from Business week

[greencobra]

Big Three battle comes down to party politics

Senators carping about tax subsidies should look at plants in their backyard

COMMENTARY

By Ed Wallace

Business Week

updated 2:34 p.m. CT, Mon., Dec. 15, 2008

 

In the ongoing power struggle between Republicans and Democrats, Detroit is the latest, and possibly the bloodiest, battleground. And because it is a battle of ideologies with no apparent connection to pragmatic economic reality, the matter of whether the U.S. auto industry survives takes a backseat to which party gets its way.

 

That's because the two parties see the fate of Detroit as a watershed moment, the kind of event that could potentially redraw the political landscape forever. By refusing to bail out General Motors and Chrysler, Republicans see a way to end the last vestiges of unionism in America and the unions' longtime backing of the Democratic party — a political base the Democrats will fight tooth and claw to save. If neither side can win — if they destroy the American automobile industry in its entirety and if in doing so they set off a chain reaction that turns out to be the last straw for our shaky economic system — they don't care.

 

How can that be? Simple party politics. Because if these individuals bring down the American economy by destroying Detroit, they'll simply walk away from the disaster saying "It was the other guy's fault."

 

Somewhere along the way this debate seems to have overlooked the fact that Detroit, for all its blunders, is still a viable economic engine, providing jobs to millions and creating some of the world's best cars. For example, the best-selling vehicle in America, even in this downturn, is still Ford's F-Series truck, and second place goes to the Chevrolet Silverado. Even the Dodge Ram continues to hold a strong position in the Top 20 vehicle list, while sales of the Toyota Prius are down substantially with the fall-off in gasoline prices. (We assume that the Prius is the type of car the left wants Detroit to build.)

 

And speaking of Japanese cars, I hate to point out the obvious, but car sales in Japan are lower today than they were 15 years ago, down over 30 percent just last month. Yet you won't see the heads of the Japanese auto companies on the carpet in front of their government officials, being drilled with questions like, "Why don't you build cars the public wants to buy?"

 

What's amazing is that Senator Richard Shelby (R-Ala.) is such a huge critic of using taxpayer money to bail out Detroit. Amazing because the state of Alabama has provided hundreds of millions of taxpayer dollars to lure foreign auto companies to build factories on its soil.

 

Of course, when Alabama gave Mercedes-Benz $253 million to build a factory there, or about $168,000 per job created, that was considered a good thing. When Honda considered building a new factory there, that was worth $158 million, and Hyundai's Southern site choice forced the state to cough up $234 million more. Again, these were considered wise investments because the promise was that they would create more jobs for the chronically underpaid Alabama workforce. However, in the summer of 2003, Mercedes brought in Polish workers on questionable B-1 work visas to expand the factory because they could be paid far less than the local workforce.

 

So you had Alabama gifting state tax dollars to Mercedes' factory, only to discover that some of the jobs it created went to much cheaper labor imported from Eastern Europe.

 

Look at Senator Bob Corker of (R-Tenn.). The former mayor of Chattanooga was one of those responsible for winning the new Volkswagen factory at a cost of $577 million in tax incentives. Moreover, Tennessee got that factory only because Alabama offered the Germans a mere $385 million.

 

Mississippi paid $284 million for a new Toyota plant; Kia got $324 million from Georgia. Texas had to fork over only $133 million for Toyota's Tundra plant in San Antonio, while Tennessee gave $197.6 million not for a new Nissan factory but simply so Nissan would move its American headquarters to Nashville. There are other factories — BMW in South Carolina, Nissan in Mississippi, and so on — but you get the point.

 

The Republican senators from these states see no problem whatsoever with paying to bring new automobile production to their states, and the media always quotes them gloating about how smart it is to spend that type of money because it creates jobs.

 

The reality is that there's no end to the tax largesse handed out to some of the most successful car companies in the world. And you know their names: Volkswagen, Toyota, Honda, Nissan, Hyundai, Kia, Mercedes-Benz, and BMW. The fact that many of these companies' brand-new, state-of-the-art American plants — nonunion plants, low cost-benefit plants — are also struggling seems to have escaped the notice of these same elected officials and the media.

 

Mercedes recently offered a buyout to its entire workforce in Alabama, and Hyundai has never gotten its Alabama factory up to full capacity. Toyota will not use its upcoming Mississippi factory to build its Highlander SUV, and Nissan is converting its factory in that state to build commercial vehicles. Toyota has been forced to shut its Texas truck plant because of scanty orders for the new Tundra, and so on. So Senator Shelby's statement that Detroit "doesn't innovate. They're a dinosaur," while his partner Senator Jeff Sessions (R-Ala.) brags about the "very large and vibrant automobile sector in Alabama," doesn't exactly ring true.

 

So we find that nonunion, low-cost, state-subsidized, state-of-the-art auto plants in America are having their fair share of problems, too. But according to Senate Republicans, the only part of the American car industry that isn't working is in Detroit.

 

Other governments aren't being so stingy — or mercenary. Sweden gave $3.5 billion to stabilize both Volvo and Saab on Dec. 10. Volkswagen has applied to tap into the bank bailout fund set up by Germany for that nation's troubled financial system — our Treasury and Fed may be compelled to offer similar help. And China just lent Chery Automotive $1.5 billion to continue operations.

 

That's right, other industrialized countries around the world will be stepping in to ensure that their own automobile industries will still be working when whatever financial downturn we are looking at is finally over. Moreover, they understand that the world's economy is precarious right now, so they aren't demanding that corporate jets be sold, they aren't demanding new business plans to save the individual companies, and they aren't publicly embarrassing the heads of Honda, Toyota, Mercedes, BMW, VW, Nissan, Renault, and others by demanding that they explain why their profits and sales have dropped suddenly. In the rest of the world, elected officials understand serious downturns in the economy and that the automotive industry is cyclical in nature.

 

As for Congress, shame on you for playing politics when so many jobs and, in many ways, the future of American manufacturing is at stake. But then again politics is all you know. Maybe you should let American carmakers get on with what they know how to do: build cars.

 

Copyright © 2008 The McGraw-Hill Companies Inc. All rights reserved.

 

URL: http://www.msnbc.msn.com/id/28239206/

[Deanh]

funny...literally just finished reading that article..kind of shines a different light/ perspective on things. I have ZERO respect for some of the blowhards...I just wish one of the Big Threes main men ( perhaps Mullaly since they don't NEED the money )had the ball$ to call such Senators as Shelby out and ridicule the hypocrite...course, can't be done when one is asking for support can it, one just sits back and HAS to bite ones tongue.....suck up and be nice boys....ARRRRRG! BE LIKE STEVE WILLIAMS....call it like it is.....( FYI, Tiger Woods caddy called Michelson a prick.....)

[DearbornDerek]

Mississippi paid $284 million for a new Toyota plant;

 

Heard on local news tonight (fox 2 Detroit) that toyota has decided not to build the prius there...However all people hired to work there will still have jobs...and get paid to do nothing...

[Deanh]

Heard on local news tonight (fox 2 Detroit) that toyota has decided not to build the prius there...However all people hired to work there will still have jobs...and get paid to do nothing...

ignored of course...Import hallpass.....

[kyle]

funny...literally just finished reading that article..kind of shines a different light/ perspective on things. I have ZERO respect for some of the blowhards...I just wish one of the Big Threes main men ( perhaps Mullaly since they don't NEED the money )had the ball$ to call such Senators as Shelby out and ridicule the hypocrite...course, can't be done when one is asking for support can it, one just sits back and HAS to bite ones tongue.....suck up and be nice boys....ARRRRRG! BE LIKE STEVE WILLIAMS....call it like it is.....( FYI, Tiger Woods caddy called Michelson a prick.....)

 

Well he is a prick! I have heard it from numerous people who are close to him-guys that worked with him on the Ford contract that said he was nothing like he seems on tv, but that is another discussion.

 

No one is going to call the policiticians out-sad and like you I wish it would happen-just call him an asshole:)

[LSFan00]

Federal income tax (confiscations) payments are different than state tax incentives, period. There is no comparison.

[RichardJensen]

Federal income tax (confiscations) payments are different than state tax incentives, period.

1) The 'bailout' is in the form of loans, not grants

 

2) Do you mean to tell me that states do NOT obtain revenue from their citizens?

[retro-man]

Federal income tax (confiscations) payments are different than state tax incentives, period. There is no comparison.

Yeah, right. Except that Alabama gets $2.52 in Federal aid for every $1.00 dollar it contributes in Federal taxes. Maybe they wouldn't need to be such suck-ups if they carried their own weight. LINK

 

All of these subsidies - and both foreign and U.S. corporations get them (Boeing and Microsoft are among the worst) are just wrong. They are all taxation with mis-representation.

Edited December 16, 2008 by retro-man

[JasonM]

1) The 'bailout' is in the form of loans, not grants

 

2) Do you mean to tell me that states do NOT obtain revenue from their citizens?

 

 

I think you are confusing State and Federal governments. If the states of Michigan or Ohio wants to bailout the Big 2, let em, why force the other 48 to join in

 

the bailout of fat cats at Cerberus, who made a lousy investment and now want US taxpayers (not state taxpayers) to cough up bailout funds is especially distasteful.

 

Cerberus won't even invest any more of their own money in Chrysler, and just a few months ago they were "profitable and meeting all Finanical targets" yet they want the rest of us to invest in them?

 

what a crock!

[suv_guy_19]

I think you are confusing State and Federal governments. If the states of Michigan or Ohio wants to bailout the Big 2, let em, why force the other 48 to join in

 

 

Well, at least this type of thinking isn't confined to Canada. Why should they be bailed out? Because across north America in probably almost every US state and Canadian province millions of jobs are at stake. Around the world, probably over 10 million jobs are at stake. Why? Because its not only about the companies. Its about the suppliers, the dealerships, the haulers, the industries that depend on these workers. It has been said that in the Province of Ontario alone, the big 3 workers pay over $10B in income tax. The bailouts are a small price to pay to try to stop all of this from going over the cliff.

[davdog]

Well, at least this type of thinking isn't confined to Canada. Why should they be bailed out? Because across north America in probably almost every US state and Canadian province millions of jobs are at stake. Around the world, probably over 10 million jobs are at stake. Why? Because its not only about the companies. Its about the suppliers, the dealerships, the haulers, the industries that depend on these workers. It has been said that in the Province of Ontario alone, the big 3 workers pay over $10B in income tax. The bailouts are a small price to pay to try to stop all of this from going over the cliff.

 

 

The bailouts are not going to change the way these companies operate. All you're doing is delaying the inevitable until warmer weather.

[suv_guy_19]

The bailouts are not going to change the way these companies operate. All you're doing is delaying the inevitable until warmer weather.

 

 

The money won't change the way they operate (they are also all in different situations, so referring to them in one stroke is to be rather uninformed) but time might. Right now they need time.

[davdog]

The money won't change the way they operate (they are also all in different situations, so referring to them in one stroke is to be rather uninformed) but time might. Right now they need time.

 

They're not really in different situations, ford was just able to get more money by mortgaging everything, they are still losing millions a quarter if not more.

[suv_guy_19]

They're not really in different situations, ford was just able to get more money by mortgaging everything, they are still losing millions a quarter if not more.

 

You can't just look at how much money a company lost and then look at how much money another company lost and say that they must be the same. Each of the three companies are doing things different and a lot of the money they are losing is as a result of different things. Almost all the financial experts that I have heard think that Ford can still pull through and that the others can't. Ford did what it had to do to get money, they improved their quality to the best in the business. They reduced warranty and labour costs. They have worked to get production in line with demand. They are continuing to work as we speak. To say that they won't and aren't changing couldn't be further from the truth.

[RichardJensen]

I think you are confusing State and Federal governments.

 

the bailout of fat cats at Cerberus

Nope. The typical taxpayer in Alabama has about as much of a chance of stopping the state from throwing money at Mercedes as he/she has of stopping the US from throwing money at GM/Chrysler.

 

From the standpoint of the taxpayer having almost no say in both of those decisions, the comparison is quite valid.

 

--

 

If you need to be in a nursing home, you have to spend down your assets to (I think) $5,000 plus your house and a car, if you want to get on Title 19 (Medicaid). The rationale being that government money should be spent only on people that are truly in need. Medicaid should not exist to =protect= assets, it should exist to provide assistance to those =without= assets.

 

From that rationale, it seems extremely inappropriate to subsidize Chrysler when Chrysler's owners will not spend any more money on it.

[JasonM]

Nope. The typical taxpayer in Alabama has about as much of a chance of stopping the state from throwing money at Mercedes as he/she has of stopping the US from throwing money at GM/Chrysler.

 

From the standpoint of the taxpayer having almost no say in both of those decisions, the comparison is quite valid.

 

the difference is the typical taxpayer in Alabama probably wouldnt object to tax incentives to attract a new business their home state. They would object to sending money to Michigan or Ohio to bail out poorly run businesses that have been in decline for decades.

 

so if a state wants to vote against sending bail out money to a loser company in some other state, thats their right.

[rmc523]

From that rationale, it seems extremely inappropriate to subsidize Chrysler when Chrysler's owners will not spend any more money on it.

 

I agree with that.

 

And it'd be nice if the politicians could work together and consider what's best for the country rather than thinking along party lines.

[RichardJensen]

so if a state wants to vote against sending bail out money to a loser company in some other state, thats their right.

Right. Because what happens in Michigan has NO bearing whatsoever on what happens in Alabama.

 

Heck, Michigan's not even in the same COUNTRY as Alabama.

 

 

 

 

No, wait, the South LOST the Civil War. I forgot.

Edited December 16, 2008 by RichardJensen

[RichardJensen]

so if a state wants to vote against sending bail out money to a loser company in some other state, thats their right.

Besides, as Retro-man pointed out, Alabama is a net importer of Federal tax money. Which means that if you're going to stand on the 'I don't want my tax dollars going to some loser in some other state' line of reasoning, only states that are net exporters of Federal tax money should have any vote whatsoever.

Edited December 16, 2008 by RichardJensen

[Critic]

Right. Because what happens in Michigan has NO bearing whatsoever on what happens in Alabama.

 

Heck, Michigan's not even in the same COUNTRY as Alabama.

 

 

 

 

No, wait, the South LOST the Civil War. I forgot.

 

Basically if people don't like this country then they should just move to New Mexico and be done with it.

Edited December 16, 2008 by Critic

[NickF1011]

the difference is the typical taxpayer in Alabama probably wouldnt object to tax incentives to attract a new business their home state.

 

Using my wee little state as an example, I would rather not see my tax dollars go toward a new assembly plant in Rising Sun, MD. :watches as people pull out their maps of Maryland:

[TomServo92]

Besides, as Retro-man pointed out, Alabama is a net importer of Federal tax money. Which means that if you're going to stand on the 'I don't want my tax dollars going to some loser in some other state' line of reasoning, only states that are net exporters of Federal tax money should have any vote whatsoever.

 

Well that does it then! I'm writing my Congressman right now and DEMAND that none of MY federal taxes go to Alabama. After all, why should I support all the losers there? :rolleyes:

[NickF1011]

Interesting chart of net donor/recipient state averages:

 

http://www.scribd.com/doc/8229012/Tax-Dono...-Contrib-States

 

Quite surprised that Maryland ranks #3 in recipient funding. Wonder where all that money is going? We have some of the wealthiest counties in the nation.

 

I wonder if that includes military funding going to bases in that state? Would make sense in that case. Hmmm...

Edited December 16, 2008 by NickF1011

[grbeck]

Yeah, right. Except that Alabama gets $2.52 in Federal aid for every $1.00 dollar it contributes in Federal taxes. Maybe they wouldn't need to be such suck-ups if they carried their own weight. LINK

 

All of these subsidies - and both foreign and U.S. corporations get them (Boeing and Microsoft are among the worst) are just wrong. They are all taxation with mis-representation.

 

The biggest federal expenditures are for Social Security and Medicare - both collected by senior citizens. Many senior citizens retire to the warmer, southern states, and those federal dollars follow them. So that statistic doesn't really mean all that much, unless someone is advocating the reform of those federal programs, but the last time I checked, Democrats raised the specter of grandma starving in the streets if anyone so much as thought about tinkering with those programs.

 

Or maybe we should put ankle bracelets on retirees and force them to continue living where they worked.

 

Maryland always comes out well in the distribution of federal dollars, too. Well, surprise, surprise - a lot of federal employees live in the Maryland suburbs surrounding Washington, D.C. A fair number of government agencies are located in those suburbs, too.

 

On another automotive website, a Michigan resident regularly rants about the distribution of federal dollars - especially to Alabama and Maryland. Regarding Maryland, I reminded him that Michigan went solidly for Obama, and he hardly ran on a small-government platform.

 

When the federal government expands, it generally employs people who live in places like Timonium, Rockville or Frederick.

 

They aren't that many federal employees - or federal agencies - in Ann Arbor, Lansing or Dearborn.

 

So Michigan residents are getting what they wanted.

 

And I'm not too sympathetic to the complaints about Alabama giving subsidies to foreign automakers (which, by the way, is a STATE matter, not a federal one, as opposed to the proposed bailout of GM and Chrysler, which is a federal matter). GM, Ford and Chrysler have been quite successful in extracting subsidies, tax abatements and infrastructure improvements from state and local governments when they upgrade a facility. (Anyone remember the bidding war that broke out among states when GM announced what became the Saturn project in the 1980s? GM didn't locate the Saturn plant in Spring Hill because the executive team liked southern cooking.)

 

They aren't getting subsidies for new plants - unless we count the subsidies they receive from the Mexican government - because they have been largely shutting down plants here.

 

And please note that Michigan has been able to throw plenty of subsidies to GM, Ford and Chrysler whenever they wanted to expand or remodel a facility. I recall GM receiving state subsidies and incentives when it remodeled its Warren, Michigan, facilities. So apparently that lack of federal dollars hasn't hurt Michigan's efforts in this area. It's more like the state bet on the wrong horses.

[atomaro]

Well that does it then! I'm writing my Congressman right now and DEMAND that none of MY federal taxes go to Alabama. After all, why should I support all the losers there? :rolleyes:

 

 

Be glad you don't live in NJ...you'd be supporting Al and MD.