And now, a few decades and several tens of billions of dollars later, we have southern politicians with automotive manufacturing facilities in their backyards. And, for some reason, they’re not feeling a particularly strong desire to spend federal taxpayers’ money on bailing out Detroit. As The Atlanta Journal Constitution puts it, “For behind the philosophical back-and-forth over government intervention, scheduled to begin Monday in the U.S. Senate, is a cut-throat, economic reality: the South has ambitions of becoming Detroit’s rival. And a federal dollar that artificially props up manufacturing on the northern end of I-75 is a dollar that hinders the creation of new economic models downstream, some Southern politicians maintain.” Par example? “Georgia’s Kia plant is scheduled to open next November, employing as many as 2,500 workers. The site is located within U.S. Rep. Lynn Westmoreland’s 3rd District. Westmoreland, like other House Republicans, voted against the $700 Wall Street bailout. He’ll vote against a Detroit rescue as well – on the grounds that it would create a slanted field of play for the workers he’ll soon represent. ‘One of the things we have constantly said is we can’t compete with some of these foreign businesses because the government has intervened in those businesses, and it makes an unfair advantage,’ Westmoreland said. ‘What we’re doing here with the auto industry is basically the same thing.'” Fine words. And the way the AJC takes him to task is classic…
“As have other states, Georgia laid out a boatload of incentives to land its auto plant, worth an estimated $415 million. But that’s not the same thing, the Georgia congressman said. ‘I don’t think we were doing that because of bad business decisions Kia was making,’ Westmoreland said. ‘We did that to get them in here, to create the jobs, to create the taxes, to put economic development into the area.'” A distinction without a difference? Maybe not. Michigan has been throwing tax breaks at American automakers for lo these many years.
The AJC’s wider point is well taken. No, not the one about laissez-faire capitalism coming back to bite Delta or Lockheed-Martin in the ass. The bit about wages. “Even if you’re a prospective Kia employee, you might not want to see Detroit fall. Wages are lower in Southern auto plants, but they’re still tied to wages hammered out between the United Auto Workers and the Detroit Three, according to [assistant research scientist for the University of Michigan’s Transportation Research Institute Bruce] Belzowski. ‘Those people wouldn’t be making the money they’re making now if not for the UAW.'” And American cars might not be as expensive.
There is a difference. GA, AL, MS, TN, SC, etc. really want to build a 21st century automotive industry, and are willing to pony up their own cash to make sure it happens in their state. MI, OH, etc. want to prop up a dying 20th century automotive industry – not with their own STATE funds but with federal funds – i.e., everyone else’s money. The wisdom of state incentive packages is for another post, but there are real differences between an incentive (getting something attractive) and a bailout (saving something that’s not working).
Actually – it would probably make sense for the southeastern states to keep the Big Three and MI/OH on life support. Every year that goes by with those companies and jurisdictions so insanely uncompetitive is another year the southeastern states can easily score more plants, suppliers, etc. and build their own critical mass.
For decades Michigan has had a net loss of tax dollars going to Washington, with more dollars going to Washington than coming back in the form of federal spending. I’m no fan of pork (my rabbi wouldn’t approve) but the Michigan congressional delegation has done an abysmal job on securing federal projects for this state. Carl Levin sat on the Armed Services Committee while they closed K.I. Sawyer and Wurtsmith Air Force bases and moved 100% of M1A1 tank production to General Dynamics’ plant in Lima, Ohio (originally the Abrams tank was produced in Warren, at a plant close to the US Army Tank Command facility, which itself has been reduced to pretty much a purchasing dept concerned with sourcing pickup trucks).
Where were Michigan’s tax dollars flowing? To military bases and space and defense contractors in the sun belt and south. Rep. Westmoreland’s and Sen. Steele’s state raked it in. They got theirs, now they don’t want to give it up.
Why should they “give it up” to a failing business? A 25 billion dollar bailout of a dysfunctional publicly traded company is nothing like a BRAC closing.
There is a difference. GA, AL, MS, TN, SC, etc. really want to build a 21st century automotive industry, and are willing to pony up their own cash to make sure it happens in their state. MI, OH, etc. want to prop up a dying 20th century automotive industry – not with their own STATE funds but with federal funds – i.e., everyone else’s money.
Wow. Just, wow. If we are to have a discussion about what different States want to do with whose money, let’s look at what States send to the U.S. Treasury versus Federal Spending received in the States.
Michigan has been a “Donor State” forvever, and remains so to this day (notwithstanding recent economic developments). But for our purposes here, let’s just look at the average Federal pay in/receipt differential from 1981-2005:
MI $0.81
GA $0.99
AL $1.41
MS $1.67
TN $1.16
SC $1.26
So, how about we give Michigan what it has overpaid in just the past 25 years, and let Michigan’s Governor be a Manufacturing Czar with respect to these paid back “bailout” funds? Unfortunately, the “Right-To-Work” States would have to start paving their own roads, funding their own schools, and paying their own freight in general.
Another point to consider is that the market has shrunk from 17 million units per year to 11 million. That’s had a large impact on the burn rate. No one planned for that, not in any industry.
joe :
TTAC called it. We ran several editorials on the “automotive bubble” created by The Big 2.8’s over-production and easy credit. When GM revised their U.S. sales estimates, and revised them again, and revised them again, we called BS every time.
If TTAC, a bunch of armchair analysts caught it, why not the paid professionals in Detroit?
Detroit Todd,
Louisiana, which has been in the top quartile except for one year since 1992, long before Katrina, is now getting $300 billion in spending to rebuild New Orleans.
Bailing out Detroit is said to be rewarding bad decisions, while we pay to rebuild a city that’s already under sea level.
I guess that Bourbon Street and the French Quarter are more vital to our national interests than a domestic auto industry and supply chain.
Maybe, instead of building machine tools used in the production of smart weapons, we should throw beads at our enemies and ask them to show us their tits.
Detroit Todd:
If the question on the table was “how do we help the Rust Belt transition into a 21st century economy,” I would be amenable to federal money being provided to help people affected – premium unemployment compensation, tax breaks, state aid, etc. – so long as Michigan or Ohio reforms its regulatory and tax structure.
But that’s not the issue. Bailout proponents want to give all that money – 25 billion in one shot! – to a handful of PRIVATE COMPANIES that have no track record of wise or efficient business practices, with no guarantee that the companies will be accountable for the money. The economic environment that caused the need for the bailout will still be there in 2009 or 2010 when the money runs out – high taxes, crushing UAW contracts, stupid regulations, foreign competition, and hit-or-miss products.
It is absolutely telling that some on here instinctively equate “funding the Big 3” in Michigan with funding government programs in other states. The Big 3 are not government programs – they are private businesses that can actually fail – as opposed to a theoretical exercise. When would you let these businesses go bankrupt? Is there ever a scenario where a bailout would not be appropriate? Or is it our duty as American citizens to prop up the Big 3 forever?
nm
At least NOLA had an act of God to blame – what’s Detroit’s excuse? The Lions? Hurricane Coleman Young?
Everytime I bring up rebuilding NOLA, FEMA’s flood insurance or California’s earthquake insurance, folks respond with the “act of God” argument.
My point is that people who build on flood plains or on fault lines can’t blame an act of God – they can only blame themselves. They made a bad decision in siting their homes where they shouldn’t build and they want the taxpayers to indemnify them from the consequences of their own actions. This is taxpayer money going to PRIVATE CITIZENS that already have a track record of unwise decisions. GM might fail or it might survive. The Mississippi River will flood again.
Regarding NOLA, my point is not why we are rebuilding NOLA, Katrina, it’s the fact that we are rebuilding NOLA to begin with, at least in its present location. The city is located under city level. NOLA will flood again, like that Cajun potato chip guy said, gare-rone-teed.
I see both situations as analogous to the bailout, whose critics say there is no guarantee of success, only in the case of those who build on flood plains or in New Orleans, there is no chance of success at all. There will be more floods. The taxpayers will pay again.
At this point, Washington has a huge deficit when it comes to spending money in Michigan. We’ve seen billions and billions of our tax dollars flow to other states. Washington is a black hole that sucks up our money, depositing it south of the Mason Dixon line. This was a problem long before the decline of the domestics began. At this point, I don’t care if that money comes back in the form of porkbarrel projects or in assistance to private enterprises. Bottom line is they owe us.
Bozoer Rebbe:
I see your point regarding NOLA and California, I would add there are plenty of other areas that just get rebuilt over and over even though nature tells us we should just build somewhere else.
Instead of continuing this shortsited foolishness, I think our country needs to come to terms with how we approach throwing money at problems that could have been avoided.
So if we were to continue this policy of throwing good money after bad, it sure seems like it is Detroits turn to receive. But, I don’t see any argument why that makes it sensible or right to bailout GM with no real clear plan how they will be better off 5 or 10 years from now.
So, how about we give Michigan what it has overpaid in just the past 25 years
Of course, those Southern states that you’ve listed have been poorer than Michigan for most of the past 25 years, and going back further than that. Some of them are starting to catch up, but Mississippi and Alabama are still the poorest states. The way the federal government works, the rich are taxed to pay the poor.
From these Southern states’ perspectives, Michigan had all the nice, high-paying jobs for years. I didn’t see Michigan politicians and workers asking for the Detroit companies to site plants in the South; no, Michigan was perfectly happy to have the highest wages in the nation back in the 50s and 60s and let the South be poor. Added welfare transfer payments didn’t make the South rich; it would have been better to have the jobs. Wage rates at plants in the South may be influenced by union contracts, but if it were the Detroit companies’ and the UAW alone, there wouldn’t be plants in the South at all and those workers wouldn’t have those jobs.
Now, to some degree high cost of living states can get screwed compared to low cost of living states, since $50k in one state doesn’t buy you the lifestyle it does in another. But since most of the difference in cost of living is thanks to particular states’ own policies (especially local zoning and regulations affecting the cost of housing), there’s some blame to go to the high cost of living states as well.
“how do we help the Rust Belt transition into a 21st century economy,”
We have some things going for us that the south does not. Our colleges are still far better, even though Clemson and a few others are starting up automotive programs…they are still light-years behind University Michigan Ann Arbor, NW and U of Chicago. Education is still a HUGE priority in the Midwest, at least at the college-level and will continue to be.
R&D will remain massively strong in the Midwest for years to come even if the Big 3 were to go under. R & D simply doesn’t need as much manpower as it once did. John Tamny, the nub you see on the news spouting off made the remark that GM would be better off relocating to NYC or SF in order to find engineers….crack is a hell of a drug, isn’t it John T?
We will see American States competing with one another more than ever before. Many states in the South are simply beneficiaries of the industry that Detroit largely created. I see Michigan evolving ahead with Dow and investment in foreign/Asian firms. Maybe it won’t be automotive but will involve engineers. Put it this way, we pay these assholes from Hollywood to come and make movies here….why ant we pay high-tech firms to come here? Tennessee basically gave VW $600 million to build one farking plant.
For all of the above making note of state transfer payments to the feds, you ignore Social Security and pensions. And the retirees who happily vote with their feet to leave high tax bluer America for lower (or NO income tax) redder America.
Anyone with a decent amount of wealth and half a brain doesn’t retire in NY, MI or any high tax state
Regarding the first comment, the divide isn’t rust belt vs. sun belt. It’s union vs. non-union. Most of Honda’s US assembly jobs are in Ohio and they’re building a new assembly plant in Indiana. Toyota and Subaru also build vehicles in Indiana. They avoid union stronghold urban areas like the plague, but Japanese auto companies will build plants in rural parts of Ohio and Indiana.
The flip side of this are the GM plants building Tahoes in Arlington, TX and Malibus in Kansas City, KS. They didn’t get the memo about picking rural plant locations, but even Detroit based companies have shifted manufacturing work away from union strongholds and toward right-to-work states.
http://en.wikipedia.org/wiki/Image:Right_to_work.svg
A Kia plant? Wow. Kiss GM goodbye.
Farago, there’s a good possibility the paid analysts in Detroit didn’t catch it because *that’s* what they were being paid to do: not catch it. There are plenty of Republicans out there who still blame Charles Schumer for bringing down IndyMac because he pointed out the fact that it was irretrievably insolvent. They even think George Bush’s meaningless gesture of an executive order opening up the US to more oil drilling even though Congress never acted is solely responsible for oil prices falling over 60%.
The point is some people think that as long as you don’t acknowledge something it isn’t true.
It wouldn’t surprise me to learn that the Republicans have been using their time in power to shovel cash to their southern power base. And George B, lower taxes don’t keep you warm. Sunshine keeps you warm. That’s why people retire to the sun belt.
University Michigan Ann Arbor, NW and U of Chicago
This has always puzzled me. These are very fine universities but why is the upper mid-west unable to start up new industries to replace those lost to the auto industry? Where is the high tech? Things like electronics, software, pharamceuticals, telecommunications, biotech are all located elsewhere. Couldn’t these states and universities see the writing on the wall and begin a change over to other industries? Or am I overlooking some hot new sector emerging in the upper mid-west?
State taxes tendered over to universities (public and private) are almost always given with the idea that an educated workforce will support economic success. What happened?
I guess that Bourbon Street and the French Quarter are more vital to our national interests than a domestic auto industry and supply chain.
Maybe, instead of building machine tools used in the production of smart weapons, we should throw beads at our enemies and ask them to show us their tits.
A good example of why TTAC is the only site where I read comments.
There is so much misinformation out there that it is particularly discouraging to see.
I saw Alabama Senator Shelby’s comments Sunday on the network talk shows. Someone needs to tell this guy that the auto industry in this country is very incestuous – the non-Detroit automaker plants in his state are using suppliers that also supply Detroit’s 3 auto companies. More than one industry analyst has pointed out the risk of a Detroit 3 bankruptcy, such as what people are advocating for GM, financially crippling a shared supplier, such as Lear, Johnson Controls, Metaldyne, Delphi, or Inteva Products, all of which operate in Alabama, any one of which has a high likelihood of failure in the even of a GM bankruptcy. In this business climate of tightened credit, it’s extremely unlikely that financing to buyout or otherwise rescue one of these companies could be put together quickly enough to forestall a shutdown of one of Alabama’s car plant, plain and simple.
With the market hit only the 11 million units sold level, and some are saying only 10 million, no one is going to make money, evidenced by Toyota’s $336 million dollar loss in North America last quarter. A bankruptcy by any North American automaker would cause months long layoffs in the supplier community, causing people in businesses affected, and communities affected, to put off buying cars from any North American automaker, increasing recessionary pressures, and spinning off more layoff. Not good by anyone’s definition.
The “failed business model” comments are the product of misinformation. The most recent contract with eh UAW brings labor costs down to within striking distance of Toyota, as of January, 2010. http://www.boston.com/business/globe/articles/2007/10/05/gm_pact_cuts_pay_in_half_for_those_in_noncore_jobs/
and
http://www.newsvine.com/_news/2007/11/02/1069322-ford-uaw-reach-tentative-contract-deal
Because of the current credit crunch, they need a bridge loan to make it that far. Big deal. And considering last quarters $336 million loss by Toyota, the fact that they paid their employee more than the Detroit 3 shouldn’t go unnoticed.
http://www.autoblog.com/2007/01/31/toyota-workers-in-us-made-more-than-uaw-members-for-first-time-l/
Nissan in Tennessee and Mercedes in Alabama are both offer $100,000 buyouts to their employees, and Toyota is paying their San Antonio, Texas truck plant to not build trucks, shades fo the Big 3.
http://www.statesman.com/business/content/business/stories/other/10/11/1011toyota.html?cxtype=rss&cxsvc=7&cxcat=3
This is a serious problem with the economy, and if any of these companies are allowed to enter Chapter 11, I think we’ll see a much deeper recession than we’re looking at already.
I saw Alabama Senator Shelby’s comments Sunday on the network talk shows.
Shelby is a caricature. That’s why he’s getting exposure. The MSM loves no one more than those who make over-the-top statements and engage in sheer hyperbole.
Over the last couple of decades, one in five manufacturing jobs in NC have been lost to overseas competition (wikipedia). We’ve survived. Could of used some help a few years back, though.
Lewissalem brings up an excellent point….where was the outrage and concern when the US textiles industry or furniture manufacturing industry was collapsing?
You can’t even buy underwear made in the US anymore, but it is suddenly okay to throw tax money at a handful of automotive manufacturers? Puh-leese.
At least one of the Detroit 2.8 won’t be around this time next year, bailout or no bailout. A sea state change has occurred, and throwing money down a rathole will not change that.
“$300 billion in spending to rebuild New Orleans”
Which city is mathematically certain to get swamped in another hurricane someday in the future. A city below sea level situated between a massive lake and an ocean with known seasonal hurricane activity is not a sustainable scenario. Oh yeah, and don’t forget the receding shoreline.
I would be ok with the Feds being the debtor in possession funding source if a real house cleaning restructuring of GM were in the works, but is anyone really talking about that? Also, is this really an industry bailout being talked about … or a GM bailout with a Chrysler liquidation thrown in?
Finally, does anyone believe $25B is the end of it? Speaking of which, how the bleep is AIG consuming over $100B in taxpayer money? What exactly is being done with that massive pile of cash?
How many people in the US based auto industry raised a shout when the textile and furniture industries packed up their bags and move offshore, leaving the southern states screwed over? Don’t be surprised that those same states which are now enjoying some transplant success don’t feel very bad for the midwest. Then again, the furniture industry in the US was mostly based in Michigan before it retreated to the south.
However it sorts out, the trend of buying massively more stuff from foreign countries than the US sells to them has run smack into the brick wall of reality. I don’t care much how the shareholders are distributed around the globe, but we need to make more of our own stuff in the US of A. I don’t think Red Ink Rick agrees with me though.
A little accuracy to the posts about the South:
Katrina did not just damage NOLA.
The French Quarter, which includes Bourbon Street, (it is a street in the Quarter) was not affected much.
The Mississippi River did not flood.
The beads and tits crowd at Mardi Gras is, in large part, tourists. That includes many from Michigan.