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On “Meet
the Press” Sunday November 16, 2008 when Alabama Senator Richard
Shelby was asked about if a bill to provide a government loan to the automotive
companies could get done in this session of Congress, he replied “hope
it won't get done because I think it's a waste of taxpayers' money. It's
throwing money down the drain, and it won't work in the long run. It's
postponing the inevitable. Remember that.” Earlier in the program
Shelby stated “They're a dinosaur, in a sense (talking about the
auto industry), and I hate to see this because I would like to see them
become lean and, and hungry and innovative. And if they did and put out
the right product, they could survive. But I don't believe the $25 billion
they're talking about will, will make them survive. It's just postponing
the inevitable.” These are odd statements from an elected official
in state that ranks sixth nationally in the number of automotive related
jobs. According to the Alabama Automotive Manufacturer’s Association,
in 2006 there were 134,000 direct and indirect jobs in the auto industry
that generated a payroll of $4.8 billion in 2005. These wages made a significant
contribution to the state through state income tax and through sales tax
as those wages were spent, not to mention the amount of federal income
tax paid through those wages. This doesn’t even factor in the corporate
taxes paid by the 263 automotive manufacturing plants in the state.
A bankruptcy by any one of the Big Three would result
in a domino effect that cost over three million jobs and $150 billion
dollars in tax revenue according to a number of automotive experts. Because
the automotive industry is inter related through suppliers, the trickle
down effect would result in massive bankruptcies of second tier suppliers
that would eliminate the supply chain to all U.S. manufacturers including
those located in Alabama –which by the way ranks second nationally
in the manufacture of vehicles right behind Michigan.
Business Week Magazine quoted Shelby as saying “"The
financial straits that the Big Three find themselves is not the product
of our current economic downturn, but instead is the legacy of the uncompetitive
structure of its manufacturing and labor force."
However, Senator Shelby is sadly misinformed on the facts concerning the
current financial crisis facing the Big Three companies. In 2006, the
UAW made concessions in their labor agreement to eliminate the cost disadvantage
GM, Ford and Chrysler faced with their rivals. Shelby has also stated
that the Big Three’s problems were the result of buying SUVs that
no one wanted. The Big Three simply reacted to public demand with the
production of trucks and SUVs. Toyota, Honda and Nissan were playing catch
up on trucks and SUVs when gasoline prices resulted in dramatic changes
in buying decisions by consumers.
The current issue facing the automotive sector is a result
of the credit crisis brought on through the failure of the housing market
and the subsequent limit of credit. The absence of consumer confidence
as a result of the credit crunch resulted in an abrupt halt to the purchase
of big ticket items such as automobiles. In October GM saw a reduction
of 45% in sales because of this scare. At the same time, the credit crunch
dried up the availability of loans hit the automotive industry. These
companies routinely borrow money for various expenditures such as product
development or new factories. The absence of the availability of loans
resulted in companies such as GM having to burn through their cash reserve
to operate. The reduction in their stock price has lowered their credit
rating to the point that banks that would lend them money are requiring
ridiculously high interest rates to loan the money. So, the automotive
sector is requesting loans from the government to allow them to work through
this downturn in the economy. The money will be repaid with interest,
not resulting in higher taxes for anyone.
During Richard Shelby’s tenure in the Senate, Alabama
has pursued a number of automotive manufacturers and their suppliers.
Mercedes Benz, Honda, Hyundai, Toyota and Volkswagen have all been courted
by the State, with promises of tax breaks and incentives that ran into
millions and millions. One has to pose the question,” did the honorable
Richard Shelby express his feelings that the auto industry was a dinosaur
whose demise was imminent?” I am guessing he did not. So, if he
didn’t, you have to ask yourself “is it only American companies
this patriot statesman feels are dinosaurs?” What about the foreign
automotive companies? Are they not dinosaurs as well?
When the time came for extinction came, all the dinosaurs
fell to the same fate. None were spared. In the current perfect storm
that is brewing for the automotive companies, as one species of dinosaur
falls, the domino effect will trickle through the industry, eventually
wiping out all the dinosaurs – including those species that seem
to be sacred cows to Senator Richard Shelby. He may feel that his foreign
friends are immune to the climate change, but just as the original dinosaurs
all fell, his will too. In the end, it will be the workers and their communities
who pay the ultimate price for Richard Shelby’s indifference to
the calamity that stands before this economy and this country.
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