What About The Government “Bailout” Of Foreign Auto Makers?
Posted in: Auto restructuring
Last night I was on Fox Business News with Neil Cavuto, talking about — among other things — the domestic auto industry bridge loan. He asked if liberals were in favor of the "bailout" in support of the unions. I said I personally supported it as part of a level playing field, considering the government subsidies that foreign auto makers have enjoyed on these shores of late.
In his November 20 press conference (PDF), the UAW’s Ron Gettelfinger spoke about the "incentives" foreign auto makers have received from red, right-to-work states where unionizing is legally restricted and unions practically nonexistent:
Since 1992, states where we have transplants have located have put in over $3 billion dollars in incentives and I would point out that is the money that the state settled for and I want to go specifically to Alabama if I could for a minute. 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 was the same price or cost to them of building a facility.
So we can support our competition but we can’t support an industry that is in need? And this need was not brought about because of what the industry has done.
In his remarkable book Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense [and Stick You with the Bill], David Cay Johnston of the New York Times writes about the fiction that local small business are at a competitive disadvantage to WalMart because of a big box store’s ability to buy in bulk. In fact, WalMart regularly goes into communities and demands subsidies to build in the area such that they keep the sales tax they collect and don’t pay property tax. Local businesses, with no such tax advantages, must charge higher prices to make a profit and quickly start going out of business.
The domestic automakers are struggling under the same burden against their foreign competitors with the subsidies they receive. I asked Johnston about the situation, and he responded:
The current Detroit bailout debate has the Washington source-dependent press corps reporting that the Michiganders are seeking favors, but not the Alabama/South Carolina/Tennessee/etc. crowd, ignoring the huge state subsidies to foreign-owned auto plants, the implicit subsidy in federal law that makes union organizing almost impossible and the advantage that new plants have over older ones. I get sooooo frustrated at the awfulness of so much DC coverage…..which could be cured by actually reading the voluminous public record, resulting in less reliance on access to sources.
The journalistic coverage of this story has been truly awful, largely framed by anti-union zealots like Alabama’s own Richard Shelby, who decries Detroit’s "failed business model" but has vigorously fought every attempt to raise CAFE standards that could have made the industry more resilient against fluctuating gas prices.
Anyway, I had fun on Cavuto. He asked good questions, listened to my answers and I got to make the case about subsidies to foreign automakers on TV, which I never thought I’d be able to do — and certainly not on Fox Business News.