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.

The claim that the American automobile industry builds “the wrong stuff” may have been justified years ago, but is not true today. A car built in one of GM’s German Opel plants was selected as Europe’s 2008 car of the year just beating out a Ford car, also manufactured in Germany. While these two models are not sold in the U.S., GM and Ford in particular offer today several models that are as good as or better than comparable foreign cars. Nobody seems to notice—perhaps, because the media pay far more attention to the cars made by foreign companies

Last night, the House voted in favor of a $14 billion loan for American car makers—a rather modest sum in comparison to the $700 billion approved to rescue financial institutions. Or think of the $10 billion a month the U.S. continues to spend for its role in Iraq. The House majority did the right thing. Senator Shelby and other Republicans in the Senate who may kill the loan in the upper congressional chamber are wrong; they are content to let the American car industry die and leave the field to German, Japanese, and South Korean firms. There are certain basic industries—the steel and car sector among them--that should always have some American-owned production capabilities. If Shelby and other opponents of the Detroit rescue initiative do not care about the millions of jobs at stake, they should think of possible implications for America’s national security.

To be sure, financial aid for the one-time “Big Three” among car producers must be tied to a fundamental restructuring of these companies and their mission; they must be pushed to tap into America’s talent for innovation to produce cars for the future.

Yesterday, Thomas Friedman wrote an interesting column about a revolutionary electric car network concept by the California based company Better Place. As Friedman wrote, “Just last week, the company, based in Palo Alto, Calif., announced a partnership with the state of Hawaii to road test its business plan there after already inking similar deals with Israel, Australia, the San Francisco Bay area and, yes, Denmark. The Better Place electric car charging system involves generating electrons from as much renewable energy — such as wind and solar — as possible and then feeding those clean electrons into a national electric car charging infrastructure. ..”

Yes, Detroit’s car producers need to change more than they have in the last ten or so years. But Washington must throw them a life-line before it is too late.

P.S. Today, by speaking out against the life-line for Detroit, Senate Republican leader,Mitch McConnell (Republican of Kentucky) seemed to have killed the bill that passed the house yesterday and had the support of President Bush. It should be noted that Toyota builds cars in Kentucky. If one, two, or all three American car makers go down the drain, foreign car companies in Kentucky and Alabama, and elsewhere will gain marketshare. Is that what the McConnells and Shelbys aim for besides busting a labor union?

Comments

[ZAP Alias]

We cant let the dinosaurs go, too many jobs depend on the Big 3 remaining alive. However the dinosaurs can be made to live with the times and start to produce the cars that people want to drive: fuel efficient, electric, alternate fueled, etc.

[Foreign Cars]

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Rose.

[Drivers Education Online]

Fundamental restructuring is important for 3 major car companies. Technology innovation is also necessary. Companies need to overcome the competition from china.

Keith

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Just recently Toyota had to recall some vehicles and got some very bad publicity from the domestic media. Now, Honda, another foreign car manufacture, just announced a minor recall and I would not be surprised if Honda gets torn apart by the media affecting how the American populations view the company. I'm thinking this is some Master Plan trying to help our fragile domestic auto industry. The media, giving a bad portrayal of foreign car manufacture as faulty, is part of the plan. If you know anything or have any thoughts feel free to respond. Master Plan by? I don't know who yet.

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The Better Place electric car charging system involves generating electrons from as much renewable energy such as wind and solar as possible and then feeding those clean electrons into a national electric car charging infrastructure

[kevin]

Friedam of driving. Driving is now getting more and more difficult for those drivers who are over 55.