Subsidies for Foreign Car Makers and the Fall of Detroit’s “Big Three”

By Brigitte L. Nacos
Senator Richard Shelby (R-Alabama) and Representative J. Gresham Barrett (R-South Carolina) who have spearheaded the attacks against a rescue package for Detroit car makers, claim to fight against government interference in the free market. Barrett, whose district sits next to a BMW plant, warned, “We're not supposed to pick winners and losers and micromanage companies.” And according to Shelby, American car companies “build the wrong stuff.” He characterized General Motors, Ford, and Chrysler as “dinosaurs” and suggested that “we should let them go.”

Ironically, a major reason for the predicament of the one-time “Big Three” is the advantage of foreign car makers vis-à-vis domestic companies on the far from level playing field. A few week ago, United Autoworkers president Ron Gettelfinger said in a press conference that since 1992 foreign car makers received more than $3 billion in incentives to locate their plants in particular states and communities. Singling out the state of Alabama, the union leader said:

“We have Hyundai Motor Company that got $252 million in incentives. Toyota there got $29 million in incentives. Honda, $158 million and Mercedes $253 million in incentives. It just seems odd to us that we can help the financial institutions in this country and that we can offer incentives to our competitors to come here and compete against us but at the same time, we are willing to walk away from an industry that is the backbone of our economy.
And while I read these figures to you, which are the actual figures that we have been able to dig up, I want to go to one particular story and that is the plant in Mercedes, the Mercedes plant in Alabama.
As it turned out, as I said Alabama offered $253 million but the state offered to train the workers, clear and improve the sites, upgrade the utilities, buy 2,500 vehicles and it is estimated that that incentive package totaled somewhere around $175,000 per employee to create those jobs there. And on top of this, that state gave this automaker a large parcel of land-around $250-$300 million dollars.”

That is only part of the story. Whereas the U.S. companies are burdened with legacy costs, namely pensions and health care for retirees, foreign newcomers are free of such obligations. Like other industries in the South, car plants have typically a non-union labor force. The states that have proven particularly attractive for foreign companies, namely, Mississippi, Alabama, Tennessee and South Carolina, are so-called right-to-work states in which fewer employees cannot be forced to join a union even if they work in a unionized plant.