Michigan economist blasts $1.5 million subsidy for manufacturer

The Michigan-based Center for Economic Accountability on Friday called into question the $1.5 million government grant awarded American Rheinmetall Vehicles.

The Michigan Economic Development Corporation made the grant through the Michigan Development Program to assist ARV constructing a new facility to build military and law-enforcement vehicles in Sterling Heights.

In addition to the ARV grant, NTL Industries, Inc., in Sterling Heights, will receive a $15,000 MEDC Industry 4.0 Technology Implementation Grant. NTL produces computer-automated equipment for the aerospace, military, motor sports and other industries.

In an email response to The Center Square, CEA President John Mozena expressed his opposition to government funding of the two private companies but singled out the $1.5 million ARV grant.

“The Rheinmetall subsidy is the one that stands out the most as clearly unnecessary and wasteful,” Mozena said. “I’m not sure why American taxpayers are subsidizing a German defense contractor that’s competing with American manufacturers to sell armored vehicles to the U.S. Army.”

Mozena offered some background information on ARV, and its request for proposal.

“Rheinmetall’s currently competing in the ‘Optionally Manned Fighting Vehicle’ RFP to develop a replacement for the Bradley Fighting Vehicle, the Army’s main armored personnel carrier. That’s a huge deal, and in that environment, I’d find it unthinkable that they’d move away from the Detroit Arsenal and the Ground Vehicle Systems Command headquarters there that will have so much influence in that competition. There’s a reason that – of the five defense contractor subsidiaries competing for this new armored vehicle program – four are located in Sterling Heights. That’s where it makes sense to have your office if you’re trying to sell anything with wheels or tracks to the U.S. Army, because the Army units that make those kinds of decisions are based there.”

According to Mozena, the OMFV request is for a $4.6 billion contract over four years to the company awarded the contract.

“In that context, a $1.5 million subsidy is less than a rounding error. I’d find it much more likely that they’re expanding and staffing up because of that competition, and that they realized they could get some free money from the MEDC in the process,” he said. “Apparently they’re already in the midst of the expansion, given that the MEDC says they’re expected to partially complete it by next month. I would think that if the tax breaks were a meaningful factor to Rheinmetall’s expansion plans, they’d have waited for them.”

Rheinmetall was previously awarded a $54 million Army contract to cover the costs of participating in the design phase of the OMFV competition, Mozena said.

“With that cash in its pocket, Rheinmetall should be able to afford to pay for its own office expansion,” Mozena added. “Even without the OMFV competition it’s highly unlikely that a company of Rheinmetall’s size is going to have their plans actually changed by $1.5 million in tax credits. The sticker price on just one of the armored vehicles they sell is in the $4-5 million range and up; if they thought they could sell even one more of them by putting their American subsidiary’s headquarters somewhere else they’d likely do so.”

Mozena concludes the ARV subsidy is unnecessary, because it’s likely the company was planning on staying in Sterling Heights.

“Michigan’s politicians and bureaucrats clearly can’t be bothered to do the slightest amount of due diligence or express even a tiny amount of skepticism about whether or not a subsidy is actually needed to attract or keep a company in the state,” he said. “They’d much rather just start typing up the press release where they take credit for ‘creating jobs’ that in reality were never going to go anywhere else.”

On the other side of the argument, Rep. Diana Farrington, R-Utica, celebrated the ARV project, which is projected to cost a total $3 million while producing 150 jobs.

“Macomb County is on the front lines of defense production, and American Rheinmetall Vehicles forms an important piece of the industry,” Farrington said in a statement. “ARV’s new facility will support additional jobs in Sterling Heights, build our local economy, and strengthen our national security.”

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