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Regional split at root of auto vote

Bailout foes from states luring foreign makers

By Michael Kranish

Globe Staff / December 10, 2008



WASHINGTON - With Democratic congressional leaders and White House officials agreeing yesterday on $15 billion in emergency loans to US automakers, one of the most vociferous foes is Senator Richard Shelby, an Alabama Republican who says the Big Three automakers "can't compete" and who has threatened a filibuster to stop the deal.









Shelby's position is not merely that of a fiscal conservative. His home state has provided millions of dollars in taxpayer subsidies to lure Honda, Hyundai, and Mercedes-Benz to build huge plants there. Indeed, some critics believe that without the incentives from Alabama - and similar tax breaks given by a number of other states to a dozen foreign automakers - the Detroit companies would not need a federal bailout.
The foreign-based automakers have received relatively little attention during the debate over the auto bailout bill because they have not asked for money from Con gress. Yet their role is immense: In 2007, for the first time, foreign firms produced a majority of cars sold in the United States. While Detroit's auto industry is shutting plants and slashing union jobs, the foreign-based auto companies have been booming, particularly in the South, with new nonunion plants slated to open in Tennessee and Georgia.
House Financial Services Committee chairman Barney Frank of Massachusetts, who is playing a key role in hammering out a loan deal, said in an interview that some opponents are "completely hypocritical" because they back local tax incentives to lure foreign companies that now pose some of Detroit's stiffest competition. Frank also denounced those members of Congress who oppose the assistance for the Detroit automakers as a matter of fiscal prudence at the same time they fight for agricultural subsidies for their states.
Shelby represents the views of many members of Congress who say they oppose a taxpayer bailout and plan to join him in trying to defeat the measure. In an interview yesterday, he defended his support for tax breaks for foreign auto companies, which he praised for offering cars that the public wants. "They know what they are doing running efficient plants," said Shelby, the top Republican on the Senate Banking Committee, which held hearings on the bailout last week.
Shelby bristled when asked why he opposes the loan to Detroit automakers but backs farm subsidies, which do not have to be repaid. "I don't say that is good policy," Shelby said. Asked why he voted for subsidies if he does not think they are good policy, he responded that "there are some good things" in the farm bill.
The Frank-versus-Shelby argument is a microcosm of the complex politics and competing interests at stake as Congress prepares to vote on the auto loans. It emphasizes what has become a geographic - not just partisan - divide: lawmakers from states with foreign-owned auto plants tend to oppose the measure, while those from the Upper Midwest and strong union states tend to back it.Continued...

While the foreign automakers could make further gains in the US market should the Big Three falter, they could also be hurt because many suppliers do business with both domestic and foreign companies and could go out of business if one of the Big Three goes bankrupt.
"They are scared to death," said David Cole, chairman of the Center for Automotive Research, who met recently with representatives of foreign automakers. "They know how intertwined this all is."
The Association of International Automobile Manufacturers, which represents 14 foreign-based companies that sell cars in the United States, said it is not lobbying for or against the loans. "We do not oppose efforts like this to provide financial assistance to any automaker in need of such assistance at an unprecedented time like this," spokesman Kim Custer said yesterday.
Custer also said it was common business practice for states to compete for plants with tax breaks.
Senate Republican leader Mitch McConnell of Kentucky - whose state has a 7,000-employee Toyota plant - said on the Senate floor yesterday that he had reservations about the proposed legislation, which he said "fails to require the kind of serious reform that will ensure long-term viability for struggling automobile companies" and leaves the door open "to unlimited federal subsidies in the future."
The GOP caucus includes senators from Upper Midwest states who back the loans as well as those from Southern states who oppose them. Democrats, who narrowly control the Senate, generally support the measure, but need 60 votes to overcome a threatened filibuster.
The deal would provide the emergency loans as soon as next week and calls for a presidentially appointed "car czar" to oversee a sweeping restructuring of the companies. A breakthrough came yesterday when negotiators reached a compromise to require the czar to revoke the loans and deny any further federal aid to automakers that don't strike a deal with labor unions, creditors, and others to ensure their survival by next spring - essentially pushing them into bankruptcy.
Congress could vote on the plan as soon as today. General Motors has said that it would have to declare bankruptcy by Dec. 31 without a loan, and Chrysler has said it is in similar need. Ford said it does not need an immediate cash infusion.
James Rubenstein, a professor at Miami University in Ohio who coauthored a recent book, "Who Really Made Your Car?," said that the auto industry's problems must be viewed through the lens of an economic fight between regions.
For example, while Chrysler, Ford, and GM are shrinking facilities across the Upper Midwest, Alabama has been gaining jobs at an extraordinary rate due to the decision of the foreign automakers and their suppliers to locate in the state. The state's auto-related jobs have more than doubled from 21,545 in 2001 to 48,457 last year.
Rubenstein said Shelby is opposing the loan because "he is voting with his state's self-interest."
But Rubenstein said that while that may be good local politics, it is unfair on a national level. He compared helping the auto companies in the Upper Midwest to aiding the victims of Hurricane Katrina on the Gulf Coast. "This is a regional disaster issue," he said.
As recently as 1996, the Big Three sold about 70 percent of cars in the United States. But last year, for the first time, foreign companies took a slim sales lead, and they are projected to sell 56 percent of cars in the United States by 2011, according to the Center for Automotive Research in Ann Arbor, Mich., which receives some funding from both domestic and foreign companies.
Of the cars sold by foreign-based companies, about half are assembled in US-based plants, with the rest imported from around the world. The foreign automakers established plants in the United States for two main reasons: to save on transportation costs, and to avoid the imposition of trade restrictions on imports.
It is difficult to ascertain the exact amount of tax subsidies provided to the foreign automakers because they are provided by so many localities and in different ways, including property tax breaks and corporate tax abatements. One study found that the total subsidies to foreign automakers exceeded $2 billion.
Alabama paid more up front per job in tax subsidies to the foreign automakers than Detroit is asking per job with the loans, said Cole of the automotive center.
Michael Kranish can be reached at kranish@globe.com. Material from the Associated Press was used in this report.
© Copyright 2008 Globe Newspaper Company.




on top of this, foriegn manufacturers have enjoyed the help of their home country's. but we, amaricans, continue to turn our nose up at our own!!! we can send 100's of millions to aid a country hit by a titlewave, but cant get clean water to our own people....i'm embarressed....i'm ashamed in ourselves....lol, we suck

[daved150]

Tweeton another note...these cars ASSEMBLED in the states ARE NOT american cars...to me, it's like believing the bike you baught your kid at walmart is american made becouse the kid that assembled it in store is american! is it good that the kid has a job? yes (assuming he's not an illegal foriegn worker)....but it's better for the 30 chinese people who made the bike and shipped it over here.
the only reason the foriegn manufactures even put assembly plants here is to by-pass import tarrif's and taxes. then we, the local states, give them even MORE tax breaks and incentives futher hurting ourselve's as a nation.....we're an "emo" nation stuck on "cutting" ourselves for an endorphin rush!

[BoobooKitty]

TweetI think we should just start taking care of our own.

[dixiechick]

TweetI blame the miss management of American auto manufacturers for this mess. If those executives would spend outrageous amount of money on corporate jets, etc. I won't even go into the Labor Union's part in this.

Mismanagement at the Big Three
Mismanagement at the Big Three
December 9, 2008 11:42 AM by Ralph Reiland

It was a dead heat. General Motors sold 9.37 million vehicles worldwide in 2007 and lost $38.7 billion. Toyota sold 9.37 million vehicles in 2007 and made $17.1 billion.

That was the second best sales total in GM's 100-year history and the biggest loss ever for any automaker in the world.

For Toyota, that was roughly $1,800 in profit for every vehicle sold. For GM, it was an average loss of $4,100 for every vehicle sold.

Collectively, Detroit's Big Three automakers are currently losing about $5 billion per month, with Ford, General Motors and Chrysler, respectively, burning through $2 billion, $2 billion and $1 billion in cash every 30 days.

Tin cups in hand again during their recent testimony in Congress, leaving their corporate jets at home this time and promising to cut their paychecks to $1 per year, the CEOs from the Big Three came to Washington in even worse shape than during their Congressional appearance in November, upping their money appeal by $9 billion, from $25 billion to $34 billion. That's on top of the $25 billion in already authorized money to retool their plants.

General Motors and Chrysler added a "rush" to their latest bailout request, telling D.C.'s lawmakers that they need, respectively, an immediate $4 billion and $7 billion to ensure minimum liquidity levels, paid prior to the end of December. GM, as well, asked for an additional $4 billion for January and a third handout of $2 billion in the February/March time frame to forestall a financial calamity, plus a $6 billion line of credit from the federal government to ensure ample liquidity.

All told, GM says it needs an $18 billion taxpayer bailout, some 50 percent more than it said it needed just three weeks ago to turn things around.

With its hourly workforce already down 52 percent since 2000, from 133,000 to 64,000, and its executive ranks and salaried employees down, respectively, by 45 percent and 32 percent in the same period, General Motors now says it can get back on its feet by getting rid of its Saturn, Hummer and Saab lines and putting Pontiac on an endangered-brand list.

Also in GM's proposal for survival, and for paying back the money by 2011, is the elimination of 1,750 dealerships, the closing of four of its 47 plants, an additional 31,500 job cuts, and a new age of "full labor competitiveness" with foreign manufacturers in the U.S. within the next three years.

Currently, UAW workers at Ford, GM and Chrysler earn an average of $28 per hour, plus benefits. At the Toyota and Honda non-union plants in the United States, the hourly rate, excluding benefits, is $26 and $24, respectively.

Add the cost of benefits for the current workforce and the cost of pensions and health care for retirees (benefit-collecting retirees outnumber current workers by three-to-one at GM, Ford and Chrysler) and the difference in labor cost between a Toyota plant in the US. and the plants of Detroit's automakers jumps to $29 per hour.

More specifically, the hourly compensation cost for labor, including benefits and retirees' costs, at the Big Three is $73 per hour, compared with $44 per hour at a Toyota factory with American workers in the U.S.

Further, it takes fewer hours of labor to produce a car in Toyota's U.S. plants than at the plants of Detroit's automakers.

With more flexible work rules, GM says it could save hundreds of dollars per vehicle. The company maintains, for instance, that a company-wide use on non-union janitors, earning $12 per hour, would cut costs and increase competitiveness by up to $500 million a year.

Similarly, health care costs at GM for active workers and retirees account for more than a quarter of total labor compensation, adding approximately $1,000 in cost to every GM vehicle, compared to $215 in health care costs in each Toyota produced in U.S. plants.

Under UAW contracts, additionally, laid off workers are transferred to a jobs bank and receive 95 percent of their full pay and benefits to not work. This year, the cost to the Big Three will be an estimated $478 million, about $70 million less than Honda spent to build a brand new factory in Indiana.

Somewhere along the line, both management and labor in Detroit forgot the good economic advice of UAW head Walter Reuter: "Getting more and more pay for less and less work is a dead end street."

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on another note...these cars ASSEMBLED in the states ARE NOT american cars...to me, it's like believing the bike you baught your kid at walmart is american made becouse the kid that assembled it in store is american! is it good that the kid has a job? yes (assuming he's not an illegal foriegn worker)....but it's better for the 30 chinese people who made the bike and shipped it over here.
the only reason the foriegn manufactures even put assembly plants here is to by-pass import tarrif's and taxes. then we, the local states, give them even MORE tax breaks and incentives futher hurting ourselve's as a nation.....we're an "emo" nation stuck on "cutting" ourselves for an endorphin rush!

Its my understanding that GM has many of their parts made in Canada and Mexico while still looking at moving more of there load there as well- would we then NOT consider GM "American made" since we are just assembling them here?? Just asking- I sold some rifle scopes to a guy last month who works for GM and this is what he told me- he also said when Toyota gets ahold of this info- they will run with it. The Big 3 need to drop that sweethaert deal with the Union on paying people even when they are not working. Like it or not- they will need to get their cost per man hour down where Toyota and the rest are to compete- like it or not- that is the way it will have to be.

[SMILEY FACE]

Tweetthis entire thing sucks

[daved150]

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Its my understanding that GM has many of their parts made in Canada and Mexico while still looking at moving more of there load there as well- would we then NOT consider GM "American made" since we are just assembling them here?? Just asking- I sold some rifle scopes to a guy last month who works for GM and this is what he told me- he also said when Toyota gets ahold of this info- they will run with it. The Big 3 need to drop that sweethaert deal with the Union on paying people even when they are not working. Like it or not- they will need to get their cost per man hour down where Toyota and the rest are to compete- like it or not- that is the way it will have to be.

i agree the job bank needs to go!! i agree that the union hurts them...toyota dont have union. i'm not quite sure if they give enough of a shyt about there retired workers to offer a pension, but i think they do. which means gm, ford and chysler def. have a head start on taking care of retiree's, but toyota will be there too one day....when tyey've been around, taking care of the people who took care of them, for as long as the big3 have!
yep...some parts are made in canada and mexico...NOWHERE NEAR on the level of toyota's foriegn parts are made. also...think about this...from paper to assembly...any clue how many people are involved in the production of the first unit? how many MILLIONS are spent on that first one? the technology gained from an idea to a reality? all the people touched and financialy effected by that process?...i dont have the EXACT number, but i know it's THOUSANDS upon thousands!!! for every one job at an esembly plant theres hundreds of jobs that come before...possibly thousands!! i see by responces to these threads that people really dont have a clue to the effect of this....the foriegn manufacture's dont even want this!! it'll KILL the vendors. it'll cause a domino effect that no one can even begin to grip...
again...i'm done...i say fuk 'em...let them die. i can sell toyota...believe me!! and when war comes...go get your shyt from russia. they got better rifles anyways right? y'all can figure out what to do with those millions un-employed...y'all can figure out what to do with all those forclosures. besides...it's only gonna fuk the midwest!! the rest of the country will be fine and dandy! wont effect coal, steel, chemilcles anything else...just the bloated big3. shyt, toyota might actually be able to be sold CHEAPER!! after all, they can reduce wages to 15bucks an hour. cut bennifits more, no pensions..no more industry standard to deal with! hell...start 'em out at 8.50! ofcourse, we'll have to get seriouse about national health care. too many people will not be insured...going to the hospital, no insurance to pay....how long could the hospitals deal with that??!! ofcourse, under national healthcare, we got to cut the pay for doctors...labs, phamacist...all that shyt. and if doctors are gonna only make 1/3 their previos wage, well that changes the standard of living for all...yea...everyones gonna have to take 1/3 paycut...ohhh, the forclosures...to many to deal with. gonna have to turn over control of the banks to the fed. they'll watch your money...help protect it!
yea...fuk 'em. let 'em die