talks begin this year on the UAW's new nationwide contract.

Michigan's First New Auto Plant since 1982

The $99 million in incentives for the new Lansing plant is the largest package Michigan has awarded since it restructured its incentive programs in 1995 to be more competitive with other states.

Soon after GM's board gave the Lansing plant the official green light, Gov. Engler joined GM President Richard Wagoner Jr. in touring a new GM assembly plant in Poland. GM officials view the Polish plant as the model for the new Michigan facility. Engler was already in Poland on a trade mission on behalf of Michigan-based exporters of industrial equipment and engineering services. If the Lansing plant proceeds according to GM's plans, it would be the first new assembly facility built in Michigan since the Detroit-Hamtramck large-car plant, a project that began construction in 1982.

GM hasn't released the list of the other finalists for the new facility that will rise in Lansing. However, Doug Rothwell, president of the Michigan Economic Development Corp. (www.michigan.org), said that the project was widely coveted. "New assembly plants are at the top of the food chain," Rothwell said.

Lansing Moving to Top of GM Chain?

For Lansing, the new GM plant could be a major initial step in moving the area to the top of GM's North American assembly chain.

In separate talks, GM officials are discussing retooling their outdated plants in Lansing, which currently assemble the soon-to-be-discontinued Oldsmobile Alero and Pontiac Grand Am. The modular approach is also a negotiating issue in those talks.

Industry analysts are discussing one scenario in which GM would retool those Lansing plants to manufacture the Malibu and Eldorado models. If that happens, total production capacity in Lansing could eventually top 850,000 vehicles a year, analysts estimate. Of that total, the newly announced Lansing plant will produce up to 211,000 vehicles by 2002.

If Lansing its that 850,000-plus production project, the city's output would exceed the capacity of GM's current North American production hub in Oshawa, Ontario, where three plants now produce roughly 822,000 cars and trucks each year.